Cloud Computing – Making Money got harder thanks to Oracle and Salesforce

By Jim Lundy

Oracle and Salesforce just made Cloud Computing harder for everyone else. What? Yes, Oracle, by giving some incredible pricing to Salesforce for its Oracle Database offering, just made the business of Cloud Computing harder for everyone else. This blog is about Cloud Computing and how hard it is for many vendors to make money (note, we have be publishing a separate Aragon Research First Cut on the Oracle and Salesforce Partnership announcement).

I spend lots of time in Silicon Valley. Competition is tough and so is the issue of making money. Vendors who are  offering their software as an Enterprise SaaS application/service struggle with costs, particularly if they have a legacy application.  Specifically, I’m talking about the prices vendors pay for the software that makes up their product offering. For vendors whose products and services are over four years old, most have been using an SQL based database. The flagship among those is Oracle Database.

Cloud Computing and NoSQL

It is with these vendors that the talk is hot and heavy, in part because of all of the new start-ups that are going with NoSQL options like MongoDB, Couchbase and even Oracle’s own NoSQL offering. The main reason they are using these offerings has to do with flexibility (e.g. Restful API Interfaces), but it is mainly about cost. Don’t let anyone fool you about that. It is all about the money in Cloud Computing.

Cloud Computing: Making Money is hard to do

So, back to Oracle and Salesforce. Salesforce Chairman and CEO Marc Benioff confirmed that his firm’s costs were nearly cut in half with the deal that Salesforce got from Oracle. Putting aside what Salesforce will do with its own pricing (if anything), this puts pressure on everyone else. Salesforce was in a dilemma and we suspect they threatened Oracle with leaving them. We know of a multitude of vendors who are contemplating the same thing. They have no choice but to look at other options, because it is all about margins in Cloud Computing.

The Shift to Open Source

Replacing a software component in a product with a less costly option might seem like a new trend. It isn’t in enterprise software. Search went open first. A large percentage of enterprise software vendors have opted for using Open Source based Search in their products, mainly due to cost. Most of that comes with no sacrifice in functionality. In fact, given the tuning options in Apache Solr/Lucene, this option can make the search better in most products.

At the end of the day, the race for profitability is causing Business Managers to direct their Engineering counterparts to look at the right combination of software components that provides the best possible recipe to allow the Service to be priced attractively and to enable money to be made at those prices. The replacement of the Database layer is just the next step in the evolution of SaaS based applications. If you are in Cloud Computing, you can’t ignore this shift.