It’s been a milestone week for Oracle, one of the pillars of expensive, IT-implemented, enterprise software. Among its more eye-opening announcements,the company said it would partner with Salesforce, a pioneer in the cloud and a company whose business model Oracle has derided for years.
The arrangement represents a validation of the model that Salesforce has helped popularize, where workers can sign up for enterprise software online -- without the approval of IT -- and start using it without any upfront costs.
Oracle’s Larry Ellison is the epitome of the old guard. He built an empire on traditional enterprise software, purchased by a central IT department that worked through expensive and lengthy implementations to ultimately foist it on workers.
But now he admits times have changed. “When you move to the cloud, companies don’t expect a multi hundred million dollar project to make their CRM from Salesforce work with ERP from Oracle,” Ellison said on a conference call this afternoon with Marc Benioff, CEO of Salesforce. “We have to make that implementation work out of the box.”
That’s what Salesforce and cloud customers have come to expect and that’s the point of the deal, he said.
It's quite a victory for Benioff, who started his career at Oracle and has had quite a few public spats with his old boss. In fact, in a move that would have seemed impossible two weeks ago, Oracle plans to start using Salesforce internally. “We’ll be users of these integrations. We’ll make sure they work,” Ellison said.
The executives said that the idea is for customers of both Salesforce and Oracle products, like Oracle’s Fusion HCM human resources service or Oracle Financial, to be able to visit Salesforce’s AppExchange and literally click a button to integrate the products.
While the deal is a good move for Oracle, which is seen as embracing the new way of adopting enterprise software via the cloud, it's not clear how much it will benefit Salesforce.
Ray Wang, analyst at Constellation Research, spoke up on the conference call to tell Benioff that his customers feel that this deal sets Salesforce backwards, in the direction of the legacy model. That’s because Salesforce has agreed to use Oracle databases, hardware, and its version of Linux for at least the next nine years (the press release from earlier this week says nine years, although Benioff said 12 on the call).
Benioff didn’t have a strong defense. “This is not new. This is something that’s been there for 14 years,” he said of Salesforce’s use of Oracle database products. His high praise for Oracle – “Oracle has always been there for us whenever we needed them. They’ve been a true partner,” he said – probably didn’t help allay fears around Salesforce’s decision to align with the old guard.
As the most popular CRM product out there, Salesforce is unlikely to be slowed down in the short term as customers try to wrap their heads around this deal. But a nine-year agreement is a long time. If Salesforce feels compelled to use Oracle products to run its operations, it will do so at the expense of being able to choose potentially lower cost and more innovative products, like Hadoop for database software and commodity hardware.
Oracle also made a deal with Microsoft that also signals its significant shift. Don’t be confused by the fact that Microsoft and Oracle are both traditional enterprise vendors. This is a case of companies uniting against a common enemy: upstarts in the enterprise cloud community that easily work together rather than trying to lock customers in. By making its database software more easy to run on Microsoft’s Azure cloud service, Oracle is signaling to customers that they can successfully use a multi-vendor strategy with Oracle. Box CEO Aaron Levie put it nicely in a blog post today. And Microsoft gets to offer enterprises a tool they’re familiar with, removing one reason for them to use Amazon Web Services instead.
Oracle has successfully shifted to accommodate for changes in the market in the past and it looks like this week’s announcements combined with its other recent moves toward the cloud are a similar kind of shift. It's a great validation for vendors of cloud-based applications for enterprises.