Ladies and gentlemen, please welcome Oracle Senior Vice President, Ken Bond.
Hello and welcome to the 2018 Oracle Financial Analyst Meeting. Let's talk about what we're going to
be showing today.
Welcome. Mark will come up here shortly. We'll be speaking with you about our application ecosystem and the opportunities that we're seeing. After that, Mark will be inviting Safra up on stage. We'll have a Q and A, spend some time with you talking about the things that you would like to speak about.
Somewhere approximately around 3:15, we'll be taking a break. Coming out of the break, Larry will be here. Larry will be speaking with you not only about cloud infrastructure and autonomous database, basically the integrated suites of our application portfolio. And then we'll turn into a Q and A session with Larry. I expect the event will conclude somewhere around 5 o'clock this evening.
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Okay. Hi. It's a really upbeat audience. All right.
Good to
have you all here. It's been a great week for us. We've had more than 60,000 people here, had an enormous number of customer engagements. I think you're going to find I hope you had time to spend at OpenWorld going to some of the events, but this was probably as upbeat and exciting a conference as we've had in years, I think highlighted by what you're going to hear from Larry a little bit later on the OCI Gen 2 announcement. That was superb amongst a number of other really superb sessions.
So and this being with you is the highlight of my week. All right. Let's go in and what are my objective. My objective is to give you an idea about the applications business. And first, I'm going to tell you a little bit about what it is and what we've done, just so we have a common baseline of the history of how we've evolved the business.
Then I'll try to explain to you, given where we are, what the magnitude of the opportunity is. And so I'll try to lay that out for you in a couple of pieces. So this is just sort of then that's sort of this is our revenue. FY 2014, a little less than $9,000,000,000 growing now to $11,000,000,000 We had as we've gone through the transition, we went through a period of time where license revenue was declining as we were investing in SaaS growth. And as many of you know, we did many things as we started generating SaaS growth.
We did things like promotions. We did things like really grading the volume of SaaS revenue that would come up over time as customers would go through their transitions from on premise to the cloud. This began to change now as many of our customer base were now over 6,000 financial ERP customers in the cloud. So we began to generate scale and it resulted in us as you saw in FY 'eighteen generate more than double digit or a little higher than 10% growth. And as we went into the year, I said, I thought we'd have roughly double digit growth for FY 'eighteen.
It turned out that we did, and I think we'll be on roughly the same track for that this year. So just to context of the size of revenue, let me just go back on one point. This revenue when we talk about ecosystems, I'm trying to see if this clicker will move me back, it will not, okay. When we talk about ecosystem revenue, it's got multiple components and I just want to make sure we're clear, so there's no confusion. It is our on premise application support.
It is our on premise license revenue. This is different in tech where a license is really portable between on premise and the cloud. Apps is much more binary. You're either on premise or you're in the cloud. This is our on premise license, our on premise support and our SaaS revenue.
All three components combined are now more than $11,000,000,000 in revenue. So it's important just to make sure that you understand that's what's in it. This is what we've done from a portfolio perspective. You can see the releases of Fusion and what we've tried to do is really highlight the different products that have come out and certainly the major enhancements that have come out with each subsequent release of Fusion. By the way, just to make sure we don't confuse you, you'll see at the end of the chart, Fusion released 12, released 13 and then somehow it skips to our 18.
We'll now be moving to a convention where we'll talk about releases in the context of the years. So it will be our 'eighteen version 1, which will mean year 'eighteen quarter 1. So that will be how the conventions of naming go forward. Now we supplemented that organically built base with a series of acquisitions. And you can see, other than NetSuite, the acquisitions have really slowed down, if you will, decelerated, and there's a reason for that.
We've got great strength now in the portfolio. We really don't have any holes in the portfolio now. So just to be clear, as ERP has evolved, manufacturing, procurement, supply chain, financials are all released. They're all in the market. They all have references.
So we have significant scale now in ERP and virtually every other category. As Larry mentioned in his keynote, we now have in HR as an example, more customers than Workday. And that's a customer count number to the best of our ability to count it. To give you an example, you see here this acquisition in 2012, Taleo. Taleo has got a large customer base.
It focuses really on recruiting. But as an example, in R13, we have now released HCM recruiting. So that's important because now that's rewritten as a fusion module. So now as we continue to mature the portfolio, some of those acquisitions are getting rewritten, those applications, so they're actually part of now an integrated suite. All of ERP is organic.
All of HCM now organic. And so you see this and this particularly true in the back office and you'll understand why I'm focusing on the back office in a couple of minutes. Okay. So we think we have the most complete SaaS portfolio in the marketplace and we don't really think it's close. In terms of having a back office capability and a front office, we're really the only credible alternative in the front office to Salesforce.
There's no other real alternative and we are the leader in the back office. Now I'm going to focus a little bit back in history as to all of what we've done. By the way, this won't come close to tell you all the things we did, but I tried to capsulize a few points so you'd understand how many things we've touched in the business over the last several years. First, we realigned the sales force. You can imagine how popular it is every time you realign a sales force.
We used to have a sales org that would show up and see the CIO and sell a bag of apps. And the CIO because of the architectures in many cases had maybe not complete control, but most of the control over the app decisions. As you move to cloud that changed, because the infrastructure and all the underpinnings of the infrastructure no longer become relevant in the decision process because of course it's cloud. The buyer, the functional owner now gets a bigger vote. So we took our organization, our sales organization, aligned it by buyer, aligned it by product and in many cases by competitor.
