(1) Several weeks ago, Oracle chairman Larry Ellison said that either Microsoft, Google Cloud, or Amazon was in discussions with Oracle to use its cloud infrastructure for artificial intelligence (AI) training in a deal that would pay Oracle $1.5 billion.
(2) In a blockbuster announcement this week, Oracle and Microsoft said Microsoft will use Oracle Cloud Infrastructure (OCI) AI infrastructure to enhance the performance of Microsoft Bing conversational searches.
Of course, in today’s GenAI-crazy world, it is certainly possible that this Bing deal is totally unrelated to the $1.5-billion teaser that Ellison very deliberately shared during a financial-analysts meeting during CloudWorld in late September.
On the other hand, I can offer a handful of points that support the possibility that this momentous AI-inferencing deal is indeed the $1.5-billion megadeal referenced by Ellison at that financial-analysts meeting.
But first, for those of you who haven’t seen the announcement about OCI and Bing, here are the details of the agreement, which the companies said is geared to “support the explosive growth of AI services”:
It’s a multi-year agreement in which Microsoft is using Oracle Cloud Infrastructure (OCI) AI infrastructure as well as its own Microsoft Azure AI infrastructure to do “inferencing of AI models that are being optimized to power Microsoft Bing conversational searches,” the companies said in a press release.
Using the Oracle Interconnect for Microsoft Azure created by the companies a couple of years ago, Microsoft can “orchestrate OCI Compute at massive scale to support increasing demand for Bing conversational search.”
That type of conversational search, the companies said, “requires powerful clusters of computing infrastructure that support the evaluation and analysis of search results conducted by Bing’s inference model.”
The goal, according to a Microsoft executive, is quite straightforward: create superior experiences for Bing users. Here’s Microsoft global head of marketing for Search & AI Divya Kumar from the press release:
“Microsoft Bing is leveraging the latest advancements in AI to provide a dramatically better search experience for people across the world. Our collaboration with Oracle and use of Oracle Cloud Infrastructure along with our Microsoft Azure AI infrastructure will expand access to customers and improve the speed of many of our search results.”
Okay — so with that as backdrop, what leads me to believe that this could be the $1.5-billion AI-training deal Ellison hinted at several weeks ago? Here’s what Ellison said on that subject during the Oracle Financial Analyst Meeting in late September as quoted in my Oct. 9 analysis headlined “Oracle Nailing Billion-Dollar Cloud AI Contracts Every Quarter, Larry Ellison Says“:
Speaking of the other three hyperscalers — Microsoft, Google Cloud, and AWS — Ellison said, “One of these three infrastructure companies wanted us to sign a $1.5-billion contract for us to do AI training in our cloud because our prices were lower than their costs. That’s a good sign that I’m not completely delusional about our advantages in AI training,” Ellison said, adding that, “We train twice as fast at less than half the cost — and it’s actually much better.”
Ellison later added this jarring perspective on the magnitude and scope of the GenAI Revolution that is creating extraordinary opportunities for Cloud Wars Top 10 companies and their customers:
“Several companies have signed up for billion-dollar AI deals — it’s stunning. It’s absolutely stunning, and there’s really no end in sight.”
Ellison also offered this remarkable context to illustrate how rapidly and dramatically the cloud business is changing because of GenAI:
While Oracle’s biggest traditional customer spent about $120 million per year with Oracle, the explosive market for generative artificial intelligence (GenAI) infrastructure is so lucrative that “it will be an odd quarter when we don’t sign at least a single deal for over a billion dollars in revenue.”
So here are a few thoughts on why I think this landmark deal involving Microsoft’s use of OCI AI for Bing Conversational Search could be Ellison’s $1.5-billion callout:
- The deeper and more-strategic ties between Microsoft and Oracle. On Microsoft’s most-recent earnings call, Nadella was asked to describe what was driving Azure’s accelerating growth. He said there were three factors, and the very first one he mentioned was the breakthrough arrangement, called Oracle Database@Azure, which Nadella said immediately convinced some customers to invest in Azure. You can read all about that in “Microsoft Cloud Shocker: Oracle Major Driver Behind Blowout Q1 Numbers!“
- Earlier in the Microsoft fiscal-Q1 earnings call, Nadella once again pointed to the Oracle relationship as a significant factor in Microsoft’s booming cloud business: “We are the only other cloud provider to run Oracle’s database services, making it simpler for customers to migrate their on-prem Oracle databases to our cloud.”
- Those results underscore the extremely strategic nature of the partnership that’s unfolding between Oracle and Microsoft, and make it possible and perhaps even probable that the deal inside the deal included provisions for Microsoft to use OCI AI services.
- A couple of months ago, Nadella and Ellison got together at Microsoft headquarters to record a conversation about their extended relationship. That meeting marked Ellison’s first visit to Microsoft HQ in his 46 years at Oracle — and the symbolism of that visit should not be underestimated.
- When Ellison teased the $1.5 billion deal with one of the hyperscalers, Microsoft was the odds-on favorite. I think AWS would rather chew off its metaphorical arm than admit that Oracle can do anything even remotely close to what AWS can do in the cloud, and Google Cloud has — so far — chosen not to do a multi-cloud deal with Oracle along the lines of the Microsoft-Oracle agreement.
In the long haul, the particulars around this engagement will matter less than this overriding lesson: in revolutions, change does not come gradually and linearly; rather, it happens suddenly and is abrupt, wrenching, and often highly disruptive.
The dynamics of the GenAI Revolution are certainly no different. And whether or not the Bing deal is the megadeal Ellison alluded to several weeks ago, it is unmistakably clear that Oracle and Microsoft are eagerly rewriting the rules for how the Cloud Wars are executed in the age of AI.
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