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How Informatica uses the cloud to empower a data-driven enterprise

Overview

Setting the stage for what ended up being the primary theme at Informatica World 2022 — Data is your platform — Informatica CEO Amit Walia walked attendees through two emerging trends: the importance of scalable infrastructure through cloud computing, and how AI and machine learning (ML) are no longer just about automating processes but also about enabling predictive intelligence. These trends, while well recognized in theory, are more challenging for businesses to put into practice, particularly due to the proliferation of data and the number of users looking to access said data, including both technical and nontechnical personas.

Informatica’s solution to data complexity is rooted in one of the company’s core values — platform centricity — but the move to essentially replace Intelligent Data Platform with IDMC, after years of innovation and a slight disruption from COVID-19, is now taking Informatica’s approach to data management and integration to new heights. With IDMC in the cloud, Informatica is better positioning itself to help clients translate data into valuable insights at a level that cannot be realized on premises.

In addition to being cloud-native, IDMC is infused with AI, addressing the other emerging trend called out by Walia — the need for AI-powered intelligence. All Informatica capabilities are built on CLAIRE, an automated metadata engine that processes 32 trillion transactions per month, and tie back into IDMC. While the ROI for AI technology is still hard to justify for many businesses, another key factor in the low adoption of the technology is that many businesses are working with complex, siloed data, which means AI models could fall short and lead to inaccuracies.

CLAIRE is designed to address a range of operational, runtime and automation use cases — from auto-scaling to anomaly detection — and acts as a wrapper around IDMC to enable fully automated data management and governance processes. By bringing the power of cloud and AI into one integrated platform, Informatica uses IDMC to help customers focus on the only thing they truly own in the cloud: their data. The result of a $1 billion, six-year investment, IDMC consists of seven core modules, with its value proposition largely stemming from its modularity and the ability to allow customers to pick and choose capabilities and services based on their industry, business and use case.

Informatica expands platform capabilities, driving additional value for its comprehensive, cloud-native solution

New innovations emphasize uniting IT and business functions to improve efficiency

With IDMC, Informatica has solidified its platform approach, but as cited by various customers, the company’s ability to continually offer new capabilities is what drives additional value, by addressing more horizontal and vertical use cases in the data life cycle. Perhaps the most notable announcement at Informatica World 2022, which seemed to garner particular excitement from product leaders and customers, was the general availability of Informatica Data Loader. Jitesh Ghai, Informatica’s chief product officer, led a demo of Data Loader, which is a free, self-service tool that ingests data from over 30 out-of-the-box systems into Google Cloud’s popular data warehouse solution, BigQuery.

As part of the demo, we saw a scenario play out where a marketing analyst needs access to more data to effectively run a campaign. The hypothetical marketing analyst then accesses the Integration module within IDMC to pull data from Marketo using a drop-down tool to access BigQuery through which data can be loaded in only a few steps. This integration could end up acting as a time-saver for large organizations and speaks to the innovative ways Informatica is getting data into the hands of line-of-business teams.

At the event, Informatica also announced INFACore, which targets more technical users, such as data scientists and engineers, allowing them to clean and manage data in a single function. As a low-code plug-in for popular frameworks, such as Jupyter notebooks, INFACore is designed to improve the productivity of the technical user, but naturally this productivity trickles up to business functions. For instance, after using INFACore to cleanse data through a single function, the data scientist can publish a clean data set to the Informatica Marketplace, where other teams within an organization can access it.

Another key innovation called out in opening talks with Ghai was ModelServe, which allows users to upload, monitor and manage ML models within their Informatica data pipelines. There are many ML models in production, but businesses are still looking for ways to scale them from an operational perspective. In talks with more than one customer at the event, the common interface within IDMC came up as a value-add when attempting to scale a data team, suggesting customers are awaiting ModelServe’s general availability as it will allow users to register and manage ML models directly within IDMC.

Informatica strengthens SaaS portfolio, building in intelligence from the data model up

While Informatica’s platform capabilities get much of the market’s attention, the company also has a broad portfolio of IDMC-enabled SaaS offerings, which play a key role in the data management journey, complementing warehousing, integration and automation. As a native service within Informatica’s Master Data Management (MDM) solution, 360 applications act as a gateway for transforming customer experience in the cloud, something we saw in action through the product demo of Supplier 360 SaaS.

Through IDMC, CLAIRE recognized a defective part from a supplier of a hypothetical company, and teams were able to use Supplier 360 SaaS to identify which customers were impacted by the faulty part and automatically notify customer service so they can launch a refund program to keep customers satisfied. Informatica also released various industry and domain extensions for its 360 applications and will continue to offer new packaged offerings available in a SaaS model, providing customers more ways to onboard and manage data.

Joining the industry cloud bandwagon, Informatica verticalizes IDMC

It is no secret that industry specialization is re-emerging as a leading trend in the cloud space, as a maturing enterprise customer base demands solutions that suit their unique IT and business processes. During the event, Informatica unveiled new IDMC customizations for financial services, healthcare and life sciences. These three offerings join IDMC for Retail in Informatica’s industry cloud portfolio to further address demand for purpose-built solutions that will limit the need for customization.