So our HR sales force calls on the CHRO, sells HCM, competes with most of the time Workday. Our ERP sales organization, I'll talk to you in a second, is aligned primarily to call on the CFO and the organization around the CFO selling our ERP portfolio and competes with depends who and I'm going to go through that in fair amount of detail in a second. So that's how the sales force is lined up, buyer, product, competitor. In terms of reach, we built out a global series of sales hubs. Long held belief that selling now because of technology can be done out of hubs, meaning that we can now give we can have an individual give 6 demos in a day over the network as opposed to having to show up individually to give a demo one at a time, which was sort of our old model.
So hubbing our capabilities became an important strategy and we've spent the last several years building out that hub capability. As a result of the hubbing capability, we also altered our structure and a mix between inside sales and outside sales. It's a significant move for us because now as particularly with cloud, our ability to go after the market changed. Our ability now to sell to mid market smaller customers than historically we'd ever sold to now increased. We would never have historically called on Lyft.
Lyft didn't have a CIO. They didn't have a data center. We wouldn't have been calling on Airbnb. Both of course are now customers. Both are customers in the cloud.
They frankly were born in the cloud. And now with cloud, we get the opportunity to move significantly down market. So this capability of inside sales and this hubbing has also led us directly into a new market incremental adjacent market opportunity. Simultaneously, we've had to add things that we historically never knew about. Renewing a SaaS contract turns out is an interesting process.
It turns out the length of the contract is important to mention. How you renew? How you line up now because of course we deliver now instead of a product. Historically, we landed a DVD, CD, gave it to a customer, they handed it to a systems integrator and loads of customizations occurred. Now we turn on a service.
That service has to run continually 7x24, we have to upgrade that service etcetera. So the success of the customer, if you will, customer satisfaction, customer success teams as we call them become critical to the customer and become an important part of our ecosystem. Neither of these teams existed 6, 7 years ago. So not only we have to change the sales force, build out hubs, change the mix of inside and outside sales, but we had to create incremental teams of people with capabilities we didn't have before to be able to pursue these opportunities. In terms of money, we obviously expanded the sales.
This was really popular 5 or 6 years ago as I began to increase the size of the sales force. I'm laying on the sarcasm as thick as I can. So you looked at our OpEx and I would get questions all the time. Your OpEx seems to be going up significantly. Yes, it is.
Why? Because we don't have enough capacity to serve the market. Now what's happened is those of you that have followed us over the past couple of years, as you've seen that OpEx begin to flatten out. Let me explain to you why as it relates at least to applications. The application sales headcount in the company is up 60%.
And again, it's a wavy line. Again, I always tell Ken, if it's 62, don't call me and say I underestimated or 50%. I'm roughly right. The ERP HCM back office headcount has doubled. We have 2x the number of people that we had since just FY 'fourteen.
So a huge investment for us. The organization is supplemented and there is a mix between inside and outside salespeople. And the way we do that is we mix even with the headcount increase, as that mix adjust, so does our OpEx. So as we've moved resources down market, I want to make sure I'm clear, we are not abandoning the enterprise market. This is a supplement.
This is an and, not an or. But as we've added resources, the cost per seat of that resource comes down dramatically. And the mix of those cost per seats that field rep and that field SE compared to a hubbed salesperson and a hubbed shared SE is dramatically different. So our market coverage has gone up dramatically since FY 'fourteen. Yet when you look at our OpEx, our OpEx looks like it's up 1%, 2%, 3%.
And that's because of the way we've mixed the resource over the past several years. We've gotten a hell of a lot more coverage, particularly since FY 'fourteen without having to spend a lot of money.
All
right, next chart. Oh, I control the charts.
All
right. Let's talk about sort of where we are now and where we're going. So if your question about why customers are even moving. Do customers really want to move? Because I think years ago, there'd be thoughts that some of these systems would stay in place forever.
Why would I ever change an HR application? Why would I ever change an ERP application? Let me do my best to try to explain it to you. First is just innovation. There's just too much new stuff.
First of all, you get 4 releases. This says 2 to 4, but we're hitting about 4 releases a year per application. So let's stick with ERP. In ERP, you get 4 releases. Those releases could have a couple of 100, 250 features per release.
This is not like the old days of 3 or 4 years in between releases where then you have to have a systems integrator customize it. These come as part of the subscription price.
And I
now get thousands of new features of functionalities that I didn't have before. 2nd, the user experience, we've gone way away from green screens and all of this stuff to now instinctive intuitive UIs that can now be deployed across an organization. This is a brand new user experience. The integration you're going to hear Larry talk about, the integration of machine learning and AI, chatbots, digital assistants, capability to get levels of efficiency and levels of innovation, the ability to crunch massive amounts of data and get them in front of an end user in milliseconds that I couldn't do in old applications. These are dramatically different and now you're going to see us introduce analytics that are actually embedded directly into the app itself, as opposed to having to extract data, mart it, warehouse it, whatever term you want to.
Those analytics instead of the data going to the analytics, the analytics go to the data and they're embedded directly into the app. Customers love this stuff. Shows up in our numbers, shows up in all the references, but this is an innovation. If there was nothing more here than innovation, customers would move. The good news is you actually get to spend less while you get it.
