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Cloud was the first big disruptive change in enterprise IT in many years. For the scope of change, the conversion was really fast and fairly, if not fully, smooth. Despite some initial security concerns, cloud made rapid entries into the enterprises, thanks to the zealous CFOs who were swept off their feet by the impressive change it made to the balance sheet and the smart business managers who exercised their ‘opex’ spending power to deploy point SaaS solutions. This is just to recapitulate the old story.
For enterprise tech vendors, it was a different story, though. It meant their ‘settled’ business model became outdated—at a much faster rate than they could make up for by the new solutions.
There was no choice but to embrace the cloud.
Oracle took to it reluctantly; SAP followed a two-tier model, championing cloud in the comparatively lesser penetrated SME market while sticking to the old licensing model in enterprise; IBM had no choice, while it was well positioned to take advantages of cloud in smaller software business, it was a challenge for the hardware and service business. Microsoft, under Satya Nadella, unambiguously chose the cloud path.
For each of these four companies that have announced their results in the last few days, this quarter has seen the most definite affirmation of that cloud transition paying off.
That is extremely important—not just from the investors’ point of view, but from the enterprise IT managers point of view as well.
This is why.
Despite the fast cloud uptake, much of the enterprise still runs the legacy IT. Add to that the fact that few new companies who are creating software for cloud are looking at creating end-to-end enterprise software. So, whether you work on cloud or in-premise software, you are going to need the big guys and their worsening health is not a good sign for the market in general. Add to that the new ‘hybrid’ mania, which essentially is scrambling for deploying private cloud and you are going to see much more of these companies in the game.
Oracle’s was the sharpest U-turn. “We’re very excited about the potential for Oracle with the combination of PaaS and infrastructure as a service for our huge installed base of database customers and helping them move to the cloud,” said Larry Ellison, Oracle’s CEO, in the earning call, last month. Oracle’s year ends in May and this was the Q4 revenue. Ellison had rejected the entire cloud thing as a fad, just a few years back.
His words match the performance as the company reported $859 million of cloud revenue in Q4, including SaaS, PaaS and IaaS. That is an impressive 8% of the revenue in Q4 and a growth of 49% in USD. The SaaS and PaaS revenues grew at an impressive 66% to reach $690 million. For the year, Oracle reported cloud revenue of $2.9 billion, up 36%. This, even as licensing software revenue and hardware revenue fell.
It comes in the wake of Oracle being accused of inflating cloud revenue by an ex-employee. The negative publicity saw share pricing sliding significantly.
"We expect that the SaaS and PaaS hyper-growth we experienced in FY16 will continue on for the next few years," said Ellison. "That gives us a fighting chance to be the first cloud company to reach $10 billion in SaaS and PaaS revenue,” he added.
If Oracle’s is a U turn, IBM was ambivalent in the beginning. The company, which is going through a tough time with more than ten quarters of continuous decline in revenues, had another declining year but still beat analyst expectations. Again, cloud came to the rescue. Even as total revenues fell 3%, cloud—one of its three strategic imperatives—saw 30% increase in revenue. The company’s trailing 12 months revenue from cloud was USD 11.6 billion, with 60% of it coming from cloud on-demand services.
SAP, which is still scoring well on its license software revenue, still saw a 33% rise in cloud revenue.
And finally, Microsoft, the greatest transformation story in enterprise tech, which under Satya Nadella, is becoming a cloud company, saw 100% year-on-year in overall cloud growth, including SaaS for its Office commercial and consumer products, Dynamic products and intelligent cloud.
In fact, this earning session could well be labeled “the cloud session”, considering that is the common narrative from each of the major vendors; and this time it is backed by performance and promise, not just the latter.
That leaves one company, Hewlett Packard Enterprise. Exact cloud revenues are not available, but according to market research firm Synergy Research Grpup, HPE led the cloud hardware market, leading in the private cloud hardware market significantly, while running just behind Cisco in public cloud hardware market.
In short, the transformation to cloud—this time by the suppliers—seems to be complete. But as they say, it is never a destination; it is a journey. Watch this space.
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