Findings from TBR’s Cloud Infrastructure & Platforms Customer Research continue to indicate that some enterprises are wary of industry cloud solutions, dismissing them as marketing ploys. Other enterprises, however, find them worth evaluating. For instance, in talks with a representative from a hedge fund, we found that the company initially chose a competing MDM solution because it specialized in asset management with its own specific data dictionary but was torn as it viewed Informatica’s MDM as ahead of the competition in terms of capabilities. We can expect Informatica to expand in other industries, including specific subverticals, with additional data models, custom user interfaces and data quality rules to appeal to these customers.

Continued integrations and go-to-market synergies with hyperscalers help Informatica maintain data neutrality

For a company that markets itself as the “Switzerland of data,” Informatica’s ability to make its offerings accessible across leading cloud platforms is critical. Partnering across the cloud landscape is no longer a differentiator, it is a necessity and something customers clearly find value in as they gravitate toward multicloud environments. During the event, Walia welcomed several partner executives both in-person and virtually to discuss new joint offerings and go-to-market synergies the company is forming with cloud service providers to deliver more choice and flexibility and for joint clients.

      • The ubiquity of Microsoft’s cloud portfolio allows Informatica to provide clients a unified data architecture. Informatica and Microsoft (Nasdaq: MSFT) have a well-established relationship, which at its core is focused on migrating data warehouses to the cloud but is evolving and making Informatica relevant across the Microsoft Cloud stack, including Azure, Power Platform and 365 applications. For example, Informatica is typically well known for its integration with Azure Synapse, but the company also integrates with the Dynamics 365 SaaS data model to enable Customer 360 analytics. Expanding its presence throughout the Microsoft Cloud stack, Informatica announced MDM on Azure. With this announcement, customers can deploy MDM as a SaaS offering on Azure via the Azure Marketplace, which could appeal to the large number of Microsoft shops looking to enhance their Azure Data Lakes with a feature-rich MDM solution. Both companies also launched Informatica Data Governance with Power BI, which, as highlighted by Scott Guthrie, EVP of Cloud and AI at Microsoft, brings Informatica’s data catalog scanners to Power BI, allowing customers to have a single view of their data processes from ingestion to consumption. This offering could serve as a more strategic way for customers to modernize their analytics workloads through Azure.
      • Given their respective strengths in data analytics and data management, Google Cloud and Informatica are complementary partners. The Google Cloud-Informatica relationship took a major step forward with the launch of Informatica Data Loader, which could expand client usage of BigQuery and help Google Cloud (Nasdaq: GOOGL) address a wider set of customer needs, including those outside the IT department. In TBR’s own discussions with enterprise buyers, BigQuery is often cited as a leading solution due to its ability to handle petabytes of data at a favorable price point. Walia reaffirmed this notion in discussions with two customers, ADT and Telus, both of which are migrating legacy data warehouses and/or front-end ETL (extract, transform, load) capabilities into their BigQuery instances and using IDMC for cloud-based data management.
      • Oracle awards Informatica preferred partner status for data integration. Informatica and Oracle (NYSE: ORCL) struck a new partnership agreement that offers IDMC on Oracle Cloud Infrastructure (OCI). Addressing the large number of customers running legacy Oracle databases and potentially those that are also deploying on-premises Informatica products, IDMC on OCI provides customers an integrated gateway to the cloud by enabling back-end connections with Oracle Autonomous Database and Exadata Database Service and OCI Object Storage. For example, with IDMC on OCI, customers can import data from legacy Oracle E-Business Suite applications into Autonomous Database and connect to other data sources, such as Azure SQL or Amazon RedShift, through IDMC. As a preferred Oracle partner, Informatica will recommend customers use IDMC with Oracle’s cloud services. Oracle’s EVP of database server technologies, Andy Mendelsohn, walked through numerous incentives to assist customers’ cloud migrations, such as Bring Your Own License, Informatica Migration Factory and Oracle Cloud Lift Services.

Informatica also has close relationships with Amazon Web Services (AWS) (Nasdaq: AMZN), Snowflake (NYSE: SNOW) and Databricks, all of which are expanding their commitments to Informatica to help customers look beyond ETL and handle data in an end-to-end fashion. Given Informatica offers analytics, integration, automation, governance and management capabilities across leading clouds, naturally the company runs up against a high degree of competitive overlap with its partners, which offer similar native tooling as part of a customer’s environment.

However, in talks with customers, the general perception seems to be that the hyperscalers’ capabilities are still relatively immature and that there is also significant value in deploying a vendor-neutral platform like IDMC to avoid vendor lock-in and address the training and skill challenges typically associated with a multicloud environment. While we can expect the hyperscalers to enhance their capabilities, at the end of the day, the primary goal for AWS, Microsoft and Google Cloud is to win compute, so the benefits of partnering with Informatica to capture legacy platform-layer workloads outweigh the downsides of coopetition.

