While very few companies on Earth have decided to compete head-on in the cloud with trillion-dollar powerhouses Amazon, Microsoft, and Google, Oracle has not only survived but has fully earned the right to be categorized in their highly exclusive club as the fourth world-changing hyperscaler.
As I have noted many (many, many) times, I am fully aware — as are most people involved in this business — that Oracle’s cloud business overall and its cloud-infrastructure business, in particular, are much smaller than those of AWS, Microsoft Cloud, and Google Cloud. So it is fully understandable that Oracle’s cloud growth rates have been higher than the others’.
But what is radically different about Oracle’s surge is that its heady growth rates are rising while those of the other hyperscalers are moderating. And that is the reason I’ve been focused on this Oracle phenomenon: because it is much more than just a matter of being able to grow more rapidly because its revenue base is smaller.
Instead, the fact that Oracle’s cloud-infrastructure business is growing more rapidly as it gets bigger, while the others are growing more slowly as they get bigger, makes Oracle an outlier worthy of our attention: what is it doing differently to trigger that dynamic? Why is it not like the others? Why is it, on a relative basis, attracting bigger commitments from customers while the others are not?
To get a fix on why and how Oracle has battled its way through those intensely formidable competitors to earn the right to be called the fourth hyperscaler, let’s look at some numbers and some strategic explanations recently offered by CEO Safra Catz and CTO Larry Ellison from Oracle’s June 12 fiscal-Q4 earnings call.
Ellison: $2 Billion Contracted from AI Startups
“The extreme high performance and related cost savings of running generative AI workloads in our Gen2 cloud has made Oracle the number one choice among cutting- edge AI development companies,” Ellison said as he rattled off about 10 names.
“In the aggregate, our generative-AI cloud customers have recently signed contracts to purchase more than $2 billion of capacity in Oracle’s Gen2 cloud.”
Catz: ‘Powering Future Growth Acceleration’
In the past three years, Catz said, consumption of Oracle’s Gen2 cloud-infrastructure has shot up by a factor of 7x. “And while competitors have seen their growth rates drop precipitously over the last year, our cloud infrastructure growth rate has essentially doubled from last year to 77% this quarter, with Gen2 OCI [Oracle Cloud Infrastructure] growth even higher.
“And we’re far from done. In fact, I just told my team I think we’re at about the middle of the beginning. Looking ahead, I see even more growth opportunities that should help power future growth acceleration.”
Eye-Popping Growth Rates
Catz shared these details from within the company’s overall cloud-infrastructure business, which includes but is not limited to its Gen2 OCI:
- Excluding legacy hosting services, infrastructure Cloud services revenue grew 89% with an annualized revenue of $5.2 billion
- OCI consumption revenue was up 112%
- Cloud@Customer consumption revenue was up 60%
- Autonomous Database was up 47%
- Cloud Database Services were up 41%
“As on-premises databases migrate to the cloud and Cloud@Customer, we expect these Cloud Database Services will be a third leg of revenue growth and revenue-growth acceleration alongside back-office SaaS and Gen2 OCI services,” Catz said.
Again, I’m not disputing that the revenue bases are relatively low. But the annualized cloud-infrastructure revenue Catz cited is $5.2 billion — and if anybody out there knows of a $5-billion company with pieces growing anywhere from 47% to 112%, please let me know.
Different Approach Driving Different Types of Results: Stunning Growth!
Here’s Catz on Oracle’s plan to invest close to $9 billion on Gen2 data-center capacity in the fiscal year running June 1 to May 31:
“Our investment strategy for adding capacity is to build many, many identical cloud regions. Our starting point is smaller, which allows us to go where competitors cannot, and this continues to be an advantage for us. Given the demand we have and see in our pipeline, I’ve increased our CapEx projection, and I now expect that fiscal 2024 will be similar to this year’s CapEx [$8.7 billion]. I also expect our Gen 2 OCI business will have another excellent year of revenue growth as centers fill up and new centers come online.”
Catz said Oracle now has 42 cloud regions across the globe and is building another seven. Of those, she said, 12 interconnect with Microsoft Azure for true multicloud capabilities. Oracle also operates “nine national-security regions with immense demand for more,” along with 10 customer-specific dedicated regions plus “many, many Cloud@Customer implementations.”
Catz: New Efficiencies Create New Opportunities
Having established a technological lead in cloud-infrastructure, Oracle is relentlessly working on ways to retain that advantage so it can continue to offer cloud-infrastructure that’s both faster and less expensive than what competitors can offer, Catz said.
“As we’ve moved to OCI, we are also moving to Autonomous Database Serverless, which again gives us added capacity. So we’re constantly, constantly becoming more efficient. Our original landing was 12 racks. We’re now moving to 10 racks that have all the services. We’re just continuing to sort of miniaturize our capabilities, and it’s giving us enormous efficiencies and cost savings.”
It’s worth bearing in mind that 12-15 years ago, when Oracle first decided to get into the cloud-infrastructure business, its original intent was to pretty much mimic what AWS, Microsoft, and Google were doing. That me-too mindset has never been one that Larry Ellison tolerates let alone embraces, and eventually Ellison killed that first IaaS effort.
The next attempt, which would be dubbed Gen2, incorporated all the differentiation noted in this article and spelled out in more detail in two of my recent analyses: Oracle Crushes Q4 and Remains World’s Hottest Major Cloud Provider and Oracle’s Surge: 5 Reasons for Breakaway 54% Cloud Growth.
And ever since then, the game for Oracle has been to be different and better, rather than the same and mostly indistinguishable.
Judging by the phenomenal growth rates and ambitious future outlook, Oracle has clearly earned, by any objective measure, full and unfettered membership in the hyperscaler club.
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