This has been a big week for enterprise cloud computing. Earlier this week, Salesforce announced a partnership with Oracle that included standardizing on Oracle infrastructure for the foreseeable future. Today, Marc Benioff and Larry Ellison held a jovial press conference where they talked about their companies, who had been bitter rivals even last week, working together and creating a new future for their customers together. Oracle also said they would run Salesforce CRM internally, just as Salesforce agreed to run Oracle HCM and financial applications (but then later reports came out simply that Oracle wouldn’t switch acquisitions off Salesforce and Salesforce wouldn’t switch off Workday, but would use yet to be named parts of the HCM Fusion product).
Most of the world, including most of us at Appirio, are having a hard time processing this. We’ve seen lots of interesting takes on the alliance from the likes of Naomi Bloom, Aaron Levie, Barb Darrow, Esteban Kolsky and analyst super-group Diginomica. From our perspective, it all comes down to solid business strategy. And beneath all the bluster, both Benioff and Ellison are nothing if not pragmatic businessmen.
Why would Salesforce do this?
Let’s try to break down the logic of the deal from both sides. For Salesforce, this was a pragmatic recognition of two things:
- Salesforce already ran on Oracle databases, switching costs are very high and Oracle is a clear leader in databases, middleware and increasingly hardware. Few companies have the resources to compete with Oracle in this area.
- Oracle’s systems of record like HCM and especially financials aren’t going away anytime soon. The benefit of packaged integrations to these core platforms that Oracle themselves support is a huge benefit to customers and removes a big reason to stay on Oracle CRM.
Of course, the headline (regardless of the degree) that Oracle is using Salesforce CRM is a huge talking point.
What about Oracle? Why would they align with Salesforce?
Today’s announcement is a clear signal from Oracle that their priority is stabilizing and winning infrastructure and core systems in the cloud world – even at the cost of newer and emerging customer-facing areas.
Oracle’s alignment with Salesforce implies that:
- Applications, especially on-premise are not a driver of Oracle’s future. They need time for their applications to catch up with cloud leaders like Salesforce and Workday.
- Infrastructure, especially integrated systems are key to their maintaining their dominant position as cloud becomes the primary computing paradigm.
- Success as a next-gen infrastructure business required aligning with the major cloud application providers…for now.
The open question is how much is Oracle ceding CRM and customer marketing to Salesforce? By running Salesforce CRM and integrating their core systems with Salesforce, Oracle is weakening its position in CRM, but frankly they were already losing that battle. What remains to be seen is if Oracle will lose all systems of engagement to Salesforce and others (especially so soon after buying Eloqua and Vitrue).
The strategy seems to be a recognition from Oracle that their future lies not in feuding over a shrinking on-premise apps market but in becoming an enabler to the next-generation of applications (internal and ISV). Oracle has realized that in the near-term, the biggest threat to them is not Salesforce, but Amazon Web Services and others who could replace them at the infrastructure and database layers.
Implications for Customers
So, what does all this mean for customers? Three things:
- If you’re still running Siebel or Oracle CRM, it’s time to consider a change
- Frankly, any Oracle applications deserve some scrutiny since it’s not clear how much investment they’re going to see relative to infrastructure
- Finally, Oracle’s infrastructure and platforms are now much more credible for both IT departments who want to roll their own cloud (and endure the hardship of private clouds) and ISVs
On a parting note, it’s going to be very strange to see Larry at Dreamforce!