Conclusion

With IDMC, Informatica has fostered a value proposition catered to three core areas: platform-centricity, connecting IT and business ecosystems, and infrastructure agnosticism. The numerous announcements made at Informatica World 2022 show the data management company is building on these strategic pillars by better aligning with cutting-edge trends in the cloud industry, such as industry customization, out-of-the-box integrations and data democratization. With these enhancements in place, along with close partnerships across the IaaS ecosystem, Informatica is positioning itself favorably to assist clients with the large number of on-premises workloads ready to be migrated and modernized in the cloud while enabling the cloud-native enterprise to transition from digital to data-driven.



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In an unlikely pairing, Oracle backs TikTok to drive OCI business and intimidate IaaS competitors

Acquisition turned partnership: Oracle bands together with TikTok

Oracle’s presence in TikTok-related news — from competitive bid to strategic partnership to now minority stakeholder — has raised eyebrows from the beginning, given the company’s complete detachment from the social media business. Oracle executives have not been shy about expressing their support for the current White House administration, nor for their plans to take IaaS share from Amazon Web Services (AWS) (Nasdaq: AMZN) and Microsoft (Nasdaq: MSFT).

In fact, Microsoft, which showed great interest in TikTok initially, had far more to gain from a potential deal. However, regardless of how Oracle was brought into consideration, the agreement has the potential to benefit Oracle in several ways, including stronger governmental ties, gaining a win over Microsoft, onboarding a new Oracle Cloud Infrastructure (OCI) customer, owning a stake in a profitable company, and lastly, earning the chance to convince the market that Oracle is evolving from an old-school software company to an adaptive cloud vendor that has ties with an up-and-coming generation.  

What does this mean for Oracle’s cloud business?

Big logos give Oracle a confidence boost in chasing competitors, with AWS as leading target

In many ways, TikTok is just another name Oracle can add to its roster of recent high-profile OCI wins, including Zoom and 8×8. Despite the attention that was given to these deals amid COVID-19, Zoom still runs most of its workloads on AWS or in its own data centers. This latest win follows a similar trend, as TikTok is in the middle of a three-year agreement with Google Cloud (Nasdaq: GOOGL), promising to buy over $800 million in cloud services.

However, as part of Oracle’s 12.5% stake in the new company, TikTok will also run on OCI. While this allows Oracle to boast a win over Microsoft and Google Cloud, IaaS incumbent AWS remains the company’s primary target. Recent updates, such as a cost-analysis tool, plans to scale to 36 live public cloud regions by mid-2021, and strategic technology partnerships with Microsoft and VMware (NYSE: VMW) are just a few ways Oracle will continue to apply the pressure.

After months of deliberation on the fate of TikTok — a social media application owned by China-based internet technology company ByteDance — due to security concerns raised by the Trump administration, the U.S. government and involved parties came to a tentative agreement on Sept. 19.

Per the agreement, TikTok will transition to a publicly traded U.S. company, with Oracle (NYSE: ORCL) and Walmart (NYSE: WMT) as initial stakeholders. Under the new deal, ByteDance will hold an 80% stake in the new company, dubbed TikTok Global, which is scheduled to hit the market through an initial public offering in less than one year. Combined, Oracle and Walmart will hold the remaining 20% stake, leveraging data to improve their respective positions in technology and retail. While TikTok will maintain control of its algorithms, the deal will still bring TikTok under U.S. financial law and subject it to security oversight by Oracle as a vested technology partner.

2Q20 gives cloud vendors hope the worst COVID-19 impacts are over

2Q20 was better than expected and sparks more long-term optimism

Results in 2Q20 reflect a full quarter’s worth of COVID-19 impact, and the sigh of relief from executives at leading cloud providers was almost audible. That is not to say negative impacts were not felt, though. Transactional activity was once a nice growth driver for cloud providers, laying additional revenue on top of the long-term contracts that typically provide the majority of cloud revenue. Those revenue streams have been hardest hit in the cloud space, as businesses across the board initially looked to trim expenses amid pandemic-driven disruption and financial challenges. Some long-term projects have been delayed, particularly among smaller customers that lack the same degree of financial stability their larger counterparts possess to weather challenging times. And lastly, there remains a considerable amount of uncertainty as to how the economy and customer demand will change in 2H20.

Despite these challenges, numerous positives occurred for cloud providers during 2Q20. Those positive elements not only yielded a better-than-feared performance in the quarter but also gave vendors a reason to believe there could be even more improvement in the back half of the year. One factor spurring this optimism is that, for the most part, COVID-19 has accelerated existing trends within the competitive landscape, rather than dramatically altered them. Customers are not scrapping planned cloud investments, although they may be delaying or paring them back temporarily. The largest vendors, including Amazon Web Services (AWS) (Nasdaq: AMZN) and Microsoft (Nasdaq: MSFT), saw deceleration in their revenue growth rates, but that has been occurring for years. SAP (NYSE: SAP) needed to rely on remote services to take new deployments live, but that too has been a trend for quite some time. Lastly, Oracle (NYSE: ORCL) saw a decline in cloud revenue growth and continues to trail competitors in pace of cloud growth, but that is the latest chapter in an ongoing story.