The costs simply go down. The cost of implementation is dramatically different. By the way, this is one thing you all will see in the marketplace. One of the things changing in the ecosystem today is the SI role. As opposed to staying with a customer for a decade and charging 1,000,000 of dollars.
This is now all about installing a pristine version of the software with its few customizations or in our case extensions. And in some cases, you see the go live as quick as 5, 6 months. Not through your implementations, 4 or 5 month implementations. We automate part of that process way driving down the labor costs. And now when I get an upgrade, I no longer have to go repay the systems integrator again to feature string those customizations they built the first time, which by the way was inherent in the old model.
So cost of the upgrade is built into the subscription price. Generally speaking, we tell our customers to think of the overall TCO once the storage is gone, the data center is retired, server is gone, You got about 25%, 30% lower TCO. Imagine I could get all that innovation and spineless. By the way, if there was no innovation, I just told them you could save 25%, 30% they're doing it. If I just had either one, but yet I have both.
And the fact is we talk about security now instead of that problem being the customers where they have to patch, they have to do all of this complicated work, all of that gets moved to us. And when you hear about Gen 2 and OCI, when Larry talks in a second, all of those benefits accrete to our application. Our entire application business will run on autonomous database. Immediate patching, immediate optimism, all of that work will be done by us as opposed to the customer. Value proposition is strong.
Market, you can get a
view of the size of the market in the back of the back office is roughly twice the size of the front office, both big markets, dollars 42,000,000,000 in the front office. This is not my numbers by the way. This is IDC's numbers and they're very good as you see here through 'eighteen, they are very good at predicting the past. So not quite as much when you look into the future, but if we look at the past, they're pretty good at the counting part. And so I feel these are roughly right numbers and we would agree with their view.
But you can see the growth, but the back office growing 22,000,000,000 over the course of the past 5 years, 15,000,000, 16,000,000, 17,000,000,000 in the front office. And this gives you a little bit of view of the applications that are contained in each group, okay? That gives you roughly the sizing. That will become important as I take you through a little bit of math in a second. Oracle back office, so this is talking about us.
This being the back office applications. Now for us, let me define back office. This includes Fusion ERP, NetSuite and HCM. That's how we, Oracle, think of the back office. Currently, more than 50% of our applications ecosystem revenue is in this back office part of the application.
And when I say 50, just to be clear, it's not 51, it's not 52, it's not 53, it's greater than 50%. The bulk of what's in our on premise support is ERP and HCM. Okay. So that's the bulk of our support. The back office obviously being twice as big and our presence being materially bigger is key to our applications ecosystem growth.
And the opportunities fall in a couple of categories. I'm going to take through this in a second. 1st, taking our installed base, our existing customers, they could be E Business Suite, they could be JD Edwards, they could be PeopleSoft, all back office applications and moving them to these modern applications in SaaS. And that has a significant revenue impact for us and we think great things for our customers. And then the addition of new customers from, I'll just call them legacy on premise vendors, we have another term here, but I'll take you through who they are.
I also want to make sure you understand the size of the market that those vendors have
because I think it's going
to be bigger than you might typically expect. So you don't have to believe me now, this I blame this all on handlers, legal department, etcetera. I can't really blow up this chart according to Gartner the way I'd like to so you can read it. But this circle is meant to just show you where we sit in their magic quadrant for cloud core financial management suites for midsize larger global enterprises. And you can see when you get out there, it's really not close.
And by the way, I actually if I could, I had a I think there is a yes, this might work. Might this work?
Yes. But
it's not readable. So if I yes, I just I blame this all on Gartner. Anyway, if you look at these names down here, you'll see there's SAP Business by Design, there's SAP S4HANA, Sage Intacct. These are a whole bunch of companies down here. So I just want to make sure this is not but this is again, one more time, this is not my opinion.
This is Gartner's opinion of what they see on their vision and ability to execute. So when you see this sort of gap in a Magic Quadrant, it's a big deal. Obviously, we look at something like, I don't know, Judy's 70, 80 Magic Quadrants probably across Gartner. Very rarely do you see this sort of gap and this many people back over here. So if you believe this market is real,
it's a big deal.
Let me just touch on NetSuite for a second because obviously we spent $9,300,000,000 buying NetSuite a couple of years ago. And I wanted to give you a view of what we've done with NetSuite and what the implications have been. And then I'm going to take you through how all this kind of comes together. Reach, we've taken NetSuite into new countries. No surprise, but NetSuite was very good in the United States and it didn't have a lot of distribution outside the U.
S. So we've focused very much on getting them outside the U. S. We've also spent a lot of time in R and D, localizing the product for Germany, France, China, Japan, Brazil, India, Mexico, material markets where with a little bit of R and D, we've been able to get many of these things done in their last couple of releases. So localized product for more markets, increased distribution in those markets.
Now in addition, we've also increased their distribution in the United States. So as good as they were in the United States, I'm sure you're going to find this shocking by my previous statements, but I thought they were under distributed in the United States. The market is materially bigger than they were addressing. So we've done 2 things, increase the amount of R and D, which has led to this ability to now get a localized product for more markets, simultaneously increase their sales force. So we've added like for example, just to give you an idea in the last 12 months, we've added 3,000 new customers.
