Enterprise System Spectator blog: ERP and enterprise system vendor evaluation, selection, and implementation.

The Enterprise System Spectator

Saturday, March 02, 2013

Cloud Confusion on The Motley Fool

As I've written in the past, financial analysts may provide good advice for investors in the tech sector. But their analysis is not very useful to buyers of technology products and services. It's not that they don't have insights, but they are writing for a different audience: investors, not customers and prospects.

Some parts of the financial press are another story. Some financial media reporters so poorly understand the tech industry that neither investors nor prospective buyers should listen to them.  

I saw an example of this today on The Motley Fool, in a story entitled, Is Oracle's Cloud Really Fake? In it the contributor, Richard Saintvilus, takes issue with an Infoworld article by David Linthicum that criticizes Oracle's most recent "cloud" announcement as "faux IaaS."

The Motley Fool is a website aimed at the individual small investor. It provides both free content as well as paid subscriber material. It also makes money from advertising. Therefore, generating page views is a key objective, with much of its content generated by freelancers, as appears to be the case here. So, the quality of its content varies.

Apologies to in advance to Saintvilus, who reached out to me on Twitter after I sniped at his story. He asked for specifics, so here you go.

Oracle Late to the Cloud

Staintvilus immediately starts with a misconception, that Oracle was an early proponent of cloud computing. Here is his lead:
Wall Street loves a hot trend and had essentially decided four years ago that the cloud was next. With corporations needing all of the cost savings/productivity benefits the cloud offered, the timing was perfect. Oracle was one of the first blue chip enterprise companies to realize this opportunity. [emphasis here, and throughout, is mine.]
Sorry Richard. Even as late as 2009, Oracle's CEO Larry Ellison famously mocked the term cloud computing, calling it no more than a fashion statement. Furthermore, he not only mocked the term, he mocked the concept. To this day, Ellison criticizes multitenant applications, which are the cornerstone of most large scale SaaS providers. Only recently, as Oracle realized it was losing the war did Oracle embrace cloud computing, albeit with its own twist (either hosted single tenant applications, or multi-tenant applications with single tenant databases.) Industry analysts can argue all day about the relative merits of each approach. But none would claim that Oracle was anywhere to be found at the beginning of the trend to cloud computing.

Oracle Market Share in Cloud Services

He continues with a comment on Oracle's rising revenues:
The company [Oracle] is providing a service, of which there has been very few complaints -- at least not according to the rising revenues, which suggest it's stealing share from rivals such as salesforce.com. And Oracle is not the cheapest on the market, either. So, there's a reason why customers are willing to pay the premium. And it's not because these corporate CIOs are dumb.
Yes, Oracle's revenues are rising. But those of Salesforce.com are rising also, up 37% in 2012. Furthermore, while all of the revenues of SFDC are derived from cloud computing, only a small percentage of Oracle's are. So to impute on the basis of revenues that Oracle is taking market share from Salesforce.com is ludicrous. Certainly, in my own firm's work advising buyers in software selection, I do not see Oracle taking market share from Salesforce.com. In fact, in CRM, I see deals in which buyers want to look at Salesforce but do not even consider Oracle, especially in the midmarket.

As far as software pricing is concerned, neither do I see Oracle as commanding a premium price over Salesforce.com, or over other application vendors for that matter. In fact, Oracle is notorious for competing on price when it really wants a competitive deal, as it knows it can make it up on maintenance revenue in the future.

But the author wouldn't know that, because he does not advise technology buyers, nor is he in a position to see actual deals going down.

Oracle's Engineered Systems Are Not "Cloud"

He then confuses Oracle's new Exa-boxes with cloud services.
However, David Linthicum of InfoWorld thinks [CIOs are] idiots (I'm paraphrasing that a bit), which doesn't make sense. CIOs are spending billions annually with Oracle. But in Linthicum's recent article, he insists they don't know what they're buying: "Oracle is continuing its faux cloud strategy, adding to its private-cloud infrastructure offering the ability to rent for a monthly fee preconfigured application servers to be deployed in customer data centers. The available application servers -- what Oracle calls 'engineered systems'"
The author can be forgiven for this misunderstanding, as Oracle itself confuses this issue, which is the whole point of Linthicum's criticism. The basic point is that cloud computing is a "service," whereas Oracle's computer hardware (whether old school Sun commodity servers, or Oracle's new "engineered systems") is a physical product. Renting Oracle hardware does not magically turn the hardware into a cloud service.

