Oracle Buys NetSuite: Still Playing Cloud Catch-Up

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Mark Hurd: Oracle's entire software portfolio rewritten for cloud
Mark Hurd: Oracle's entire software portfolio rewritten for cloud

From one viewpoint, Oracle's $9.3 billion purchase of NetSuite, announced today, has an inevitable symmetry to it. Founded in 1998, with venture capital backing from Oracle co-founder Larry Ellison, NetSuite was one of the first—and is now one of the most significant—cloud-based, on-demand enterprise software vendors. It was created by an Oracle employee, Evan Goldberg; its current President and CEO, Zach Nelson, is a former Oracle executive; in its early days, it operated under license as Oracle Small Business Suite; and Ellison—directly, or through owned entities—has remained its major investor.

And yet: Larry Ellison is the Big Tech leader who, as recently as 2008, dismissed cloud computing as a mere fad. "The computer industry is the only industry that is more fashion-driven than women's fashion. Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?"

The truth, of course, is that Oracle has steadily, and not too stealthily, been playing catch-up with the cloud ever since. To a point that current co-CEO Mark V. Hurd could claim at OpenWorld last year that Oracle's entire software portfolio had been rewritten for the cloud ("98 percent, anyway," he said; and maybe they've tidied up that last two percent in the meantime).

But if Oracle is sitting on top of a fully developed, cloud-based set of software products, why this conclusive embrace of NetSuite? After all, NetSuite's product portfolio (cloud-based ERP and CRM, B2C and B2B eCommerce platforms, and Business Intelligence) looks very much like the product portfolio Oracle is already offering on an on-demand basis (Oracle ERP Cloud, Oracle CRM software, and so on). 

One perspective might be that, despite Hurd's announcement that (just about) all Oracle's products are now cloud-based, the brand's customers are not yet taking advantage of that fact. Revenues from cloud-based software remain relatively trivial in the context of Oracle's overall earnings. Although the company's Q4 2016 report showed impressive percentage growth in PaaS and SaaS revenues, total cloud revenues of $859 million represent a drop in the overall bucket of total Q4 revenues ($10.6 billion).

All of which means that, even if Oracle is now credibly competing with SAP for cloud ERP dominance, and in a number of markets with a pure cloud company like Salesforce, it has a long way to go in convincing its own customer base to make a wholehearted commitment to on-demand software. Acquiring a player of NetSuite's historic and continuing importance in the space can only give impetus to Oracle's cloud journey.

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