There's 3,000 new customers in 12 months. We also now have the opportunity to upsell with NetSuite, planning, budgeting, SuiteCommerce, all of this. Some of this stuff is coming actually from Oracle, like planning. Some of this coming from R and D inside NetSuite, but giving them yet a broader suite of products, more countries, more salespeople, more products. Simultaneously getting into more verticals, NetSuite has had great success going into not even verticals, but even micro verticals, going after markets like campus bookstores, shoe stores.
I mean they've had tremendous success going after micro verticals and it's worked. And they deliver an integrated pre sort of a template for implementation that dramatically lowers the cost of implementation. All right. So that gives you an idea about NetSuite. If you look to the right, the NetSuite revenue has gone from 16% in Q3 to 22%.
This is revenue growth in Q4 to 26% in Q1. This is a result of significant bookings. The bookings growth in Q4, our fiscal Q4 was over 70%.
I want to make sure
I said it's not 7%, I didn't say 17%, over 70%, driven by both the U. S. And international. Grew again in Q1 over 40%. These are numbers that frankly were have been a result of everything that I've described.
All right. Let me switch to just a little bit of math. I got 3 or 4 charts and we'll am I okay on time?
Okay.
So opportunity 1, let me just try to I want to take you through this slowly, not to the point that you get bored, but to the point that we get a lot of clarity. We have a $6,500,000,000 on premise applications business today. That is a subset of the applications ecosystem I showed you earlier. If I confuse anybody, please ask because I want to make sure you don't get confused. We'll convert that to SaaS.
We get 3x the revenue when we convert that on premise business to SaaS. So we triple that revenue and as we triple that revenue, the applications ecosystem in totality doubles. Anybody here says that completely confused me. You went way too fast with the numbers. That subset that's in the on premise triples, remembering part of what's not in that 6.5 is our existing SaaS business.
When you then triple that and add the existing SaaS business, the ecosystem doubles. So the $11,000,000,000 becomes $22,000,000,000 and that simply is a the leap you have to take with that is that the E Business Suite customers migrate to Oracle SaaS as opposed to one of those things in that lower left quadrant that Gartner has. To believe this won't be true, you'd have to believe if I'm staying on premise the rest of my life or I'm going to convert e Business Suite to somebody in the lower left. I think very likely we will get all of these customers converted. Just to give you some context, we've moved an inclining amount of our base, but we're still just a little bit underneath 10% moved.
And when we say moved, that's moved core to core, meaning E Business Suite Financials to Fusion SaaS Financials. We've got now 35% of our base that has bought something in the cloud from us of that base that maybe that doesn't replace that core. And we have 2 thirds of the base in some stage of our pipeline. So our base is engaged, hasn't all shown up in revenue here, but our base is highly
engaged. Let me take
you through Category 2. And the first thing I want to say is the people that I generally talk to think when you add the 2 of them up, it's less than 50% of the market. It's 48% of the market. You come back and say, well, that who the heck has the rest of it? And it's a hard question to answer because it's just a blizzard of companies.
Everybody from Deltek, Tyler Unit something, Epicor, Sage, the blizzard of companies that are under the there really is no in for. There is a loss and there is a bond we didn't get them on the chart. There is an Infinium that's I could go on and on. This is a blizzard of companies that have 1%, 2% market share. Many of them are private equity, nothing against private equity.
They may be through their 2nd or third pass through private equity. They've endured the let's spend less money in R and D, let's get cash flow up. I always think that's a great strategy for all of them. I think they should lower their R and D, lower their sales expense. And these are mostly the companies that are in that lower left of what you saw on the Gartner quadrant, if they've even able to get a cloud product.
What you would find is that when many of these companies say they have a cloud product, what they've got is like one module that's in the cloud or they've taken their existing on premise application and hosted it at AWS and call it cloud, as opposed to rewriting the app for pure SaaS with all the modern capabilities that I've described that are in our applications. So that's who's in the base. Now, I am not predicting this as an outcome because it's a pretty low outcome. But I wanted to give you an idea of the magnitude of the opportunity. So all I've done is taken the $35,000,000,000 back office and what I've done is taken SAP out.
I took them out. I took Oracle out, gone. The remaining part of this is 35 $1,000,000,000 in the hands of that blizzard of companies I described earlier. If only 20% and only 20% by the way, I'm going to stop. If only 20%
move at
the same multiplier, which is roughly what we've seen, because by the way, we're the beneficiary, As I've told you, 50% of what's in our SaaS revenue today has come from some form of our base. Even though it's a small conversion, it's come from some form of our base or customers in terms of number of customers. Half of our SaaS revenue has come from outside our base. So we have deep experience in migrating these customers. With 20%, if you look to the right here, the opportunity for us would be an incremental $21,000,000,000 And you can decide whether you think, well, he's wrong, it's 19,000,000, 18.5, 20, in fact, whatever algorithm you want to.
But this is roughly right, roughly right. The answer isn't 12,000,000,000 and the answer isn't 30,000,000,000. If you get 20%, you're going to be roughly close to the number that I described. By the way, that comes from lots of conversions we've done, reasonable extrapolations we can make from the existing work that we've already done. Now the reason well, I'll talk to you about that more in a second, but you can see how big the numbers if you get.
For us to wind up with 50% share, more than which is what most markets eventually mature to, 20% plus moving our base would get us into the mid-30s eventually of overall market share. And I believe we're so far ahead now, we'll do better than that. Now, let me see. I think I'm missing a short. Don't I add them together?
I should add them together. I'm going to do it for them. This is advanced work that I've got to do. Okay. Yes, I think it's in there.