The silver lining that was consistently reported across 2Q20 earnings calls is that customer demand for cloud solutions long-term is expected to strengthen. Many vendors are looking to endear themselves to customers now by helping customers reduce expenses and by aiding in COVID-19 response. On the pricing front, vendors strategies range from pricing flexibility to discounts to assisting customers in finding efficiencies that reduce costs. To help customers respond to COVID-19, cloud vendors have developed targeted solutions and IP that support shifts in business operations, many of which are being offered free of charge or at a deep discount in the near term. These efforts may dampen some of the short-term growth for cloud solutions. However, cloud vendors have growing reason to believe they will reap the benefits of accelerated cloud investment once the economy and their customers’ businesses improve.

Cloud Revenue Growth Trending 2Q19-3Q20E

COVID-19 has not impacted all industries equally. Though cloud proved resilient during 1Q20, there was still trepidation about how customers in harder-hit industries like travel, entertainment and transportation would react through the remainder of 2020. Not only were results in 2Q20 stable for leading cloud vendors, there is optimism that demand for cloud technologies will remain robust through year’s end regardless of how other industries and the broader economy perform. 

Hybrid-influenced vendors respond to customer demands, including limited vendor lock-in and seamless, secure integrations

Hybrid-influenced vendors sit in a high-growth market as they rely on proprietary infrastructure to architect in-demand hybrid solutions. Microsoft (Nasdaq: MSFT) is separating itself from much of the market as many enterprises use Office 365 in a hybrid environment and as the vendor wins legacy VMware (NYSE: VMW), Oracle (NYSE: ORCL) and SAP (NYSE: SAP) workloads. Among vendors competing for legacy workloads, TBR expects Amazon Web Services’ hybrid-influenced revenue will continue to grow as the vendor strongly competes against Microsoft for the enterprise migrations.

TBR’s Hybrid Benchmark helps providers of hybrid environments and their partners align to growing opportunity, highlighting the market size of hybrid-influenced public cloud, hosted private cloud and traditional software; the go-to-market strategies vendors are using to drive revenue in the hybrid IT space; gaps in the current ecosystems for enterprises; how vendors are addressing customers’ integration challenges; and more.

Returning to a co-CEO structure completes the executive refresh to support SAP in the ongoing cloud war


Bill McDermott chose not to renew his contract as SAP CEO, making room for SAP to return to its co-CEO structure with Jennifer Morgan and Christian Klein. This changing of the guard is the capstone on SAP’s management realignment, and the announcement comes with some glaring similarities to key ERP challenger Oracle’s announcement a month earlier.

Morgan and Klein take over the refreshed SAP executive suite

SAP has made numerous management changes in 2019, but all changes had been made with CEO Bill McDermott leading the company — and the newly appointed leaders — through each step. That reassuring constant ended abruptly on Oct. 10, when McDermott announced he will step down from his CEO role instead of renewing his contract. McDermott will stay with the company in an advisory capacity through the end of the calendar year to smooth the transition to the newly appointed co-CEOs Morgan and Klein.

While the personnel is changing, the co-CEO structure is a familiar one for SAP. SAP operated under a dual CEO structure for quite some time, with McDermott himself sharing the CEO responsibilities with Jim Hagemann Snabe before taking over in an individual capacity. The new co-CEOs are well paired from geographical and functional standpoints, as Morgan is U.S.-based and focused on sales, while Klein is Germany-based and more focused on products and innovation. In furthering the consistency, founder Hasso Plattner, himself a former co-CEO of SAP, remains chairman of the board and very involved in the overall strategy.

Morgan was in her role as president of the Cloud Business Group for a mere six months between Robert Enslin’s April departure to Google Cloud and her promotion into the role of co-CEO. Before his appointment to co-CEO, Klein became a member of the executive board in 2018 and served as SAP’s chief operating officer and chief controlling officer. We believe Morgan’s focus on sales and customer relationships as well as Klein’s strength in operations will be required to achieve SAP’s dual overarching goals: to grow revenue through sales and improve margins through operating efficiencies.

Notably, Morgan and Klein are stepping into the driver’s seat as other SAP executives are just finding their footing in new roles:

  • One of the biggest shifts SAP made in the first half of 2019 was changing aspects of its partner programs, capped by the promotion of Karl Fahrbach from chief operating officer of the partner organization, to SAP’s first chief partner officer in March, after Rodolpho Cardenuto left his role as president of the partner organization in December 2018.
  • Without much fanfare, Juergen Mueller was promoted from chief innovation officer to chief technology officer in January 2019, and appointed to SAP’s executive board.
  • Elliot Management disclosed its investment in SAP in April 2019, and immediately directed SAP to further improve margins while chasing revenue growth.



