- Analysts say that Oracle’s new partnership with Zoom shows that the tech giant’s cloud offensive is gaining momentum.
- “This is a huge win” that will “likely draw other customers,” analyst Daniel Elman of Nucleus Research told Business Insider.
- He and other analysts say that Oracle’s recent investment in data centers was likely a significant factor in winning the deal, in part because the added capacity allowed Oracle to offer Zoom a fiercely competitive price.
- Two analysts estimated that Oracle was likely was able to offer a deal with a price tag that was at least 50% lower than what Amazon would have offered.
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Oracle has struggled with the view that despite being a Silicon Valley powerhouse, it has fallen behind in the most significant trend in enterprise tech: the cloud.
Zoom may have just changed that.
When Zoom’s massive, coronavirus-related usage surge prompted it to add new cloud capacity, fast, it didn’t simply rely on its previous cloud provider, Amazon. Instead, it enlisted Oracle for the first time.
When Oracle unveiled a new alliance with the trailblazing video conferencing company this week several analysts saw it as a major win over cloud’s big three, Amazon, Microsoft, and Google.
The partnership shows that Oracle’s cloud offensive — highlighted by recent data center investments — is paying off at a time when the sudden rise of remote work has led to greater need for cloud firepower, analysts say.
Here’s why they think Zoom is the perfect partner for Oracle to flex its cloud muscle, as well as their theories on how it landed the deal:
Cloud Computing: Zoom is a ‘marquee customer’ for Oracle
Oracle executives, including founder Larry Ellison, have consistently argued that the company is poised to become a major player in the cloud, and entering the ring with Amazon in this way is an encouraging sign.
“They needed a marquee customer win and this is it,” RBC Capital analyst Alex Zukin told Business Insider. He describes Zoom as “the poster child for cloud, for remote work, for capacity.”
“I don’t see a better customer that they could have won,” he said. “It’s a really big deal for Oracle.”
This deal gives Oracle an “entrée” into companies that previously may not have considered it a worthy cloud player, Rebecca Wetteman, an analyst at Valoir, told Business Insider.
“It gives Oracle the revenues and numbers on the cloud side to compete in the marketing war and the revenue war on the cloud application front,” she said.
Daniel Elman, an analyst with Nucleus Research also describes the partnership as “a huge win” which underscored Oracle’s “ability to support a critical, data-intensive capability (video chat) at enterprise scale” and that will “likely draw other customers.”
Zukin called the Zoom partnership “a public relations coup” for Oracle: “They can now walk into boardrooms and say, ‘We power the Zoom meeting that your board is executing on. We’ve got better architecture. We’re newer, so we’re better.'”
(The fact that enterprise giant Oracle has found itself struggling to catch up to Amazon at all is an odd twist in the history of tech: While Oracle dominated database technology, Amazon emerged as the dominant player in the cloud by accident, when the e-commerce giant realized in the early 2000s that it could generate extra revenue offering businesses access to its massive, but under-utilized, computing infrastructure, hosted from its data centers. Today, its cloud division, AWS, is now bigger than Oracle by revenue.)
Cloud Computing: Oracle has been investing in a bigger data center footprint
While Amazon dominates, Microsoft and Google both emerged as major cloud players over the past five years in part because of their hefty investments in data centers.
While Oracle has had to play catch up, it started rapidly expanding its own data center footprint around the world in the last several years. The company currently has 22 cloud “regions” and is looking to add 20 more in countries, including Brazil, India and South Korea, a spokesperson said. (The cloud giants all define “regions” differently, the company is much better aligned with its competitors than it used to be.)
Oracle has said the expansion is part of its plan to become one of the major cloud providers, a claim that’s been dismissed as an empty boast by some industry experts who think Oracle has simply fallen too far behind.
But IDC President Crawford Del Prete sees its recent deal as an encouraging sign.
“With the Zoom announcement, Oracle is making good on the promise that they want to power next generation workloads beyond its core,” Del Prete said. “[Oracle] built a factory, and they want to fill it with workloads that scale and are tied to future areas of demand. Zoom is exactly this kind of workload.”
A broad spike in computing need during the crisis combined with Oracle’s significant new capacity means the company found itself in an ideal position to flex its cloud muscles.
As RBC’s Zukin put it: “They’re the only guys that have capacity right now.”
Cloud Computing: How Oracle may have won the deal
Oracle may have sealed the deal with Zoom through extremely competitive pricing.
Rishi Jaluria, an analyst at D.A. Davidson said he wouldn’t be surprised if Oracle gave Zoom way better economics for the server capacity it needed. This is what Google Cloud did when it was trying to grow its cloud computing business and needed a customer win to start catching up to AWS and Azure.
“Initially when Google was really investing heavily in their cloud business, they gave Snapchat a really good deal so that they could go out and say, ‘Hey, Snapchat is a big customer of ours,'” Jaluria said.
Nucleus’s Elman said that the deal “bodes well for the future prospects of Oracle’s cloud” because it could be a signal to other potential customers.
“Other customers – particularly those like Zoom with truly cloud-agnostic application architectures — will likely recognize the potential cost savings of leaving one of the larger cloud providers in favor of Oracle,” he said.
RBC’s Zukin speculated that Oracle may have been able to price a deal for Zoom that was about 50% lower than what Amazon would have offered. Elman of Nucleus Research speculated that the discount was likely greater than 50% compared to Amazon’s rate, because the company’s rates for data transfer are “significantly more expensive.”
A source familiar with the situation said Oracle’s terms were about one-sixth of what Amazon would have charged based on published rates.
Reached for comment about Oracle’s deal, an Amazon spokesperson referred to a recent video call with Zoom CEO Eric Yuan’s where he said that the company “primarily” relies on Amazon. The spokesperson also suggested that the CEO implied that Zoom used Oracle because it was an existing customer when Yuan said, “Oracle is also a great customer as well —they also wanted to offer the support and we tested it and it has worked so well as well, so that is why we also added some service from Oracle cloud.”
Amazon’s shade aside, others have skepticism about Oracle’s prospects too. Steve Allen, an analyst with S2C Partners, said that while the Zoom deal enabled Oracle to “get headlines,” he was skeptical of its ability to break into the top tier of the cloud.
“The fundamentals of data center costs being higher for Oracle versus The Big Boys is still there,” he said. “I just don’t see a way for Oracle to sustain a business model that worked for Amazon in the past, mostly because Amazon occupies that space now. Unless Ellison can invent a time travel machine, I don’t think he can pull it off.”
Got a tip about Oracle, Zoom or another tech company? Contact Ben Pimentel via email at firstname.lastname@example.org, message him on Twitter @benpimentel or send him a secure message through Signal at (510) 731-8429. Contact Paayal Zaveri via email at email@example.com or Signal at 925-364-4258. You can also contact Busin