Boyden Executive Search

The transition to the cloud continues to disrupt the software business, making cloud offerings a high priority for technology executives. Google, Microsoft and Amazon have created markets worth billions, while Silicon Valley pioneers like IBM, Hewlett-Packard and Oracle have struggled to adapt and compete for their share. One route is acquisition. Oracle has embraced this strategy, most recently agreeing to acquire NetSuite for $9.3 billion.

By Boyden

The transition to the cloud continues to disrupt the software business, making cloud offerings a high priority for technology executives. Google, Microsoft and Amazon have created markets worth billions, while Silicon Valley pioneers like IBM, Hewlett-Packard and Oracle have struggled to adapt and compete for their share. One route is acquisition. Oracle has embraced this strategy, most recently agreeing to acquire NetSuite for $9.3 billion.

While NetSuite is Oracle’s biggest acquisition since 2004, the deal does not represent a change of direction. For years Oracle has been buying up cloud companies and making big investments to reshape its engineering and sales staff for the cloud. Thus far, staying the course has been fruitful. Oracle raked in $12.2 billion in core cloud software sales last year, an increase of 49% from 2014. This makes Oracle one of the largest cloud companies.

At the same time, cloud software sales accounted for a disappointing 8% of Oracle’s revenue. With demand for its older products diminishing, overall revenue fell by 3% last year. Others, including IBM and Hewlett-Packard, have been less successful still at adapting to the cloud environment. Both have seen sharp declines in revenue with the rise of cloud computing.

Oracle’s relative success can be attributed in large part to its core product. As the New York Times notes, Oracle’s database for financial and managerial work is “at the centre of most major companies worldwide.” Some competitors have tried to unseat Oracle with more modern databases, but with little success.

As to how NetSuite’s technology will fit within the Oracle ecosystem and the software market, Chief Executive Mark Hurd said in a statement that “Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever.”

NetSuite was founded in 1998 by Evan Goldberg, with the backing of his former boss, Oracle founder and former CEO Larry Ellison. Salesforce, the leading cloud software-only company, was founded by Marc Benioff, also with backing from Ellison. Competition between Oracle and Salesforce therefore has a bitter edge. Acquiring NetSuite’s technology will strengthen Oracle’s position.

NetSuite’s current CEO, Zachary Nelson, is a well-regarded leader who also worked at Oracle. It is expected that he will take a senior executive role at Oracle with the completion of the deal, set for later this year.

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