Returning to a co-CEO structure completes the executive refresh to support SAP in the ongoing cloud war

Bill McDermott chose not to renew his contract as SAP CEO, making room for SAP to return to its co-CEO structure with Jennifer Morgan and Christian Klein. This changing of the guard is the capstone on SAP’s management realignment, and the announcement comes with some glaring similarities to key ERP challenger Oracle’s announcement a month earlier.

Morgan and Klein take over the refreshed SAP executive suite

SAP has made numerous management changes in 2019, but all changes had been made with CEO Bill McDermott leading the company — and the newly appointed leaders — through each step. That reassuring constant ended abruptly on Oct. 10, when McDermott announced he will step down from his CEO role instead of renewing his contract. McDermott will stay with the company in an advisory capacity through the end of the calendar year to smooth the transition to the newly appointed co-CEOs Morgan and Klein.

While the personnel is changing, the co-CEO structure is a familiar one for SAP. SAP operated under a dual CEO structure for quite some time, with McDermott himself sharing the CEO responsibilities with Jim Hagemann Snabe before taking over in an individual capacity. The new co-CEOs are well paired from geographical and functional standpoints, as Morgan is U.S.-based and focused on sales, while Klein is Germany-based and more focused on products and innovation. In furthering the consistency, founder Hasso Plattner, himself a former co-CEO of SAP, remains chairman of the board and very involved in the overall strategy.

Morgan was in her role as president of the Cloud Business Group for a mere six months between Robert Enslin’s April departure to Google Cloud and her promotion into the role of co-CEO. Before his appointment to co-CEO, Klein became a member of the executive board in 2018 and served as SAP’s chief operating officer and chief controlling officer. We believe Morgan’s focus on sales and customer relationships as well as Klein’s strength in operations will be required to achieve SAP’s dual overarching goals: to grow revenue through sales and improve margins through operating efficiencies.

Notably, Morgan and Klein are stepping into the driver’s seat as other SAP executives are just finding their footing in new roles:

  • One of the biggest shifts SAP made in the first half of 2019 was changing aspects of its partner programs, capped by the promotion of Karl Fahrbach from chief operating officer of the partner organization, to SAP’s first chief partner officer in March, after Rodolpho Cardenuto left his role as president of the partner organization in December 2018.
  • Without much fanfare, Juergen Mueller was promoted from chief innovation officer to chief technology officer in January 2019, and appointed to SAP’s executive board.
  • Elliot Management disclosed its investment in SAP in April 2019, and immediately directed SAP to further improve margins while chasing revenue growth.

While these changes have all come in different areas of the company, they are aligned with SAP’s goals as it transitions from a traditional software vendor to a cloud solutions provider. With its cloud portfolio largely in place (though innovation, replatforming and acquisitions persist), SAP is at the point in its transformation that requires it to invest in partner enablement to sell its cloud solutions and ongoing competitive innovation within its defined solution areas, and to do so with a focus on operating efficiencies. In this same spirit, McDermott aggregated a portfolio, and Morgan and Klein are well aligned to take that portfolio forward to achieve the goals, with the help of an invigorated C-Suite behind them. Arguably, SAP would have been well served by McDermott’s persistence as CEO to complete the technology transition to the HANA platform before departing, but Mueller and Plattner will likely both lend their technical leadership to ensure the smooth transition alongside the other business leaders.

Releasing earnings alongside the CEO announcement proves SAP’s ERP capabilities against Oracle’s speedy September release

SAP’s announcement was not allowed to pass without parallels being drawn to its most boisterous competitor: Oracle. The most discussed similarity is that SAP’s CEO change came almost exactly a month after one of Oracle’s CEOs, Mark Hurd, took an immediate leave of absence for medical reasons. Outside of the timing, the CEO announcements are, however, vastly different in motivation and succession.

The other similarity, which TBR believe is more noteworthy, comes from both companies’ ahead-of-schedule releases of quarterly earnings data in conjunction with their CEO announcements. When Oracle released its earnings Sept. 11, one day ahead of its scheduled release and 11 days after the quarter ended, CEO Safra Catz underscored the speed with which Oracle was able to prepare its financial statements by running on its own Fusion ERP Cloud suite. Nearly a month later, SAP was able to close and prerelease its results in a 10-day window using its ERP solutions. TBR expects this move to prove critical for SAP, as SAP quickly rebutted what could have been used as a competitive proof point of the capabilities of Oracle’s ERP solutions.

Oracle sheds bright red branding but maintains database narrative and competitor assault at OpenWorld

A rebranded Oracle aims to improve interactions with customers and partners, but not AWS

At Oracle OpenWorld, the similarities between the renovations to the venue and to Oracle’s brand were undeniable. The Moscone Conference Center, which has been home to Oracle’s annual event for years, underwent remodeling to improve traffic flow and implement modernizations that Oracle used to showcase its own updated user flow and look. Underneath these branding and operational changes, much of the core building blocks remained the same, with some expansions and evolutions.

