Digital transformation is prompting many businesses and organizations to migrate to the cloud and Software as a Service (SaaS) applications. SaaS benefits, including exchanging IT CAPEX for OPEX, alleviating the burden of software maintenance from in-house IT resources, and less risk when technology advances or requirements change, are driving that migration.
Oracle sees a significant opportunity in the SaaS market – and plans to take advantage of it. In an interview with Bloomberg Television, Oracle CEO Mark Hurd explains the $125 billion software application market will grow as on-premises applications move to the cloud – possibly tripling — as it takes share from other parts of the IT market. “(SaaS) does all of the server work, all the operating systems, all the database work. It’s the data center, and it’s the people,” he says. “For us, we think it’s an amazing opportunity.” He says Oracle has been growing it’s application market over the past eight to 12 quarters by double digits, as well as maintaining its position as the leader in ERP and now leading in HR as well.
“Today there is no one with more than 50 percent market share. The highest application percentage of any company in any segment is mid-20s. This generation will see a leader that’s much more material than that. And I volunteer us to do it,” Hurd says.
Is M&A in Oracle’s Future?
Hurd told Bloomberg Television that although Oracle did some M&A years ago to advance, an investment in research and development is now a more likely scenario. “Any time you buy a product it has a different user interface and has a different workflow, which may mean that it stands alone – we’ve had competitors who have done that – but in some cases, it means you have to rewrite it anyway,” says Hurd. “With the size of our organization, in many cases it makes more sense for us to extend our portfolio through R&D.” Hurd says Oracle’s recent acquisitions have been focused on applications for discreet verticals.
In Oracle’s March 14, 2019, Q3 earnings call, CEO Safra Catz said, “Our software business has remained extremely stable and resilient as we have made the transition to faster growing SaaS business that entailed trading nonrecurring upfront license revenue for recurring long-term subscription revenue.”
She added that through the adoption of Autonomous Database and Oracle Cloud Infrastructure (OCI), the company is shifting the focus for infrastructure business to the cloud. “As a percentage of our total software business, cloud is now more than double what it was just three years ago and provides us with the ability to accelerate overall software revenue growth as this mix shift continues,” she said.
A Key Takeaway for ISVs
With Oracle working to make its customers’ digital transformation and cloud migration easier with a fully integrated suite of products that cover all the bases, you may be asking where your products fit in. Even if your application is designed for a specific vertical market with features your clients would be hard pressed to find anywhere else, it may not be acceptable to your clients if it doesn’t integrate with their ERP or other business systems.
As businesses now navigating through cloud migration and digital transformation become accustomed to the ease of use and maintenance that integrated systems offer, we may soon enter an era in which siloed applications no longer have a market.