Oracle’s Hurd Bullish on Cloud Business, Says Enterprise Market Largely Untapped

Oracle co-CEO Mark Hurd said enterprises have yet to spend most of the money they will eventually spend on cloud services that will replace their on-premises data centers, implying that even though Amazon Web Services has a massive lead in the market today, its market share is large compared to competitors but tiny compared to the market’s potential size.

He made the comments during a recent media event at the company’s headquarters in Redwood City, California, where he was interviewed onstage by Recode’s Kara Swisher. The conversation focused largely on the enterprise cloud market and Oracle’s role and aspirations in the space.

Cloud Data Center Spend

Cloud services is a capital-intensive business; the likes of Microsoft and Google have been spending in the neighborhood of $10 billion each annually to build out the data center infrastructure for their global cloud empires. At an event earlier this year, Hurd told an audience that because Oracle had faster servers, the company didn’t need to spend as much as its competitors on data centers.

At least one of those competitors called his bluff publicly. There’s little indication that Oracle has cloud hardware that’s superior than the hardware that runs in Amazon, Microsoft, or Google data centers, and many of the top engineers that designed Oracle’s new cloud platform came from those competitors’ infrastructure teams.

Hurd’s answer to the capital question was less heavy-handed this time around. He acknowledged that despite investors’ wishes big capital expenditures were unavoidable for a company that wants to play in the space, but added that it is possible to use technology to cut that Capex by half, or even by three quarters:

“If I do something technically, I might be able to halve my Capex cost. I might be able to turn it into a quarter. If I multi-tenant my database, if I put it in memory, if I multi-tenant my middle tier, I can actually shrink the number of data centers I need and actually shrink my Capex at the same time. I need capital, but I also need innovation, and I need technology.”

Oracle decided to “go at this hard three or four years ago,” Hurd said, referring to the company’s recent ramp-up in investment in its cloud business. That investment included a big push to build a new cloud platform and launch data centers to host it.

“We made the decision to build all of these global data centers to deploy this technology and to do it fast. We invested in incremental R&D. Our R&D six years ago was $3.7 billion. It’s now over $5 billion.”

Some wholesale data center providers in the US benefited from the recent spike in data center spend by Oracle. In 2015, the company reportedly leased about 25MW of wholesale data center capacity in Northern Virginia alone (Northern Virginia is America’s largest data center market, home to more cloud data center capacity than any other region). In 2016, it was one of the two companies that leased the most data center space in the US. The other one was Microsoft.

A Poster Cloud Deal With AT&T

Hurd expanded somewhat on the big cloud deal Oracle recently closed with AT&T. The American telco has been a big Oracle database user for a long time, according to him, and will be moving that data to the Oracle cloud platform.

“I think they have in excess of an exabyte of data, which is you ask how much, it’s just a lot. They have it in a lot of Oracle databases, and some of those Oracle databases are actually really big Oracle databases, and so what we’ve come to as an agreement to really bring all the benefits of Oracle out to AT&T, and we’ll work together collaboratively as we migrate those databases to the Oracle cloud.”

AT&T will also be taking advantage of some cloud applications by Oracle, starting with the field service app, which will automate the process currently done by the telco’s 7,000 or so technicians.

“The First Inning”

The run rate of Oracle’s cloud services business today is north of $4 billion, Hurd said, and that its current growth rates will get it to $10 billion “relatively shortly.”

While highlighting growth of Oracle’s cloud software business, Hurd indicated that rather than placing a particular focus on a single layer of the enterprise cloud stack, his company is going for a comprehensive play:

“…we’re coming in with more of a complete stack, applications, platform and infrastructure.”

In comparing Oracle’s performance in the overall cloud services market to Amazon, Microsoft, and Google, Hurd said his company – often perceived as a late comer in the space – had for a long time been focused on cloud applications and now was building out the infrastructure to support that business.

He said it was difficult for cloud providers to get to even $50 billion of the trillion-dollar enterprise technology market today to highlight how big the overall cloud opportunity is and how little of it has been tapped so far, even by the leading cloud providers.

“I would say we’re in the first inning of all this.”

He repeated a forecast he’s made before, saying 80 percent of corporate data centers that exist today will be gone within the next decade.

“All of DevTest, which is a third of the industry, will go to the cloud. All the commercial applications will go that have a commercial alternative, and security, which is one of the issues we’ve talked about, will actually flip from being a concern to being a benefit. The security implications in the cloud, particularly of the big enterprise providers, you will be more secure there than you will be on the traditional on-prem world.”