A new Oracle: Rebranding and partnerships

The most obvious updates came in the form of the company’s new Redwood brand identity, which consists of a more diverse color palette, including an updated shade of Oracle Red, as well as customized Oracle font, textures, illustrations and other visual elements. The intent of the design element changes was to portray a more modern, diverse and ultimately repositioned Oracle experience. The key phrase Oracle employees used to summarize this shift was “more human,” with clear acknowledgement of not only the long-standing negative perception around the Oracle customer experience but also the many operational changes being made behind the visual rebrand to support a change in engagement. Core to this shift are the new Oracle mission statement and an even greater focus on customer successes stories to frame Oracle’s new approach. These stories were most evident in the solution keynotes and marketing investments, such as advertisement takeovers on The Wall Street Journal and Forbes websites, among other mediums.

Arguably part of this rebrand, and definitely part of the change in how Oracle is engaging across the customer and partner landscapes, was the emphasis with which Oracle announced deeper engagements with Microsoft (Nasdaq: MSFT), VMware (NYSE: VMW) and the ISV ecosystem as a whole.

  1. Oracle highlighted its June partnership with Microsoft to enable multicloud deployments across both vendors’ cloud services through data-center-specific direct connections. This service was originally made available in Virginia, and availability in London was announced at the conference. The pair intends to further extend these capabilities to U.S. government regions in the Western U.S. as well as in Asia and other European regions in the future. As Oracle workloads had been certified to run on Microsoft Azure in 2014, this expansion enables customers to leverage Azure services while utilizing Oracle’s Autonomous Database. The companies also announced integrations between Microsoft Teams and the new Oracle Digital Assistant, which was developed to support user interaction with business systems that use different language than what is typical for consumer assistants.
  • Additionally, Oracle announced it has partnered with VMware to bring VMware Cloud Foundation to Oracle Cloud Infrastructure (OCI), similar to VMware’s partnerships with Amazon Web Services (AWS; Nasdaq: AMZN) and Microsoft Azure, enabling customers to run VMware-based workloads on its bare metal instances. Oracle CTO and Chief Executive Larry Ellison argued the company’s alliance with VMware will enable a truer “lift and shift” of VMware-based workloads from on-premises to OCI with “virtually no change” when the solution becomes available in 4Q19 due to its configuration of bare metal services. The pair also announced unified support for workloads running VMware and Oracle technology together.
  • To better support the ISV ecosystem, Oracle announced the immediate availability of unified billing on the Oracle Cloud Marketplace. This addition of a “paid listing” classification goes beyond free listings and Bring Your Own License (BYOL) listings, where the OCI resources were paid separately from free or licensed software, enabling customers to pay for third-party solutions in per-hour increments and using Oracle universal credits. Beyond simplifying customer solutions purchasing, OCI deployment and complete workload billing, enabling the use of Oracle’s universal credits to pay for third-party software positions Oracle’s sales efforts and quotas to support the growing ISV ecosystem.

Additionally, Oracle and Deloitte announced a new alliance at the conference by launching ELEVATE. The alliance will work to execute the goals of Oracle’s consulting business to automate cloud migrations to Oracle Autonomous Databases and OCI through Oracle Soar, Destination PaaS and IaaS. By leveraging Deloitte’s professional services organization and its cloud discovery and automation platform, Oracle will expedite and smooth migrations to protect, and presumably expand, its existing customer base as customers migrate more critical enterprise workloads to cloud environments.

IoT is a piece of a larger IT strategy and should not be treated as a unicorn

Let us begin with the bad news: Many IT and operational technology (OT) vendors were disappointed — and some incurred damage or had to scramble to realign — as the IoT opportunity failed to live up to inflated expectations prevalent between 2015 and 2017. Many anticipated far more rapid growth than was reasonable, given that IoT is neither a technology nor a market, but a technique or a class of solutions. Many also thought that version 1.0 of horizontal IoT platforms was a fast and easy sell. An early victim was General Electric (NYSE: GE), but TBR expects other large names to narrow their IoT businesses and investments, if they have not already, and several smaller names to disappear or get eaten by bigger fish as they find themselves spinning their wheels in the mud with nondifferentiated portfolios.

The good news: Starting in late 2018 and continuing into 2019, TBR has observed the IoT opportunity recovering as lessons from the difficult times have led to increased sanity and smarter messaging around IoT. We believe that the pace of IoT project implementation is increasing, but that the mix has shifted to smaller projects. Over time, however, the number of active projects will grow and the amount of data they produce will also grow, leading to an accelerating growth curve.