Let's go back here to the bottom. Thank you, Safran. So if you look at the bottom, the applications ecosystem grows, I'm going to stick on that, from $11,000,000,000 to $43,000,000,000 there we've done the math, if you believe we're going to convert our installed base. You can say, I don't believe you. I don't think they'll go.
I think they're going to go from the upper right to the lower left. Seems like a smart move. I don't think that's what's going to happen. If you believe we're going to get 20% of that remaining installed base, I actually think we'll do better. The reason I didn't add it in was because the number got so high, you would think I'm crazy, but you may think that anyway.
But I would add to that belief. This does not consider the addition of any current SAP customers. Let me spend a second on this. SAP is currently telling their customers they will end of life their current product by 2025. This will force customers to convert.
We have customers now calling us that have never talked to us before on these applications, saying I'm faced with a $800,000,000 bill to move to S4 HANA. And I don't know that I get incremental functionality as a result. I get a new UI. So that's it. We have I had a customer last week, and I wish I could have asked her if I could use her name.
She's faced with a 3 hundred named company, a $350,000,000 bill. And her point to me was, you have to come in here and give me a I have to go to my Board and explain that I went through the work to look at my alternatives. I need you to put a team on this and I need to put a team on this because I have to do the due diligence. This decision they've made will put their installed base at play for no other reason than the financial due diligence of the magnitude of spending they're putting their customers through. I have factored none of that into this, none.
I've also not considered growth in SaaS sort of outside the back office. I think you're going to see over time, we'll show you more of what's going on in CX as it relates to our opportunities to continue to gain share. We've had a very good run-in sales auto as an example, mainly because of in fairness some cases the prices that Salesforce charges. It's really actually not a bad thing when you're starting and you're very credible number 2 and you have a suite and by the way as we increase our ERP base, the opportunity to sell CX products, customer experience products into that ERP base in clients as well. I have also not factored into this selling incremental modules.
For example, I mentioned Federal Express on our call, I think at the end of Q1. Federal Express had an EBS, E Business Suite application that ran FedEx. They bought a company called TNT in Europe. They ran SAP. They are converting both to Fusion ERP.
As a result of that, we got incremental modules that we didn't have under E Business Suite as we expanded the entire base. I did not factor that into this either. ERP and again, I'll go back up to the top. The back office is the key. It's twice as big as the front office.
And to be very blunt with you, as Gartner says, it's where we're the best. Okay. With that, maybe we'll go to Q and A. Safra? Safra is going to come up.
We'll take whatever questions you like.
So if you have questions, kind of hold your hand up and I'll
get around to you. And as will Eva.
Son, Thank you very much. Mark, Brad Zelnick with Credit Suisse.
I appreciate
it. Compelling presentation. I just had a couple of questions on the opportunity. If we think about the $11,000,000,000 incremental and transitioning the base over to SaaS, you've been in the business of making predictions in front of us before. Can you talk a little bit about what the rate and pace of that has been?
What you expect it will be? And if we look back 3, 5 years from now, how much will have come over and to what extent can you use carrot and stick to move them along? And I've got a follow-up for you as well.
Yes. So multiple questions, which you're good at, right? So I would say, first, we have chosen not to use the stick. I think you can understand the difficulty when you put a stick out there like SAP has to basically say you're going to move or else we're going to end of life you. This is not in our opinion, this is not a great strategy.
So in fact, to be very blunt with you, our E Business Suite customers are relatively happy. We've given them new releases. We just put EBS 12 out there, so they got some more features. In fact, we make a point of telling them we're not going to have end of life their product. They're in safe hands with us.
And so now what those customers are doing, Brad, is they're buying modules around the core. So I think it's very likely that what you'll see is a migration where if I'm an EBS customer, I may buy financial planning in the cloud. I may buy procurement in the cloud. And I'll take my time as I go through this migration. And to be blunt with you, Brett, that's fine with us.
One of the big things we're doing, I didn't mention this in the installed base, is we're dramatically lowering their cost of conversion. We've released a program called SOAR, SOAR. SOAR is basically a program where we guarantee the outcome of basically telling the customer whatever the subscription is, we'll charge you twice that for implementation. We'll actually accelerate your go live to 5, 6 months and we'll make sure you're done right. If not, it's on us.
And our customer base again loves this. So it really is carrot that we're driving. But in the end, Brett, just when I look at the pipeline, we're going to move the entire installed base. If you're asking me for a quarter when it's all going to be moved, you can try that from Safra, but not from
me. I won't do that.
Okay. But I would like to say that I think the big difference between this year and last year is that more and more of our customers are in fact moving their core. More larger companies and if you walked around, you'd see them get up and say they're alive. You'd be hearing them talking about moving off the Business Suite or moving off PeopleSoft Financials, a lot of larger customers. And that's the excitement when I hosted and Jeff Henley hosted Modern Finance Experience.
That is a room full of people like me, who are responsible for their finance operations. And I was sitting at a table that had small and big customers. And some of them, like Walmart, had only moved planning and budgeting. They're a SAP customer, but that had gone unbelievably well, while other customers were moving the core. FedEx got up and said, we're moving the core.
