In late September, prior to Oracle Open World, Oracle (NYSE: ORCL) held an event to announce its consumption pricing model of Universal Credits and the ability to reuse existing software licenses across Oracle’s Platform as a Service (PaaS) middleware, analytics, and database offerings. The Universal Credits represent a fundamental change in cloud pricing as they will allow Oracle Cloud customers to switch between Oracle’s IaaS and PaaS services. In addition, Larry Ellison also unveiled a “self-driving” database that would greatly reduce the cost of administration.
To drive home the cost message, Larry Ellison promised that Oracle’s cloud database would be half the price of AWS Redshift and that and “Oracle will be providing SLAs that guarantee those cost savings.”
Amalgam notes that this change provides a clear market differential from Amazon Web Services, the current leader in cloud IaaS revenue. On October 26th, Amazon (NASDAQ: AMZN) announced AWS revenue of $4.58 billion and operating income of $1.17 billion for the previous quarter. This income makes AWS a clear outlier among Amazon’s offerings as Amazon only reported operating profits of $347 million for the last quarter, making non-AWS operating “income” negative $800 million for the quarter.
So, Amazon is clearly running a profitable business in AWS and doing so by providing extremely granular billing across a wide portfolio of services. In early October, Amazon added to that granularity by adding per second billing for EMR, EC2, and EBS to reflect how quickly these costs can escalate.
But Amazon isn’t the only cloud provider announcing record revenues by a long shot. Right now, a Big Five of public cloud vendors are emerging.
Microsoft’s October 26th Q1 2018 earnings release featured Intelligent Cloud quarterly revenue of $6.9 bilion, including server, cloud services, and enterprise services revenue. Azure revenue was up 90% over last year and Amalgam estimates that Azure’s annual revenue run rate is now in excess of $4 billion.
IBM announced on October 18th that cloud was now 20% of IBM’s total revenue and that cloud revenue over the last twelve months was $15.8 billion, consisting of $8.8 billion in as-a-service products (growing 20% year-over-year) and $7 billion in implemented hardware, software, and services for hybrid cloud deployments.
Alphabet (NASDAQ:GOOG) does not directly announce cloud revenue, but lumps cloud into an
“other” category that has been growing over 40% per year based on Q3 2017 results announced on October 26th. Based on multiple sources and estimates, Amalgam believes that Google Cloud revenue is growing over 80% per year and has broken $1 billion in Annual Recurring Revenue.
Amalgam believes that each of these five vendors (Alphabet, Amazon, IBM, Microsoft, Oracle) still have strong opportunities in supporting public and hybrid cloud deployments. Even with the massive cloud growth taking place, cloud IaaS still makes up less than 20% of total annual data center spend, providing significant future greenfield for cloud migration and giving Oracle an opportunity to enter this market in earnest. No one has ever doubted Oracle’s ability to enter a market, run a business at scale, or to execute on Larry Ellison’s biggest goals. Right now, the cloud market looks like Ellison’s last chance to fundamentally transform tech markets again and Ellison has always put on a show for the enterprise technology markets.
In light of this growth, Oracle’s pricing decision to Universal Credits and the simplification of cloud billing is an important one for Microsoft, IBM, and Google to consider. The Cloud Megavendors have a big decision to make in deciding whether customer-centric friendliness comes from providing granular visibility or operational flexibility. Amazon and Oracle currently represent the epitomes of these contrasting schools of thought in pricing cloud services. Oracle’s pricing gambit has added an additional dimension of competition to this emerging and quickly growing market.
Amalgam’s Take: With Oracle’s aggressive positioning, pricing, and pursuit of the public cloud, the war for public cloud supremacy has begun in earnest. Amalgam believes that IBM and Microsoft should push their pricing models closer to Oracle while Google is more culturally set on providing function-specific pricing in line with its core business and engineering DNA.