TBR believes a few significant realizations and realignments are driving acceleration:

  • IoT really is not a market (although that is the easiest way to describe it) nor a technology. It is a technique for applying technology. It is not a very novel technique, but rather an evolution of IT solutioning that includes sensors. More vendors and customers are coming to understand what IoT is and are avoiding the perception of IoT as something that is new, novel and complex, making it easier for vendors to leverage IoT to help customers overcome business challenges. With IoT being treated as one tool in the larger IT solutioning toolbox and the focus turning to solving the end problem, rather than defining the technology needed to get there, vendor-customer relationships are back to business as usual. Vendors do not have to get bogged down in education cycles as much because customers understand IT solutioning, and vendors can focus on delivering solution components instead of getting embroiled in discussions on the perception of IoT as a discrete and transformational technology and the complexity, hesitation and perceived risk that stem from that.
  • IoT is not easy. This is true for two reasons: because customer organizations are complex and have numerous stakeholders with differing priorities, visions and systems, and because IoT is rarely implemented in and of itself. IoT is more often tied with existing or new systems, such as product lifecycle management, supply chain management, enterprise resource planning software, or a multitude of specialized software from ISVs. Adoption is largely from the bottom up in organizations, but customer IoT champions and vendors are realizing that adoption must be supported from the top down to extract maximum value from IoT. Customers are increasingly adding CIO and chief digital officer (CDO) roles to guide holistic, consistent transformation, and vendors are investing in sales strategies targeted at the C-Suite, such as innovation centers and improved messaging. To answer the second challenge, vendors are learning that they cannot address everything alone and must partner to tackle the variety of interconnected systems and build best-in-class solutions.
  • Being the best at a few select components of IoT is better than being OK at everything. Thousands of vendors are attacking the IoT opportunity, culminates in a busy, confusing and hypercompetitive market for customers. Winning vendors are finding their swim lanes and exploiting their niches, such as self-service Amazon Web Services (Nasdaq: AMZN), application-focused Oracle (NYSE: ORCL), embedded-driver Dell Technologies (NYSE: DELL) and things-focused Bosch. These vendors are increasingly known for being the strongest in their chosen niches, and their narrower focuses not only make them prime targets for systems integrators to pull into solutions but also make partnerships easier, with joint go-to-market efforts proving to be a winning strategy for vendors to employ beyond their legacy customer bases. 
  • Packaged solutions are emerging. With customization comes cost and complexity, anathemas to the customer base, especially large customers. As vendors begin packaging components together for shared applications or to address common challenges, costs are beginning to develop boundaries, helping customers understand exactly how IoT can be used and what to expect in terms of ROI. TBR expects packaged solutions to drive steady market growth moving forward. Each solution has its own growth curve, with some being quite rapid—but taken together, these solutions are delivering accelerating but moderate growth.

The 3Q19 Commercial IoT Market Landscape looks at technologies and trends of the commercial IoT market. Additionally, TBR catalogs and analyzes more than 520 customer deals by vertical, uncovering use trends, identifying opportunities, examining maturity, and discussing drivers and inhibitors.

Executive change at Accenture portends changes for the market leader

With Julie Sweet appointed the next CEO of Accenture and David Rowland named the executive chairman of the board, the company doubles down on its proven go-to-market strategy and delivery frameworks. However, as Accenture strengthens its core as a technology organization and Accenture Technology plays a pivotal role in North America’s performance (Sweet was previously CEO of Accenture North America), TBR Senior Analyst Boz Hristov says a couple of questions remain:

  • Will Sweet bring a clear vision and execution strategy for the company’s IP, in particular around monetizing it?
  • Should Accenture consider spinning off its Accenture Software business as a separate entity and launch a mature startup-like software organization?

We do not expect major changes in Accenture’s strategy and/or performance in the short term; however, as with any new CEO, one should always expect some degree of change. Only time will tell if that change will be minimal or involve a 180. As TBR recently noted, Accenture delivered record-breaking quarterly revenue, with growth increasing 3.8% year-to-year in USD (8.4% in local currency) to $11.1 billion in FY3Q19, as the company’s aggressive investments in “the new” are paying off, as the segment now contributes over 60% of total sales and expanding at double digits in constant currency. While many of the new opportunities for Accenture stem from investing in innovative offerings (e.g., Industry X.0) and building out relationships with new buyers, demand for application services in connection with adopting intelligent ERP systems, enabled by key partners such as SAP, Oracle, Microsoft, Salesforce and Workday, drove double-digit revenue growth in local currency, with the segment generating 40% of sales.

Additional assessments publishing this week from our analyst teams

Ericsson has made significant progress in its latest restructuring initiative, leading to higher margins and a more focused go-to-market strategy. The company has also lately been helped by the ongoing deployment of 5G and 5G-ready networks in the U.S. and, to a lesser extent, South Korea. U.S. spend on 5G will accelerate as operators aim to gain a competitive advantage, and Ericsson is positioned to capitalize. In our 2Q19 Ericsson Initial Response, we will examine Ericsson’s continued restructuring progress and monitor its status as a leading 5G RAN supplier. — Michael Soper, Senior Analyst

TBR will publish its 2Q19 Oracle Cloud report on Thursday, discussing where Oracle sits in its quest for cloud dominance, the status of autonomous database adoption and the expected impact of Oracle’s alliance with co-AWS-rival, Microsoft Azure. — Meaghan McGrath, Senior Analyst