And that's the kind of thing that is a difference. And I also hosted public sector, public sector states full financials, fiscal from California, which is the finance back end, sitting on the other side of me, Texas, move to Fusion across North Carolina, looking at seriously talking to all of them about moving the state's financials to Fusion in the cloud. That's the big difference we've got going this year. Now it is true, many will still take transportation management and other parts. But now and for folks like us, Oracle, Fusion Financials, all I need to do is invite Marie up here to tell you what it's meant to us and the capability that us.
We're a pretty big company. We're global. We're live on supply chain and, of course, financials. This is a big darn deal. It's for real, and it's making an enormous impact on the way we run the business.
And our goal is like some of the folks at Modern Finance Experience, I don't know if any of you were there. You know what their goals are? One day close. That's her goal. And that is now if you ask Maria, she's going to tell you.
That's our goal too. I know you're all trying to figure out which one Maria is. Maria, raise your hand, please. There she is. Okay.
She reports directly to Corey West, our Chief Accounting Officer. She is the user for Oracle Financials. And that's the big difference between last year and this year.
My quick follow-up. Thanks.
Well, before
you even follow-up, I want to add one other thing, Joe. That's our base. Are these other companies we're talking about that have a lot of legacy base, they are much more threatened than our e business suite base. If you actually asked a rep, a sales rep who was in the ERP sales organization, We organize our territories by competitor. So they actually have a set of these either traditional legacy vendors or they may have an e business suite territory.
They would rather have the competitor territory because the competitor is highly threatened that there's no future or the customer of the competitor more threatened because there isn't a future, there is no cloud strategy. There's no real cloud strategy. So therefore, there's even a faster impetus for some of those to convert.
Safra, your shareholders, I think last quarter were very pleased to see the company take advantage of the opportunity in the stock and to see you buy back $10,000,000,000 worth of shares. What are how should we think about the limits to which you will use the $60,000,000,000 in gross cash and your $15,000,000,000 some odd in free cash that you generate to buy back more of the company? Thank you.
As I said on the call, our stock is an absolute bargain. This is from our point of view in comparison, we always balance acquisitions, other uses of cash, but we have a lot available to us and we know where our business is going. It is very clear from where we're sitting at the opportunity that is ahead of us. It is very clear to us that in OCI, which Larry is going to talk about, Autonomous Database, we are on the field now with a product that is frankly has no competitor to run our Oracle production workloads. We are we have changed the game.
This is going to get very, very scary for everybody who is on a Gen 1 cloud. Running the Oracle database in OCI in 2nd gen is a totally different ballgame. Now, it takes us a while for folks to understand. We've been highlighting it. We've been introducing it.
We've been sharing it sometime early on. Now as customers see the opportunity, it is unmistakable. I mean, Verizon at LeaderCircle sat with me. Mahmoud, they use AWS. They use Azure.
And guess what? Oracle workloads, OCI. These are folks who have some of the most important and difficult workloads in the world. These are folks who are absolutely security paranoid. These are guys who need high performance, who need absolute enormous capacity and they understand the value.
And not only do they understand it, they're willing to sit up in front of Leader Circle, all of our in front of all our big customers and talk about it. Now so you're asking me what am I going to do? Well, obviously, I think our stock is an absolute bargain, and we're going to break out. And I don't know when we're going to break out, but I'm going to balance our other cash needs. And of course, I require approval from the board for different amounts of purchasing.
But as long as it's a bargain like this, we may never get this bargain again. At one point, people are going to realize what we have been hiding sort of under a bushel here. So at that point, it's going to be a lot more expensive. So until then, I'm all in and our team thinks this is a bargain of a lifetime.
Hey, over here. Ryan Molentjo from Barclays. Hey, Safra. Can I you didn't mention PaaS as part of the application story? But if I go out and talk to the guys out there, they tell me like PaaS is the hidden gem because you can basically use it as an extension, etcetera.
Can you talk a little bit about the opportunity? How do you see PaaS? Is that just something that helps, but you don't really make that much money of it? Is it kind of like No,
no, no, it's something to do with that. I mean, I just didn't want to include it as yet another reason to goose up the revenues, right? I think that in past, to give you example in FedEx that I referenced and Safra referenced, The past part of that transaction, which had nothing to do with the app, was 50%, 60% of the upfront transaction to basically do some extensions to the application. So of course, you're right. And our margins on pass are great.
So it's just yet again, like I told you, there are many things I didn't include in that analysis. I didn't include incremental modules, to which, as I said, FedEx bought incremental modules. FedEx, again, using them as an example, bought an extreme amount of PaaS as part of the initial transaction. And I think that'll do nothing but grow as we go forward. So of course, you're right.
Well, you see, I think of PaaS and license and OCI as one thing. It's why we changed the reporting because you bring your database licenses to our OCI Cloud. And if you've got enough licenses, if you've got the right licenses, you get autonomous database. You get a self patching, upgradable automatically database. So when I talk about OCI, I'm also thinking about those Oracle workloads which display themselves as PaaS, but for which the money may be coming in from using your licenses that you bought or your support and that plus IS is PaaS.
It's all the same. It's why we changed our reporting because there's an arbitrage in there for which we're very happy to have our customers decide whether they want to rent licenses, rental pass or they want to buy licenses and pay support and BYOL, bring your own license to OCI, still get PaaS.
Hi, it's John DiFucci from Jefferies. It sounds like what Safra is saying is this is going to be the year we actually may see an inflection point in the adoption of financials in the cloud. We saw that in HCM a while ago. I'm just curious, Mark, can you sort of gauge about how much is left? If you think about the enterprise market, which is sort of a zero sum game, how much is left in HCM in the cloud?
