The cloud offerings of Oracle (NASDAQ:ORCL) are, frankly, second-rate. They depend on Oracle's existing market share in enterprise systems for their success. They're also based on promises that the company can -- regardless of expense -- move those applications to the cloud over time.
What Oracle lacks is something that can act as a gatekeeper function, and a market it can dominate, so as to assure itself a beachhead that draws smarter cloud customers to it. It sees this in the Software Defined Network, or SDN, which can virtualize network gear that's now heavily proprietary, from companies like Cisco (NASDAQ:CSCO) and Juniper (NYSE:JNPR).
When your moat is threatened, threaten someone else's. Maybe together you can build a raft.
Oracle's play was to buy Xsigo Systems, not so much for its technology as for its customers, which include Verizon (NYSE:VZ) and British Telecom (NYSE:BT). The hope is it can connect Xsigo to its Oracle Public Cloud, then tie in with the world's telcos and use their power to strangle competing ISPs within those markets. Or at least hold them off for a bit while Oracle thinks of something else.
It's a top-down approach to a bottom-up technology. I have seen this tried several times over my decades as a technology reporter. It seems to make sense. You try to build what is new alongside the old, then use your control of the customer base to give that effort a chance.
Trouble is, it never works. By the time the old customers are ready to move, the new technology has scaled and gotten ahead with the help of leading-edge customers. The old technology is eventually taken out by someone with no idea of the plot, as Digital was bought by Compaq, which in turn was bought by Hewlett-Packard (NYSE:HPQ) and sank it.
Is there a way out? Yes, there is. IBM (NYSE:IBM) managed it. But it requires serious reinvention, not tweaking around the edges.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.