It should be no secret that most enterprise information technology vendors have embraced cloud-based applications and technology as a dominant strategic direction. The reasons are obvious and compelling. They are the key to customer and long-term revenue and profitability growth. Recent quarterly financial performance reporting from key enterprise technology providers such as IBM, Microsoft, Oracle and SAP provide indications on business strategies gaining more customer attraction as well as market momentum.
In a prior Supply Chain Matters commentary, The Value Proposition of Cloud Computing is Broader in Scope and in Business Implications, we observed that cloud-based platforms and applications provide businesses with added flexibilities in their technology and software requirement needs. Businesses remain under compelling pressures to respond to rapidly changing market needs and at the same time, continue to reduce costs. That includes the ongoing costs of IT, where studies continually reinforce that 50-75 percent of costs stem from maintaining existing IT infrastructure or business software applications. Rather than expending additional capital investments for IT hardware, infrastructure and applications support needs, cloud-based platforms provide a more attractive financial model that is more attuned to ongoing operational growth or adjustment needs. As noted, why settle for business process innovation that can cycle in intervals of 5 years or more, when an option of technology releases every 6 months are available?  Cloud based technology implementation can also be less disruptive to ongoing business operations since adoption involves a singular, consistent cloud-based application and support model.
For enterprise and other technology providers, cloud-based offerings are becoming a very strategic growth aspect, affording such vendors a more recurring, subscription based revenue stream that can provide more predictable revenue and profitability stream.
The ongoing open question remains in strategy and ongoing execution.
In their latest quarterly financial reporting, both IBM and Microsoft reported setbacks in anticipated cloud based revenue growth. The latter was somewhat of a surprise, since Microsoft’s Cloud based growth trajectory had shown consistently positive growth. IBM on the other hand, by our lens, continues to have an ongoing execution problem in bringing Cloud based technology and applications to market on a more timely and compelling basis. IBM’s cloud-based strategy remains a work-in-progress while its legacy services businesses remain a drag on revenue and profitability growth.
A far more interesting contrast, one perhaps more of interest to our blog readers is that of Oracle and SAP.
The latest SAP financial performance release features the headline of first quarter non-IFRS Cloud subscriptions and support revenue growth of 33 percent at constant currencies on a year over year basis. The Walldorf Germany based technology provider reported what it termed as a solid 23 percent growth in new Cloud based bookings equating to roughly $165 million in new cloud-based revenue in the first quarter. Further declared was that the total of cloud subscriptions and support along with software support revenues (we interpret that to mean all software support) reached a 69 percent share of total revenues in Q1.
The financial report additionally cites SAP S/4HANA customer momentum in the quarter adding more than 500 customers of which 30 percent are described as new customers. By our lens, the wording smacks more of a marketing brief since there is still a lot of confusion relative to the overall composition and deployment needs of S4 HANA, particularly from an overall end-to-end supply chain support perspective.
Meanwhile, SAP’s bread and butter software license revenues fell 13 percent with the implication that the conversion to a predominant Cloud-based services business model remains somewhat of a challenge. An evidence point relates to sales and marketing expenses which have grown 5 percent year over year.
In mid-March, Oracle reported fiscal Q3 2016 results for the quarter ending in February and Supply Chain Matters featured key highlights and takeaways. The headline was that Cloud software as a service (SaaS) and platform as a service (PaaS) revenues were up 61 percent at constant currencies while total Cloud revenues were $735 million, up 44 percent in constant currencies.
Our calculation of the total of Cloud subscriptions and support added to total customer support revenues equate to 76 percent share of Oracle’s total revenues in the February ending quarter. That would imply that Oracle’s broader strategy of support for both IT infrastructure and various software applications may indeed be garnering increased momentum.
Once more, Oracle has placed more emphasis on the amount of customers that have gone live with various Cloud based infrastructure and applications. Oracle states that it had more than 250 customers go-live on Fusion SaaS HCM and Fusion ERP in Q3 alone. Oracle further declares nearly 2000 Fusion ERP customers thus far, ten times that of Workday. Equating that number to a prior Oracle industry analyst briefing declaring 1500 Oracle Cloud ERP customers at the end of fiscal Q2, implies another 500 customers on-board in the latest quarter.
Right now it’s difficult to equate that to equivalent SAP S/4 HANA total customers to-date since reporting by SAP is elusive. Oracle Fusion ERP does contain some basic supply chain business process support. As we have noted in prior commentaries, Oracle has developed, by our lens, one of the broadest cross-functional SCM public-cloud based applications currently available in the market.
Thus, our scanning the latest financial results of select enterprise technology vendors, our assessment is that Oracle’s broader Cloud product support strategy coupled with more integrated sales execution is indeed paying off in added market momentum.
Rest assured, this remains an ongoing competitive battle, and more evidence will need to come forward. However, from an overall Cloud based supply chain business process support perspective, we continue to believe that Oracle provides broader and clearer options for Cloud based benefits in addressing both IT cost reduction needs as well as flexibility in cloud-based applications deployment either in private or public Cloud based deployments.
Bob Ferrari
© 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Disclosure: Oracle is a client of the Ferrari Consulting and Research Group, the parent of the Supply Chain Matters blog.