Oracle's Engineered Systems Are an Old Concept

He continues with the impression that Oracle's Exa-boxes are somehow a new concept. 
Linthicum clearly has an ax to grind. While he's going all-out on Oracle's product portfolio, rival companies have been working hard to duplicate Oracle's offerings. For instance, IBM has a rival offering called PureSystems -- launched three years after Oracle's Engineered Systems, or ES. And, after Oracle has already deployed ES to more than 1,000 customers in 43 countries, IBM followed. Big Blue has gained traction, but not to the extent of Oracle. And I doubt that IBM would have followed a model it didn't think had sustaining potential.
The author appears unaware that Oracle is attempting to return to the IBM era of the 1960s. In fact, Larry Ellison has said so himself. The IBM mainframe at the time was a single integrated platform of hardware, operating system, database, and applications engineered from the ground up to work together. IBM's AS/400 series of machines (now called Series i) took this concept even further. What broke up IBM's dominance in the mainframe era was the fact that these boxes were all based on proprietary standards, and eventually low cost commodity hardware (whether IBM personal computers, or later, Unix boxes from providers such as Sun) could do the job much more cost effectively. The downside was that the new approach led to challenges in system integration, in making all the layers of the technology stack work together.

Oracle's strategy with its Exa-boxes is to return to this single technology stack from hardware through applications, engineered from the ground up to work together. Will Oracle be successful? Only time will tell. And, certainly the 1,000 customer number that the author mentions is not yet enough of a measure of success.

Regardless, what does any of this have to do with cloud computing? Absolutely nothing. Oracle is launching a public cloud offering, with its Exa-boxes as part of the infrastructure. Other providers can do the same using commodity hardware, as Google, Amazon, Microsoft and others have already done.

But the Oracle offering that Linthicum is criticizing and that the author is defending is not Oracle's public cloud service. Rather it is an arrangement whereby Oracle customers can, for a monthly fee,  rent preconfigured Oracle application servers and run them in their own data centers. Linthicum is absolutely right: this has nothing to do with cloud computing.

According to the NIST definition of cloud computing, there are five essential characteristics of cloud computing, and Oracle's hardware rental offering does not satisfy four of them. (See the link in this paragraph for a more complete definition.)
  • On-demand self-service. Oracle's rental agreement does not allow the customer to unilaterally provision computing capabilities, such as server time and network storage, as needed automatically without requiring human interaction with each service provider.
  • Resource pooling. Oracle's rental agreement does not pool computing resources for multiple customers in a multi-tenant model, with different physical and virtual resources dynamically assigned and reassigned according to consumer demand.
  • Rapid elasticity. Oracle's offering does not allow computing capabilities to be elastically provisioned and released, in some cases automatically, to scale rapidly outward and inward commensurate with demand. As Linthicum points out, the customer has to pay extra for spikes in demand and there is no provision to ramp down demand, and cost.
  • Measured service. Oracle's offering does not automatically control and optimize resource use by leveraging a metering capability. Customers do not pay as they go.  
Clearly then, Oracle's offering may use the terminology of cloud computing but it does not display the essential characteristics of cloud computing. You can call me a fish, but that doesn't make me one.

The List Goes On

I have neither the time nor the patience to go much further. Let me just list a few (and by no means all) of the remaining errors.
  • "Linthicum is pretending to be an expert on something that is still in its infancy." Cloud computing may not be a full grown adult, but it is certainly not an infant. Providers such as Salesforce.com have been delivering cloud services for well over a decade, ancient history in the technology industry.  
  • "Oracle innovates at the technology layer, thereby giving customers more leverage and independence from consulting fees." What exactly is the "technology layer?" Everything from bare metal hardware to business applications are "technology." Furthermore, talk to Oracle customers: I doubt anyone will tell you they have less need for consultants. 
  • "Had Cisco contracted out its cloud services to Oracle, it could have remained focus on growing its business." The types of cloud services that Cisco offers, such as cloud network management, are not services that Oracle provides. Therefore, it would not be possible for Cisco to contract with Oracle to provide those services on behalf of Cisco. 
  • "Even if Linthicum's pricing claims were correct, then it means Microsoft's Azure, which has a pay-as-you-go model, is also fake. But Microsoft has been reducing its prices because it can't compete." If Microsoft is lowering its Azure pricing, it's not because it can't compete, but because it can deliver cloud services at lower and lower costs over time, as it scales and the costs of technology drop (see "Moore's Law"). Similarly, Amazon lowers its AWS prices multiple times per year and no one in his right mind claims it's because Amazon can't compete.
Parts of The Motley Fool article are nearly indecipherable, especially toward the end. But I think this is enough to illustrate: parts of the financial press are poor sources of information on enterprise IT. By that, I do not mean to imply that all financial reporters are suspect. One would not expect to see a story such as this one to appear, say, on the pages of The Wall Street Journal or Financial Times.