And then also, if you can hit on something that is still evolving and that's NetSuite, It just seems like it's Oracle itself is talking about these really important workloads, these big workloads. That's Oracle's history. That's what Oracle is. NetSuite is something a little bit different. And are there things that are happening behind the scenes?
It seems like NetSuite is sort of running off over here, but are the things happening out behind the scenes to sort of really go after that mid to smaller market with NetSuite? I know it's 2 questions. Thanks.
Yes, two questions with a bunch of different branches, but I think, which again I greatly that's why I look forward so much to come here. But I would say again, NetSuite and I probably didn't do a great job laying this out again. We are very much when they were a public company, they were limited in many of the things they could do in terms of investment, rate of investment. To give you an idea of the magnitude I feel about NetSuite now that they're part of Oracle, in the U. S.
Mid market, I believe they could quadruple. That's how big I think the opportunity is. They were limited. Let me tell you some of the things we did in NetSuite that were amazing. In fact, I'm amazed because I thought it would be a great idea.
I'm really thrilled to see the outcome that's occurred. We took 100 of our class ofs. They were short on people. They didn't have an enablement program near as mature as ours. We took their content and overlaid it in our enablement program, put our Oracle hired class ofs and in 9 months, 9 months, NetSuite got them productive in the mid market.
This is we don't get that done at Oracle. It takes us 2, 2.5 years to get to productivity. They did it in 9 months. So this is we're trying to give them, John, the best of Oracle and make sure they don't get slowed down by any other thing at Oracle that might slow them down. So we've tried to give them our products to add to their suite, leverage our distribution in countries where they don't have an employee.
They don't have an employee in some of these countries where we do. And what our international organization has done is been able to accelerate their hiring at a level they could have it would have taken them 2 years if I had told them, go get started on your own. So we've given them an enablement program, we've given them more distribution, we've given them more R and D. Now just as important, they've now delivered and released localized products for many geographies they didn't have product for before. And when I say we increased their R and D, I mean, these are small numbers, John, relative to Oracle, but big numbers compared to NetSuite.
So with a simple change of $10,000,000 $15,000,000 all of a sudden you're in 5 new countries. These are opportunities, John, we've sold nothing. We, NetSuite, have sold nothing. So I think the opportunity is gargantuan for NetSuite. You had another question about HCM.
This whole thing, HCM and Financial, we're in inning 1%, 1.5%. Remember, the way I think of HCM may be a little different than how you do. So let me try to give you some context. Where I think Workday has done well is in particularly large US big companies that have a CHRO, strong CHRO that typically doesn't have alignment to the CFO. And as a result, when that becomes an isolated decision, where it's just an HCM decision, we've got about fifty-fifty.
We've got about 50. They've got a good product. And they've had a little different situation. I understand their strategy to get the financials. It just hasn't worked very well as a product, which turns to be a limiter when you try to get a debit and a credit and all of that to come out and be able to close your books.
So as a result, also as you move down market, people start to look at these decisions as a common back office decision. It's not 2 decisions, it's one decision. So as we move down below these biggest accounts, many of our HCM wins now are coupled with an ERP win. We win ERP, you win HCM.
And I
believe the market is for that is just in its infancy. Now we're talking about inning 1, 1, maybe top of the second as it results to how much opportunity is still left.
Keith Weiss from Morgan Stanley. Thank you guys for hosting us. Safra, a question for you. One of the hallmarks and one of the really strong points of the story over the past couple of years has been the expense discipline. You've kept OpEx growth really, really low.
Mark is talking to
us about a lot of investment and it sounds like there's a huge opportunity that he wants to continue investing behind. Is are you going to be able to keep that low OpEx on a going forward basis and keep the operating margins going? Is there enough kind of like puts and takes within the P and L that you could keep funding his investment in sales and marketing without taking OpEx really much higher?
Yes. I'd say quite easily. I think we're First
of all, all of that stuff we've done, Keith, I think it's a great question. Last 2 or 3 years, we've self financed, I mean, to your point. So we have underneath it, we have changed the story significantly in terms of the mix, the opening up of the I mean, San Fernando has opened up hubs all over the place, but we've self financed this as we've gone. And I think that you will see that continuing.
See, we have the benefit of also having incredible margin improvement in parts of our business. And so there are things just like you said, puts and takes. The SaaS business is now at scale, throws off a lot of money for us to continue to invest in. Our capital investments also been very, very measured because they've given us back a lot simultaneously. And then we've moved around in different investments in hardware and things like that.
So we're getting economies of scale in some areas and focusing in and investing in others. It's you can see it in our operating margin.
Just one example to Safra's point. If you look at as our SaaS business approaches $10,000,000,000 you start looking at our margins in the 70% range today. I believe we have de minimis investments in our SaaS Estates, much of those for technical reasons, things we can do now with technology that we couldn't do before. As our margins approach, not just 80, but past 80, 80, 85, all of a sudden that starts kicking off $1,000,000,000 $1,500,000,000 worth of incremental margin. I mean, these are big opportunities that we have.
As Larry talks to you about OCI, we've got other things in the organization that will actually collapse around OCI to the good as we start to consolidate many of our platforms. So I think the operating leverage in Oracle is still significant and we will fund this investment in roughly in line with what you've seen as the OpEx changes that we've had over the past couple of years, Kate.
