Oracle needs some cloud computing mojo

Oracle’s cloud problem goes back at least two years ago when Oracle CEO Larry Ellison famously mocked cloud computing hype at a Churchill Club event. “What do you think Google runs on? Water vapor?” he asked. “How about databases, and operating systems, and microprocessors and the Internet?”

As colleague Derrick Harris wrote for GigaOM Pro at the time, Ellison showed a lack of understanding of true cloud benefits:

Cloud computing is about far more than simply serving applications via the network. It is, at the least, about pay-per-use billing, process automation, on-demand provisioning of additional resources and increasing efficiency through multi-tenant architectures. Many believe cloud computing is about openness. If it does not increase flexibility and efficiency while decreasing extraneous costs, it is not cloud computing.

In order to establish some cloud cachet, Oracle needs customers–e-commerce companies, ISVs, vendors–to concentrate their cloud workloads on Oracle’s high-end Exalogic or Exadata  super-servers running Oracle’s high-margin database and middleware. But most new cloud-oriented startups steer clear of pricey anything, opting for cheaper but productive open-source databases and commodity hardware. The kind of products Ellison doesn’t care to sell.

Venture capitalist Marc Andreessen, co-founder of Andreessen-Horowitz, illustrated this point yesterday when he told Business Insider that Oracle holds no allure for these next-gen companies:

Ten years ago it was a joke: you’d raise $20 million in venture capital and write a $4 or $5 million check to Oracle, Sun, BEA, and EMC. … When it started, Salesforce looked like a toy compared with Siebel. Look ahead five years later, it’s obviously better. Not a single one of our startups uses Oracle.

Akamai, not exactly a newbie in this arena, illustrates Oracle’s problem. At a recent tour of Akamai’s Cambridge, Mass. network operations center, CTO Mike Afergan was asked about the racks of (mostly Dell) blades on view and whether the company ever went with high-end hardware. The answer was no. Akamai puts its data center gear out to bid and prefers to use lots of cheap boxes versus a few pricey ones.

Another Bay Area VC agreed that he never sees Oracle software or hardware going into his companies but said that risk-averse older companies will continue to foot Oracle’s expensive software bills. “A lot of these guys think that the only way they can function is with their Oracle database and tightly linked financial applications,” he noted.

The traditional financial services firms re-up on their Oracle software licenses for compliance reasons, but these are legacy accounts. And many of them don’t want to devote more of their IT spend into Oracle hardware because of the company’s hardball support policies.

Oracle clearly sees its Sun hardware franchise as a way to capture more business, especially by building tightly integrated appliances like Exalogic. But, while two Exalogic machines probably could, as Ellison said last year, run all of Facebook or Twitter’s workloads, those kinds of companies don’t run this type of hardware.

There’s also a lot of talk about the challenges Hadoop  poses to Oracle in big data. Ellison prefers to think of Hadoop as a complimentary rather than competitive. On Oracle’s first quarter earnings call last week, Ellison said that Hadoop and associated utilities will feed into Oracle databases, driving more Oracle adoption. Oracle has announced Hadoop-Oracle interfaces to help achieve that.

Ironically, when it comes to hardware,  biggest potential driver for Oracle business going forward could be the mess at Hewlett-Packard. “People are really skittish about what’s happening at HP now,” said an executive with a Sun partner who saw many customers defect from Sun hardware since Oracle bought the franchise last year.  Most went to HP.  But now HP is in turmoil over recent management shakeups and confusion over its PC business plans. Customers don’t want to make any long term decision under these circumstances.

This exec thinks Oracle could win over disaffected HP customers if it comes up with the right products at the right prices — and more flexible support plans. Big-bang Exadata or Exalogic, with hardware-only list price starting at $330,000 for a quarter-rack,  won’t do the trick, although Oracle has been known to discount.