Oracle’s Cloud & Mirrors Act

September 20, 2016

by Tien Tzuo, CEO of Zuora.

Originally published on Forbes.

Judging by the fact that Oracle promoted their cloud revenue like crazy in their earnings report last Thursday, I expect that this week at Oracle OpenWorld it’ll be all cloud, all the time.

But is a company that makes less than 12% of its money on the cloud really a cloud company? If it has to make a desperate Netsuite purchase in order to boost its cloud numbers, is it really a cloud company? Does it really matter?

Oracle is making a lot of noise about the cloud in order to distract people from a central truth: its core business, enterprise resource planning (ERP), is losing relevance by the hour.

It’s hard to believe now, but there was a time when ERP was hot. Back when the Friends were helping launch Office ‘95 and Tickle Me Elmos were flying off the shelves, companies were in a big hurry to replace their aging back-office systems with fancy new ERP suites. After all, the Y2K apocalypse was just around the corner.

These systems did a pretty good job of measuring operational efficiency: raw materials, inventory, purchase orders, shipping, payroll. But they did a lousy job of measuring actual customer experience: user preferences, usage patterns, recurring billing relationships. But companies tend to manage what they can measure, and so executive teams became hopelessly product-focused, both organizationally and strategically.

It was the golden era of Jerry Maguire, AOL CD-ROMs and supply chain economics. The goal was to match supply and demand with the least inventory possible. “Just In Time Inventory” meant that that warehouses full of stuff just sitting around were the ultimate enemy. “Total Quality Initiative” meant that the work of improving processes was never over.

It was nirvana for engineers and management consultants, who were threatened by the new electronic products and efficiencies coming out of Japan. It was also a great time to be in the server room business: installation, upgrades, maintenance. It wasn’t so great if you were an actual customer — but there were always call centers for that, right?

If you were shipping widgets, you were in luck. But if you wanted to sell an ongoing service, as many young software companies were trying to do after put the SaaS model on the map in the early 2000s, you were out of luck. It was either ERP, or a creaky telecom system that would set you back tens of millions of dollars.

Today, of course, it’s a different story. From Apple to Adobe to Autodesk, everyone wants to be a services company. In the new Subscription Economy, where services are being consumed on a pay-as-you-go basis, the standard ERP model is becoming increasingly relegated to a commodity general ledger. Companies are looking for solutions that companies like Oracle and SAP can’t solve 0n their own.

The old cumbersome “one size fits all” ERP model increasingly means that everything gets billed to Oracle, and nothing gets done particularly well. And that’s particularly difficult news when you consider that they just spent ten years and a billion dollars rewriting their decidedly non-cloudy flagship product.

From customer service to expenses to forecasting to billing, more and more companies are taking advantage of “plug and play” SaaS providers that are maniacally focused on performing one core function really, really well.

Just look at today’s SaaS IPO market. Twilio does nothing but think about communications all day. Coupa just does procurements. Apptio fixates relentlessly on IT costs. These SaaS solutions are way more nimble and effective than a massive Oracle installation. And plus you get to convert your old server room into a killer employee lounge.

And guess who else wins with subscription-based business platforms? You guessed it – your customer! Instead of struggling to keep all the home-grown business solutions that Oracle can’t support, you get to focus your energies on standing up a great customer success team and freeing up your engineers to build a killer product. Suddenly you’ve gone from anonymous transactions to ongoing, mutually fulfilling customer relationships.

But don’t mention that to Oracle. They’ve got a nice shiny cloud they’d like to show you.

Learn more in our guide: 4 Ways ERP Fails Subscription Businesses.