Furthermore, none of my criticism should be taken to mean that Oracle is not a good company from either the investor perspective or customer perspective. As the author tweeted me, "Oracle is one of the best tech names on the market and it deserves fairness."

Yes it is, and yes it does. And because of that, it also deserves accurate reporting.  

Related posts

Enterprise IT Buyers: Don’t Listen to Financial Analysts
Oracle's Behavior Undercuts Its Own Cloud Accomplishments
Cutting Through the Fog of Cloud Computing Definitions

Photo Credit: NS Newsflash

Labels: , , ,


by Frank Scavo, 3/02/2013 08:02:00 AM | permalink | e-mail this!

Subscribe!

 Reader Comments:

Thanks for the clarifications you provide. It really is time for people to bring more attention to the "misinformation" that so many are pushing out these days.
 
Thanks for bringing clarity to what companies are delivering when they claim to be a cloud vendor.

Oracle is jumping on the popular cloud bandwagon without really offering a pure cloud solution.
 
Post a Comment
 

Links to this post:


 

Powered by Blogger

(c) 2002-2014, Frank Scavo.

Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.

About the Enterprise System Spectator.

Frank Scavo Send tips, rumors, gossip, and feedback to Frank Scavo at .

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision. My consulting firm, Strativa, offers assistance that is independent and unbiased. For information on how we can help your organization make and carry out these decisions, write to me.

For reprint or distribution rights for content published on the Spectator, please contact me.


Go to latest postings

Custom Search

Join over 1,700 subscribers on the Spectator email list!
Max. 1-2 times/month.
Easy one-click to unsubscribe anytime.

Follow me on Twitter
My RSS feed

AddThis Feed Button


Computer Economics
ERP Support Staffing Ratios
Outsourcing Statistics
IT Spending and Staffing Benchmarks
IT Staffing Ratios
IT Management Best Practices
Worldwide Technology Trends
IT Salary Report

Get these headlines on your site, free!


Awards

2013 Best ERP Writer - Winner

Alltop. We're kind of a big deal.
 
Constant Contact 2010 All Star Technobabble Top 100 Analyst Blogs


Blog Roll and Favorite Sites
Strativa: ERP software vendor evaluation, selection, and implementation consultants, California
StreetWolf: Digital creative studio specializing in web, mobile and social applications
Vinnie Mirchandani: The Deal Architect
Si Chen's Open Source Strategies
diginomica
CISO Handbook


Spectator Archives
May 2002
June 2002
July 2002
August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
October 2003
November 2003
December 2003
January 2004
February 2004
March 2004
April 2004
May 2004
June 2004
July 2004
August 2004
September 2004
October 2004
November 2004
December 2004
January 2005
February 2005
March 2005
April 2005
May 2005
June 2005
July 2005
August 2005
September 2005
October 2005
November 2005
December 2005
January 2006
February 2006
March 2006
April 2006
May 2006
June 2006
July 2006
August 2006
September 2006
October 2006
November 2006
December 2006
January 2007
February 2007
March 2007
April 2007
May 2007
June 2007
July 2007
August 2007
September 2007
October 2007
November 2007
December 2007
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008
September 2008
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
January 2010
February 2010
March 2010
April 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
January 2011
February 2011
March 2011
April 2011
May 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
September 2012
October 2012
December 2012
January 2013
February 2013
March 2013
May 2013
June 2013
July 2013
September 2013
October 2013
December 2013
January 2014
February 2014
March 2014
April 2014
May 2014
June 2014
July 2014
August 2014
September 2014
October 2014
Latest postings