Application software vendors continue to realize healthy growth of subscription revenues, accompanied by accelerating declines in licensing, as reported in the upcoming Applications Software Vendor Benchmark. Application vendors aggressively pursue cross-selling of subscription solutions to generate scale and protect operating margins as the cloud sales mix increases. This is particularly true for multiline vendors with substantial legacy license bases, though these vendors are well positioned to upsell existing customers to cloud alternatives by emphasizing the value of deploying managed, unified suites between the front and back office. — Meaghan McGrath

SAP will release its 2Q19 earnings on Thursday, uncovering the near-term impact of its highly transparent restructuring effort. TBR will discuss this, as well as portfolio developments related to C/4HANA and Qualtrics application releases, in our SAP Cloud Initial Response, which will publish on Friday. — Meaghan McGrath

IBM’s acquisition of Red Hat officially closed on July 9 and will impact the trajectory of the business for the remainder of 2019 and beyond. TBR’s Initial Response report will touch on this and other developments at IBM in 2Q19, including within the company’s Systems Hardware business. — Stephanie Long, Analyst

IBM Services continues with its portfolio realignment initiatives to deliver higher-value and higher-margin services that integrate technology and industry expertise and enable clients’ digital reinventions. While IBM Services’ activities around advising, building, moving and managing next-generation technology solutions are increasing, it will take time before the shifting business mix returns sustainable revenue growth. — Elitsa Bakalova, Senior Analyst

On Friday TBR’s 2Q19 IBM Cloud Initial Response is publishing, detailing the company’s last full quarter without Red Hat. Recent and ongoing portfolio investments, particularly at the platform layer, are expected to help boost IBM’s cloud revenue in the second quarter. — Cassandra Mooshian, Senior Analyst

TBR’s 1Q19 Hosted Private Cloud Benchmark discusses how vendors with hybrid PaaS and IaaS portfolios that span vendor and customer data centers are well positioned to capture additional hosted private cloud market share. IBM and Google continue to enhance their Kubernetes-based platforms to be increasingly infrastructure and environment agnostic while Amazon Web Services and Microsoft focus on hybrid cloud stacks, with emphasis on the IaaS layer. — Cassandra Mooshian

The state of cloud profitability has never been stronger

More than a decade after taking a leap of faith, cloud vendors prove profit possibilities

For vendors such as Microsoft (Nasdaq: MSFT), Oracle (NYSE: ORCL) and SAP (NYSE: SAP), offering cloud solutions required them to leave the safe and profitable confines of their traditional software businesses, where they were confident in the business models and drove consistent double-digit operating margins. Even for born-on-the-cloud companies such as Salesforce (NYSE: CRM) and Workday (Nasdaq: WDAY), the lack of short-term profit required them to adjust funding requirements and sell this new business model to potential investors. All vendors that chose to participate in the nascent market had to take on the cloud financial risk without a clear picture of when or how their businesses would reach sustainability and profit.

More than a decade after the initial cloud transition, nine of the leading providers in the space, which come from a variety of business backgrounds, are proving out the benefits of cloud business models. It has taken adjustments to almost every major category of financial and operational strategy, but profitability has improved significantly and is gradually approaching the levels seen with traditional software businesses. In summary, the state of cloud profitability has never been stronger.

Graph showing cloud operating margin for 2015 to 2018
Figure 1

Gross profit gets little attention but delivered most of the improvement to cloud profit

The direct costs of delivering a solution — and their inverse, gross profit — get little attention in the cloud business model discussion. Although shifts in sales and marketing strategy may be more attention-grabbing, gross profit and cost of goods sold have made the bigger impact to overall cloud profitability. As shown in Figure 2, the “big nine” cloud vendors have increased cloud gross margin by 5 basis points over the last three years. At 65%, cloud gross margin is still lower than the traditional software gross margin of close to 85%, but it has improved significantly for the cloud businesses. The improvements have been driven by a variety of factors, most notably:

  • Increased scale of data centers: For IaaS vendors that own and operate core data center locations and infrastructure, their growing scale has led to greater cost-effectiveness. The cost of IT infrastructure has gone down, and automation allows vendors to operate data centers more efficiently. Additionally, there is a greater availability of third-party services such as colocation, which allows cloud providers to cost-effectively scale to new regions and expand capacity.
  • Professional services cost declines: As vendors across all cloud service types initially rolled out their services, most of the professional service needs were met by the providing vendor out of necessity. However, as these platforms and services have scaled, the level of third-party skills has expanded, shifting a lot of responsibility and opportunity for service engagements away from the cloud vendors. The result has been a shifting of professional service opportunity to the partner ecosystem, allowing cloud providers to focus on the higher-margin cloud solutions.
  • Declining acquisition-related costs: Acquisitions played a large role in the establishment of cloud computing leaders. IBM (NYSE: IBM) buying SoftLayer, Oracle purchasing NetSuite and SAP buying SuccessFactors are just three examples of the purchases that have shaped the market over the past decade. Many costs of those purchases are borne out in the acquiring organization’s cost of goods sold. As the scale of cloud businesses has grown following the large acquisitions, the overall gross margin has rebounded.
Graph showing cloud gross margin from 2015 to 2018
Figure 2