Oracle Corp. (NYSE:ORCL) spent years deriding clouds, but now claims it is going to lead in cloud with capabilities Amazon.com, Inc. (NASDAQ:AMZN) can’t match.
The company says its “Oracle Cloud” provides better security and automation tools for database applications, and says it has ramped up its capital expenditures to deliver these cloud benefits to customers.
That’s not the same thing as calling Oracle a cloud player, however. Its capital expenditures pale in comparison to even Facebook, Inc. (NASDAQ:FB), whose capital expenditures of $14 billion this year are double Oracle’s spending over the last four.
As it has throughout the decade, Oracle is defending its turf, enterprise customers that committed to its database management systems during the 1990s and 2000s. It is creating what it calls clouds but are in fact Oracle-managed proprietary data centers.
Data Center vs. Cloud
This is all part of the war Oracle has been fighting for two decades now against the open source movement.
Oracle sells a proprietary database, at a high and rising price point. The open source movement, in which the underlying software is free, has always been an existential threat. Open source advocates still bridle over Oracle’s purchase of Sun Microsystems in 2010. It moved to make that company’s open source products — Java, mySQL and Solaris, de-facto proprietary — and succeeded in using its copyrights on Java against Alphabet Inc (NASDAQ:GOOGL) in court.
In open source, underlying code is a shared resource, with value coming from applications and support. In the proprietary world, underlying code is an owned resource and users are simply customers.
Clouds are an extension of this ongoing battle. Clouds are built on open source software, on standard hardware, and they share the benefits of a high, rising platform with customers and other vendors.
Oracle, by contrast, is an entirely proprietary system. Customers pay Oracle for its benefits, but they remain customers. Critics dub Oracle Cloud a fake cloud.
Real cloud companies rent their infrastructure, build platforms customers and other vendors can build on, then sell software as a service on the platforms. Oracle’s cloud is the opposite. It’s a system for selling Oracle’s software as a service, with less than half the research and development spending of either Amazon or Alphabet.
Not Managed Like Cloud
The differences can be clearly seen in the numbers.
Oracle delivers more than a quarter of its revenue directly to the bottom line, and has one third of its assets subject to debt. The company still avoids getting out ahead of its skies financially. Its investments in cloud are not ahead of revenue, but in line with it.
But being a proprietary company in an open source world has had its price. Since Microsoft Corporation (NASDAQ:MSFT) committed to open source and cloud models by naming Satya Nadella its CEO in 2014, its stock is up 183% while ORCL stock has gained only 38%. Gains in Oracle over the last five years have even trailed those of the Dow Jones Industrial Average, which is up more than 65%.
Most galling, however, has been the growth of salesforce.com, inc. (NYSE:CRM), originally founded in 1999 to run Oracle database applications as a service. Salesforce, which now has hosting alliances with all the major cloud vendors, is up 191% over the last five years.
Bottom Line on ORCL Stock
Oracle chose a proprietary path, and despite its claims about Oracle Cloud, it’s still on one. That’s what driving ORCL stock for the foreseeable future.
Marketing hosted applications as “cloud” doesn’t change the fact they’re hosted applications, controlled by a single vendor. They do provide proprietary benefits, but they also have proprietary weaknesses, including for investors.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN, and MSFT.
