Microsoft and Oracle Are Teaming Up To Take On Amazon

Microsoft and Oracle Are Teaming Up To Take On Amazon

Microsoft and Oracle Are Teaming Up To Take On Amazon

Amazon Web Services has dominated the growing cloud computing business, but a new partnership between industry rivals aims to unseat it.

Microsoft and Oracle, formerly competitors in the cloud business, announced a deal last week to link their cloud computing services. Microsoft Azure and Oracle Cloud will now be connected over a high-speed, direct network, allowing clients to upload and store data on both clouds and run business operations software programs on whichever cloud best supports them.

Amazon Web Services is the clear leader in the global cloud business, controlling more than 30% of the market, according to Synergy Research Group. Microsoft Azure has the second-largest share of the market — around 15% — with IBM Cloud and Google Cloud rounding out the four leading companies. Smaller cloud providers like Oracle have grown at a slower pace recently as the top four strengthen their hold on the market.

Oracle and Microsoft say their new partnership will improve the experience for customers and take advantage of a growing desire by organizations to use multiple cloud platforms at once. That could better position the companies to take on Amazon Web Services for key big business and government clients.

“With Oracle’s enterprise expertise, this alliance is a natural choice for us as we help our joint customers accelerate the migration of enterprise applications and databases to the public cloud,” Scott Guthrie, executive vice president of Microsoft’s Cloud and AI division, said in a statement.

More broadly, the move is yet another sign, along with the recent acquisitions of data analytics firm Looker by Google Cloud and data visualization company Tableau by Salesforce, that investment in cloud services and big data has become somewhat of a Holy Grail for software companies.

The battle for cloud supremacy

The cloud brings several advantages to companies, allowing businesses to outsource expensive hosting, security and storage costs.

And for market leaders like Amazon (AMZN) and Microsoft (MSFT), the cloud’s subscription model has become incredibly profitable.

Microsoft’s commercial cloud services, which includes Azure as well as Microsoft Office 365 Commercial and several other commercial cloud properties, brought in $9.6 billion in revenue in the first quarter of 2019, up 41% from the same period in the prior year.

During the same quarter, Amazon Web Services generated $7.7 billion in sales, a 41% increase from the prior year. AWS made up 13% of the company’s total sales, but the high margins for the business meant it made up an even greater slice of Amazon’s total operating income.

And the market for cloud services continues to expand, too. Synergy estimates the market totaled $70 billion in sales in 2018, with a growth rate of around 50%.

This profitability has led to fierce competition between cloud providers. Some, including Oracle, market their ability to process large quantities of data on their platforms. Others highlight the fact that their exclusive software can be used on their cloud platforms. Amazon has been helped by the fact that it was the pioneer of cloud computing.

The fight for lucrative government clients has become particularly cutthroat.Microsoft Azure and Amazon Web Services are the two finalists vying for a $10 billion contract to provide cloud computing services to the US Defense Department. IBM (IBM) and Oracle (ORCL)have both challenged Amazon’s bid for the contract, and Oracle filed a federal lawsuit earlier this month with conflict of interest allegations against Amazon.

Why Microsoft and Oracle are joining forces

Microsoft and Oracle say their partnership will give customers a “best-of-both-clouds experience.

“The deal will allow customers to move data from their own on-site servers to both Microsoft Azure and Oracle clouds. It will now be possible to operate one company’s software on the other’s cloud platform — for example running Oracle’s business operations software on Azure — or to run programs that work together on both clouds at once.

“With this partnership, our joint customers can migrate their entire set of existing applications to the cloud without having to re-architect anything, preserving the large investments they have already made,” Don Johnson, executive vice president of Oracle Cloud Infrastructure, said in a statement.

The deal also includes some other perks for big business clients like a single sign-on for services from both companies, and tech support from either company.

Giving customers access to the top selling points of both cloud platforms at once will be a plus for both companies, Moness Crespi Hardt analyst Brian White said in a note this week.

“Microsoft’s Azure is the #2 public cloud vendor in the world and Oracle is the clear #1 database vendor with a strong #2 position in enterprise applications,” White said. “We believe the two clouds complement each other well.

“The Microsoft-Oracle agreement may help Oracle in particular to improve its standing against Amazon, according to Piper Jaffray’s Zukin. Zukin said Oracle, which has had a smaller stake in the cloud market and has historically been resistant to partnerships, may have realized the necessity of an ally in the fight against bigger players in the industry.

Microsoft clearly doesn’t need Oracle to pose strong competition for Amazon, Zukin said, but the deal may help Microsoft grow Azure Premium Services, its higher-margin cloud product business.

“This is another great channel to sell Azure Premium Services to the Oracle customer base,” Zukin said.

The agreement bears similarities to partnerships beyond the tech world where longtime competitors are linking up to take on industry disruptors. This is especially evident in the auto industry.

For example, Honda announced a $2.75 billion investment in General Motors’ self-driving car unit in October, a partnership that would help the pair take on competition from Silicon Valley companies like Uber and Google (GOOG) that have been developing their own autonomous vehicle technology. In January, BMW and Daimler inked a $1 billion deal in February to develop driverless vehicles and pay-per-use cars together. Ford and Volkswagen have long been rumored to sign a similar partnership.

The multi-cloud model

The cloud has become so crucial to corporations’ business strategies that cloud customers are beginning to build redundancy into their networks.

This “multi-cloud” strategy reduces reliance on a single cloud provider, according to Piper Jaffray’s Zukin. Redundancy helps keep a business operational if one provider goes down, as Google’s cloud did for a few hours earlier this month. It also allows companies to take advantage of the specific benefits provided by multiple cloud platforms.

With their partnership, Microsoft and Oracle have codified this strategy into a formally connected system for their mutual clients, including Albertsons and Gap.

“One of the biggest trends we’ve seen this year is the emergence of mutli-cloud businesses wanting to be able to choose which programs they want to deploy on which cloud environment,” Zukin said.Microsoft and Oracle’s partnership is set to launch in the eastern United States, with plans to expand in the future.

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