Oracle’s announcement Friday that it’s acquiring cross-channel marketer Responsys for a cool $1.5 billion is exactly that, a move that both responds to Salesforce.com’s centerpiece 2013 purchase while signalling to investors that the company’s going to push into new areas of cloud software like marketing in a big way next year and into 2015.
Oracle had hinted that changes were afoot in its after-market earnings call Thursday–just not that they’d be closed so fast. “[CEO] Larry [Ellison] used the word ‘options’ quite a bit,” says Gartner analyst Bill Hostmann. “The way he was saying ‘options’ several times usually translates to, ‘ we’re going for better margins.’”
Those margins have been an elusive priority for billionaire Ellison’s Silicon Valley giant since at least 2010, when the company paid $7.4 billion for Sun Microsystems and what’s proven a troubled double-down on hardware. Oracle’s watched cloud companies continue to soar as it’s struggled to sell new subscriptions and has been hit hard by weakness in Asia also felt by other major tech vendors like Cisco and IBM. After years of stability, Oracle missed earnings early this year, then posted decidedly mixed results in September, clearing earnings expectations but seeing its stock slide on anemic revenue growth.
On Thursday, Oracle again beat analyst expectations and showed it had turned sales around in Europe and China. Concerns remained about Oracle’s ability to sell new subscriptions for its cloud software, however. No matter: the next day Oracle made announced its aggressive Responsys buy.
The market has responded: Oracle shares are currently up $2.33, or 6.73%, since Thursday morning.
Responsys is the company’s fourth billion-dollar buy in recent months, joining Taleo, Eloqua and RightNow, and it won’t be the last. Oracle’s co-presidents Safra Catz and Mark Hurd’s repeated comments on Thursday’s call about the company’s strong cash flow now feel like a hint. With a market capitalization well north of $160 billion, Oracle has more cash than the entire listed value of some of its competition. More deals can come.
Responsys likely becomes a centerpiece of a fuller cloud marketing suite, and that means war for two $30 billion players who’ve been reaping gains in the marketing space: Salesforce.com and Adobe. Salesforce.com set the market in June when it bought ExactTarget for $2.5 billion and reorganized its marketing divison around ExactTarget chief executive Scott Dorsey. And it’s Adobe that first recognized a need to shift to marketing. “Adobe’s still the preferred partner with the broader story to tell in marketing,” says Brosnan. they are still the one to beat.”
Salesforce CEO Marc Benioff knows the threat. Ellison and Benioff have had a publicly hot-cold relationship in recent years, one that perhaps bottomed out in 2011. Since then, Salesforce became a customer this summer for Oracle’s flagship new 12c databases. And Benioff seems to embrace his frenemy status with Ellison.
— Marc Benioff (@Benioff) September 23, 2013
— Emily Chang (@emilychangtv) October 7, 2013
And then most recently, this bit of snark in response to Oracle’s earnings from last week:
— Marc Benioff (@Benioff) December 19, 2013
Benioff’s reply reveals that he notices what’s happening, though he hasn’t commented yet on the Responsys deal. Plus he has the lead. “Oracle is playing catch-up here in the cloud in a market with significant competition,” cautions Josh Olson, analyst at Edward Jones.
Momentum is a priority for Oracle, but the real goal for Ellison is to tap the higher revenue multiples and investor interest that comes from the transparent and consistent earnings of cloud software and which have allowed Adobe and Salesforce to trade at much higher off their sales than Oracle does. That’s the long game, and it’s a move that will take a lot more than one more $1.5 billion purchase or two.
Ellison himself told analysts on the company’s earnings call that the company’s product mix was still early in a transition process. “Oracle is a big ship to move,” says Olson, even for the now-reigning America’s Cup champion.
As for Responsys itself, analysts believe Oracle paid a premium for the remaining largest independent company of its kind, one with good cachet but technology that is a bit dated. That leaves StrongView and Silverpop left for other tech players looking to make a move. Analysts say they wouldn’t be surprised to see SAP make the next move to offer marketing alongside its HANA database platform. IBM and Microsoft, meanwhile, “aren’t that relevant” but could be in the market for medium-sized acquisition response./>/>
And while analysts expect Oracle to see growth in sales of its 12c databases, the company’s best bet to get ahead of its earnings cycles and show positive momentum may be to pour more resources into Ellison’s rivalry with Benioff and the upstart Salesforce. That sets the stage for an arms race that will have major implications for the soul of Silicon Valley and cloud computing worldwide.