Long on Rhetoric – Short on Facts

Steve Lucas

Posted by Steve Lucas on October 29, 2015

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Given that Oracle is hosting its annual customer conference this week, I thought I would refrain from any tweets or pointed public jabs. I know many smart, hardworking people there and generally think it’s a good company with some great engineers. That said, I’ve come to expect a few pokes at SAP as this has become an established tradition. But this year, in some of their executive keynotes, they managed to go beyond absurd. This compels me to set the record straight using facts, which, with all due respect, Oracle seems to be woefully short on these days. Even after all that, you might wonder why SAP is bothering to engage. We’re essentially responding to some of the questions our customers have asked after reading and hearing Oracle’s claims, so that we can bring actual facts to the conversation.

I’d like to begin with some indisputable recent financial results from both companies, as these tend to be a good indicator of where organizations are headed (i.e. Hundreds of Analysts analyzing your revenue AND strategy resulting in a series of measurable facts on which people can rely vs. just telling people “we’re better than everybody else”).

Even as Oracle leadership stood on stage this week and used the same tired line for the third year in a row: “We only see ‘Workday and Salesforce’ in cloud opportunities,” their most recent earnings report seemed to contradict their claim. Oracle’s cloud revenue grew by a meager 2.9% last quarter, which is certainly not enough growth to claim any sort of leadership position, given the relatively small size of their cloud business. To put Oracle’s collective landslide into perspective, their market cap is down from approximately $193B on Jan 1 of this year to roughly $163B as of October 28 th. In short, they’ve lost $30B in shareholder value because customers aren’t buying what they are serving up. I can’t help myself on this part, so I will apologize in advance: maybe Oracle is misinterpreting the steam coming from the “evaporation” of $30 billion dollars as leadership in the cloud. Definitely not the same thing.

Now let’s contrast that with SAP’s latest quarter – calendar Q3 2015. We grew our core software license business by 7% (4% @ cc) and cloud revenue by 116% (90% @ cc). It’s also important to note that our cloud business suite, comprised of best in class solutions like Successfactors, Ariba, Concur, the HANA Cloud Platform, SAP Cloud for Analytics, SAP Cloud for Customer (I could go on but won’t) is collectively a much larger cloud business than Oracle’s. So not only is SAP’s cloud business bigger in total, it’s growing in today’s currency (fact) in triple digits; outpacing Oracle’s cloud growth rate by 3x (even in constant currency it’s still 3x). It’s not difficult to assume that if SAP keeps posting these kinds of numbers, especially in the cloud, Oracle will continue to remain in a distant and largely irrelevant number three position in the cloud.

Sentiment on SAP’s execution in both software and cloud is resoundingly clear in our market valuation as well – SAP is up from a Jan 1 market cap of $83B to over $92B today. The financial bottom line – SAP is executing and generating value for shareholders, Oracle is not. Oracle may not like it, but that’s how the market works. To summarize my financial POV, perhaps when you’ve consistently posted the kind of poor quarterly results that Oracle has for the better part of this year, the best thing to do is attempt to distract customers and investors from the fact that your business—across the board—is struggling.

Now on the product front, I have to be fair, as Oracle did use one fact which I freely admit: SAP has acquired a number of Cloud companies recently that still run on Oracle today. This is true. But, to be perfectly clear, we have been, and are migrating ALL SAP cloud applications off of Oracle. Given that we have tens upon tens of millions of users of all our cloud apps, this will take a little while. We’ve made substantial progress with Successfactors already as the entire analytics portion of the application is running on HANA in the public cloud serving thousands of customers (To reiterate in case Oracle misses this, the keywords are Successfactors, HANA, Multi-tenant, Cloud, Today).

Trust me, we can’t migrate off Oracle fast enough as we’ve become all too familiar with the pain of operating data centers oriented around a legacy database like Oracle. And if you think we’re doing this just to switch databases, I would emphasize that HANA is more than a database, it’s a broader platform for innovation. Our goal is to deliver new capabilities in our cloud solutions that just aren’t possible using an Oracle database, not even a “fast” one.

Given the stark contrast in financial performance mentioned earlier, I think it’s reasonable to ask “Why is SAP doing so well while Oracle is struggling?” I believe the answer lies in the fact that while SAP continues to be the largest business software company in the world, thanks to our customers, we have not rested on our laurels. Our CEO’s agenda, which has SAP focused on product innovation and simplification, is paying huge dividends.

The product facts are:

  • We are taking market share and revenue away from Oracle with our in-memory data platform, SAP HANA (Thousands of Oracle customers have purchased SAP HANA in order to “make the switch”)
  • We have completely reinvented our core business suite software, known as S/4HANA, offering any business a simpler, faster way to run their organization end to end
  • We have a complete business suite available in the cloud today
  • We have successfully acquired and fully integrated the best in class cloud applications in the world, including: SuccessFactors for HR, Concur for Expense Management, Ariba as the foundation for our Business Supplier and Procurement Network, and Fieldglass for labor management
  • We have organically innovated and delivered new cloud applications, including: SAP Cloud for Customer, SAP Cloud for Analytics and our Business PaaS offering, the HANA Cloud Platform (Note to Oracle – all these run on HANA, in the cloud. On HANA. In the cloud.)
  • Last, and most notably, SAP has guided and is on track to deliver approx. $2B USD in cloud subscription revenue in 2015

In the world of software, the winner isn’t the person that shouts the loudest. If you deliver significant innovation and value to your customers, enabling them to achieve better business outcomes at a lower cost than your competitor, you win! It’s as simple as that.

Instead of proclaiming victory on numbers that clearly convey anything but leadership and winning, I think Oracle should stop talking and start writing good code.

That’s what we’re doing.

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