During the OpenWorld 2012 conference, Oracle (ORCL) announced its Oracle Public Cloud service that will provide on-premise web hosting and management or strictly cloud computing using remote servers to businesses. To enter this growing market quickly, Oracle acquired a number of small startups over the past year with plans to integrate some of its existing products into the new service.
Acquisitions included Taleo and SelectMinds; both of which provided contact management services to businesses. Instead of building a cloud computing service from scratch like it had originally intended, Oracle decided to acquire several small companies and combine products into one offering.
Taming the Competition
While it's risky to enter a new market, especially one that already includes big names like Amazon (AMZN), Microsoft (MSFT), and IBM (IBM), Oracle seems confident about its products and services to compete. Many have predicted cloud computing will replace traditional web hosting and in-house data storage in a very short time, so it's now or never for companies like Oracle that want to profit from this change in how businesses operate.
Salesforce.com (CRM), started by former Oracle CEO Mark Benioff, seems to have become the main competitor and nemesis for Oracle. After refusing to use Java and choosing to use Apex instead (programming language that's similar to Java), Salesforce.com has become a major target for Oracle. Current Oracle CEO Larry Ellison blasted Salesforce.com for not using Java (considered an industry standard) and warned that Java applications would not run properly on the Salesforce.com cloud.
Founded in 1999, Salesforce.com has grown steadily over the years. With annual sales/revenue around $1.66 billion, Salesforce.com is a heavy contender in the cloud computing and social relationship management service market. As businesses become more savvy in Internet marketing and promotion, companies must be able to provide easy-to-use and effective management software to maintain client databases, social media details, and other information vital to keeping online marketing campaigns afloat - and do so on a regular basis.
Even though cloud computing and social relationship management (also known as customer relationship management) serve different functions for a business, both rely on the same technology to operate effectively. For example, businesses must invest in secure web hosting and data storage to create a cloud computing environment for the workplace. Web hosting and data storage capabilities also needed to collect customer data to maintain contact via email, text message, and social media websites. Most businesses want to find the easiest and most cost effective solution, so hiring one company to manage both the cloud and customer databases makes the most sense.
Growing companies such as Vendisys not only help businesses manage contacts, but also push the best contacts to the front of the list using patented technology so sales teams and account managers don't have to spend hours searching through large databases to find those most likely to purchase specific products and services. With a number of smaller companies gaining in popularity, Oracle will need to stand out to prevent becoming just another cloud service provider.
To maintain its existing customer base, many of the company's existing Java applications were reconfigured for the cloud computing environment. This will make switching to a virtual network much easier, especially if customers are already familiar with the programs, user interfaces, etc. This could give Oracle a head start because it won't have to spend time and money convincing existing customers (many of whom probably want to switch to a cloud environment) to make the move.
One potential pitfall Oracle needs to avoid is relying on shady marketing tactics. Recently, the company received some bad press after Ford's (F) Scott Monty, the Global Digital and Multimedia Communications Manager, posted photos of marketing materials including news clippings with negative reviews of Salesforce.com products and services.
In the post, Monty mentions receiving such materials more than once. Even though there is some speculation as to whether marketing representatives from Oracle actually sent the materials or if it was a hoax, this type of behavior could cause the company to lose a few sales or even worse, a few big name clients.
Adding cloud and social relationship management services to its portfolio should help Oracle in a variety of ways. Not only will cloud services enhance the company's growing portfolio, these services will also help the company move ahead into the next generation of business computing. And if Oracle can't compete with Salesforce.com in the long run, the company should maintain its value simply because of its diverse portfolio.
Moving into a new market brings new challenges and the potential for great rewards. As long as Oracle sticks to its plans and avoids future marketing mistakes, I think this company will continue to deliver for investors. Moving towards providing more cloud-based products and services will hopefully provide the company with additional customers and the opportunity to prove its value going forward.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.