Really, I’m not obsessed with cloud computing! I’ll try to write about something else next.  However, I wanted to reply to a post from Chris Keene, titled: “Larry Whistles Past the (Cloud) Graveyard”.  Chris writes:

“Larry’s rant is an extraordinary example of whistling past the graveyard. Oracle’s huge transformation over the last 10 years has been from an infrastructure company (databases & middleware) to an applications company (ERP, CRM, SFA ect). Now, just as this transformation is completed, along comes an infrastructure that will obsolete all the applications Oracle just got done rolling up.”

I agree that Larry’s rants sometimes distract from the real discussion.  However, I don’t agree that SaaS/Cloud is a magic bullet, let alone the only answer for customers.

A point that Chris doesn’t make explicitly, but I’m sure he has considered is what it would take for Oracle to become a SaaS/Cloud player.  It would be extremely expensive for a vendor like Oracle to build new SaaS-based apps alongside their current apps.  But Oracle has an ace up its sleeve, namely, the average customer’s willingness to migrate core business applications.  Hint: willingness is very low, considering how painful migrations are.

Over the next decade Oracle will have to balance spending R&D dollars on their current applications (i.e. non SaaS-based) and on new applications designed from the ground for a Cloud/SaaS environment.  What portion of their R&D will Oracle invest in the latter?  Play a game with me.  Imagine Larry et al. trying to explain missing quarterly targets because “we are investing in the right products for 5 yrs from now, that won’t drive substantial revenue anytime soon”.  What would happen to their stock?  A more realistic option is for Oracle to follow a BAU approach with their R&D and products. Then, as SaaS/Cloud really begins to negatively impact revenue, Oracle will acquire SaaS/Cloud vendors.

When this occurs, Oracle will offer significant customer choice.  If a customer isn’t happy with traditional Oracle Apps, and wants to migrate to a SaaS platform, Oracle will have an answer.  The “Customer Choice” card is not a new strategy, I’ve written about it in the past.  It works.  Customers are a lot more nuanced than the black and white, for-vs-against SaaS, open source, maple syrup etc., figures we like to paint.

If you take this thesis to be true, then vendors that win, will have to offer both choices to customers.  Sorry to say, but in these types of games, the incumbent tends to win.  On the other hand, incumbents tend to win via acquisition. Incumbetnts acquire startup competitors that took the different approach to serving the customer.  To me, this seems like a win-win game.

What do you think?