Oracle’s customers are feeling the push and investors the pinch as the Silicon Valley database giant strikes deals and shutters services in an all-out drive to capture higher profits.
When Oracle’s executives delivered year-end financial results last month, the good news extended beyond the bottom line.
Buffered by growth in the company’s public cloud business, the maker of ERP database management software met analyst expectations and then some – producing a 5% increase in the company’s share price.
How Oracle is generating that growth is another matter, including one for the courts.
That’s because the company’s cloud-first approach to serving its enterprise customers has led to accusations that it’s fudging numbers and applying strong-arm tacticsOpens a new window to pursue subscription revenues from companies with on-premises infrastructures.
Investors Complaint: We Were Misled
Institutional investors claim that Chairman Larry Ellison and other executives knowingly misled them when they discussed the company’s cloud initiatives and financial results.
Recent moves, including a deal with MicrosoftOpens a new window that aims at cloud leader Amazon Web Services, attest to Oracle’s course of action since its leaders realized it was losing business from companies migrating from on-premises databases to the hybrid cloud.
The changes also involve the shuttering of open web access to Dyn, the New Hampshire-based subsidiary that Oracle purchased in 2016 for $600 million. Dyn’s customers can still access its performance management and applications security software beginning next May, but only through the Oracle Cloud.
A driver underlying Oracle’s 3% rise in 2019 earnings, to $39.5 billon, is its high-margin cloud applications for ERP (enterprise resource planning) solutions. They grew by 32% in a year. Overall, the company’s Cloud Service and License Support contributed more than $26 billion, or around two-thirds of its total revenue.
Alliance with Microsoft
Those gains, including an operating margin the nudged to 47% in the fourth quarter, are coming on the heels of Oracle’s partnership with Microsoft that will let customers access Oracle databases through the tech giant’s Azure cloud.
Announced last month, the link marries Microsoft Azure’s artificial intelligence and analytics applications with Oracle’s Autonomous Database, enabling major corporate customers to run computing and storage services across platform and pipe directly into their on-premises IT infrastructures.
It is through those landscapes that Oracle hopes to shift to the cloud, as evinced by executive comments during a June 19 earnings report about the downsizing of its enterprise hardware business.
At last year’s Oracle Open World event in San Francisco, Ellison said that more than 5,000 of the company’s enterprise customers were trial-running its re-engineered Gen 2 cloud platform.
Oracle Offers an Upgrade
And not a moment too soon. That’s because the company is being sued in a California court by aggrieved investorsOpens a new window who blame it for inflating customer numbers in market communications.
Led by a German pension fund manager, the class-action lawsuit accuses Oracle of customer coercion and creative accounting as it struggled to make up the gap with leading providers, including Microsoft, that arose from its belated shift to cloud services.
AWS leads the marketOpens a new window for public cloud services with around a third of the global total, according to analysts at Synergy Research Group. Microsoft ranks second with about half that figure, followed by Google and IBM.
The investors say the charge to the cloud explains Oracle’s impetus to wean customers from on-premises IT with an increasing array of cloud-first database services. They include Dyn’s toolkits for DNS services and web application security as well as the company’s Internet Intelligence Map that displays web disruptions in real time. Oracle is making the services available to cloud customers for a fee under what it calls an upgradeOpens a new window .
The Defense in the Court Room
Oracle filed a motion in April to dismiss the class action, initially brought in August 2018 by a group of California firefighters.
It claims the suit, which draws in part on testimony by disgruntled former employees, lacks merit and that its executives in no way misled investors when addressing the Oracle cloud in market communications.
But that hasn’t stopped others, including some ex-employees, from making good use of their experience in helping Oracle customers navigate the company’s labyrinthine nests of compliance agreements and license fees.
And it has not stopped the dissidents from warningOpens a new window about the company’s aggressive tactics to guide its clients to the Oracle cloud.