FORTUNE -- Oracle had some positive pre-holiday news for investors this week. The database giant's second-quarter results came in higher than expected, with revenue rising 2% to $9.28 billion, and net income declining about 1% to $2.55 billion.
Yes, that was good news. The quarterly numbers sent Oracle (ORCL) shares up more than 6%, the highest in years.
But despite the company's decent quarter, many investors viewed the recent earnings as not much more than a "modest near-term positive," in the words of Macquarie Capital analyst Brad Zelnick. Why? The competitive landscape is getting harder, not easier, for legacy vendors like Oracle, especially given CIOs' increasing preference for software that's delivered online, not via on-premise installations.
Case in point: A recent CIO survey from financial research firm Bernstein C. Sanford showed that the move to software-as-a-service may have a "meaningful impact on Oracle as a greater net share of CIOs see spending less of their IT budget with Oracle in five years than any other vendor in our survey." Ouch. According to the survey, Oracle in particular is viewed as a laggard, reflecting the company's tardy embrace of the cloud. Again, from the report: "From a vendor perspective, CIOs' view of HP appears to be improving off a very low base, EMC and VMware remain in good shape medium to longer-term, and Apple and Samsung appear poised to gain more enterprise spending dollars. On the flip side, results point to declining share of spending for IBM, DELL, HP, and particularly Oracle." Ouch again.
To be fair, Oracle CEO Larry Ellison has bought into the cloud, quite literally: He has spent billions of dollars buying up cloud computing companies like Taleo and RightNow Technologies over the last few years. (Just this morning, the company acquired the cloud-based business-to-consumer marketing firm Responsys for $1.39 billion.) The results appear promising. "Our billion dollar SaaS business delivered overall bookings growth of 35% in the quarter," Ellison said in a release issued earlier this week. "Our fastest-growing cloud services were Fusion Human Capital Management and Fusion Salesforce Automation, each growing bookings at a triple-digit rate."
At the same time, sales of new software licenses and cloud software subscriptions revenues were largely unchanged from the previous quarter, and the company's hardware business isn't out of the woods yet either. And while Oracle now has a portfolio of cloud-based software products, pure-play software-as-a-service players like Workday (WDAY) and Salesforce.com (CRM) are growing at a much faster -- albeit money-losing -- rate, and taking market share away from both the Redwood Shores, Calif.-based company and other legacy vendors. To fight back, Oracle has tried rejiggering its sales force to try to compete head-to-head with its younger, nimbler rivals. But its increased spending on sales and marketing -- increasing at a faster pace than revenue is currently growing -- means increasing pressure on its bottom line.
So where does Oracle go from here? "We would not be surprised to see ORCL drift higher, especially if market gets defensive," Cowen & Co analyst Peter Goldmacher wrote in a recent note to clients. "However, we believe fundamentals remain lackluster and specter of declining margins is upon us."
In other words, whether or not Oracle is all in on the cloud -- and regardless of its better-than-expected recent quarter -- the company's uphill battle is far from over.
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FORTUNE -- The technology industry loves an underdog, especially when a scrappy startup makes breakfast of a bloated incumbent. In enterprise software, Workday (WDAY) has emerged as just such an underdog, using a cloud-based business model to handle human-resources software and take on giants like Oracle (ORCL) and SAP (SAP).
Workday was founded in 2005 by MOREKevin Kelleher - Dec 16, 2013 3:44 PM ET
More questions than answers have been raised about methods used to account for software-as-a-service products.
FORTUNE -- Last week's disclosure that the Securities and Exchange Commission is conducting an investigation into how IBM reports its cloud computing revenue poses more questions than answers. The New York-based tech giant admitted it has been cooperating with the SEC since last May but said little else about the particulars of the case. One thing is MOREMichal Lev-Ram, writer - Aug 8, 2013 11:00 AM ET
The hot enterprise firm is only now putting its software online.
FORTUNE -- You might assume that a young, fast-growing enterprise software company like Tableau Software is all about the cloud -- a.k.a. selling and distributing applications over the web. But the Seattle-based company, which started out as a Stanford University research project in 2003, is only now launching a software-as-a-service version of its business intelligence tool, Tableau Server.
In May, Tableau MOREMichal Lev-Ram, writer - Jul 18, 2013 7:01 AM ET
The so-called subscription economy is expanding.
FORTUNE -- What do men's underwear, online file sharing, and flights up and down the California coast have in common? All three of those hot commodities are now being sold for a monthly flat rate, thanks to a growing number of companies that are embracing a subscription-based model of selling, well, just about anything.
This shift is happening both in the consumer and enterprise worlds, says Tien Tzuo, MOREMichal Lev-Ram, writer - Jun 20, 2013 7:53 AM ET
Social, the cloud, gamification -- it all sounds like consumer-enterprise convergence. It's not, exactly, but these trends are a sign that enterprise has some catching up to do after a year of massive evolution in consumer gadgets.
With only a day to go until the end of 2010, the lists predicting which technologies will dominate the headlines next year are rampant. Well, I'm throwing my hat into the ring as well, MOREMichal Lev-Ram, writer - Dec 31, 2010 5:00 AM ET
C-level positions don't get created overnight. So what is it about the cloud computing revolution that merits a seat in the executive suite?
The cloud: A once, well, hazy term that describes the increasingly vast array of software, applications, and data storage tools that live not on users' home PCs but on the Internet, is taking form. Cloud computing, as tech companies would have us understand it, encompasses all kinds of MOREShelley DuBois, writer-reporter - Dec 6, 2010 1:21 PM ET
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