You know what, Mark? We've got Larry here already.
Wow.
So maybe
And you know what's a very aggressive, on time.
On time early. Actually, I think you're
a little early, which is Yes. Yeah. It's like 5 minutes early. I'm not used to We're
We're a little dumbfounded. So we're thinking. So the question is, do you guys need a break or are you ready for Larry? Ready for Larry. And if you got more later, we'll be back.
Why should he wait?
So I'm the last person on. Is that right? Yes. Okay. I'm going to go through some of the queue my slides.
I'm going to do my 2 presentations rapidly. I'm going to go through and highlight a few things that I told our customers and then to answer your questions. All right. Are my slides any place? There they are.
Okay. So we decided we're going to go straight to Gen 2 of the cloud. We everyone's kind of sitting around Gen 1. We were you could say we're in infrastructure. I would say in SaaS, we started before anybody in terms of SaaS.
I mean, NetSuite was the 1st cloud company in the world, I believe. And started by me and Evan Goldberg a while ago. It was the very first cloud company. And we built NetSuite and about a year later, Marc Benioff, who is friends with Evan, looked at it and said, hey, this is a really cool idea, doing accounting on the Internet, we'll do Salesforce automation on the Internet. That was really kind of the beginning of the cloud business.
And Oracle started converting its applications from on premise to the cloud with a project called Fusion that we started well over a decade ago. So we've been doing this for a very, very long time, this Fusion stuff. The applications or SaaS is a much older business than compute and infrastructure in the cloud. And that was started by Amazon, not by us. And it took us a while to respond to what Amazon was doing and we did things kind of Amazon ish, as did Azure as did Google.
And we had a variety of issues with kind of the 1st generation of our cloud, what we saw as the 1st generation of the how Amazon does it, how Google does it, how Microsoft does it. And we decided to just basically to start over, which we did. And we started over and now we've delivered this thing. Now it's available now called Generation 2 with the cloud. So what was the big deal?
Why do we decide to start over? And there's a huge problem with existing cloud architectures in terms of security and reliability as far as our customers are concerned. If you're building Angry Birds, doesn't matter. If you're piping in Netflix to people's homes, doesn't matter. Really, it doesn't for a lot of applications, what we worry about doesn't matter.
But when we worry that it has to be available all the time, can never go down and you can never let other people steal your data, you end up with a very different solution than kind of what Amazon is doing now and Microsoft is doing and Google is doing. So for our customers, we had to build a completely took a completely different approach to infrastructure than they took. We were kind of copying in Gen 1 of our infrastructure and then we decided, no, we had to do it differently. And it's not just machine learning that we exploit. We are absolutely devoted to machine learning, by the way, in our infrastructure and our applications.
In our applications, we use machine learning to automate complicated tasks like closing the books, fraud detection, lots of things. We do a lot of automation in our applications. We use machine learning to provide a new voice UI to our applications. The way you submit an expense report with our applications now is you take a picture of your hotel bill, you're done. We figure out what the hotel bill is, where you were, what's associated with you.
You just take pictures of your restaurant bill, your hotel bill, you're finished. We use a lot of AI in the application to automate tedious tasks that people do all the time like fill out expense reports, all the way to complicated tasks done by experts called closing the books. So we use AI machine learning in our applications. We also use AI in our infrastructure. We have we built the 1st autonomous database.
I mean, it tunes itself. If it needs more compute, it needs more network capacity, it goes out and gets it. It backs itself up, it recovers, it detects threats and patches them while it's still running. By the way, none of their Amazon doesn't have to do that. Their customers don't expect a bug to be patched while the system is still running.
Our customers do. So we just had to take a very different approach. Anyway, we use a lot of machine learning, but it was more than that in terms of re architecting our cloud for reliability and security. Next slide. Smartest people in the world are being ripped off every day.
People at Google are smart, people at Amazon are smart, people at Facebook are smart, people in the government agencies are very security conscious. I mean, they're getting data stolen, masses, masses of data stolen all the time. They're down a lot. A lot of these systems are down. A lot of Amazon Cloud customers are down a lot.
We just this doesn't work for us. So this is why reliability, security, these are the reasons why we had to re architect our cloud. And what we had to do was let's look at the next slide. Okay. What we had to do was basically fundamentally change the hardware as well as the software in our Gen 2 cloud.
We added a whole new network, a whole new network of computers to form an impenetrable barrier about our cloud to prevent people from the outside getting in.
And I'll show you another picture, we'll
kind of explain all of this. So we had to isolate our cloud from outside threats. But the bigger problem turns out to be someone takes a credit card, rents a computer, we let them in. We give them a computer, they can load all the software they want into our cloud. They gave us their credit card, right?
Come 1, come all. So some guy in the Ukraine sends us his credit card, which he stole the night before. Anyway, we let him into the cloud and they're loading stuff loading all sorts of software into the cloud. They're looking around. This is really kind of a tricky business.
So we not only have to erect a barrier, an impregnable barrier or an impenetrable barrier around the perimeter of our cloud. We have to create barriers around each customer. So those customers are isolated from other customers or you have to trust everybody that's sharing you're sharing the computer with. Well, who bets them? Who makes them sure, oh, this person is trustworthy, this person is trustworthy, this person I really don't know.
I got his credit card number. That's how I validate him. Give me your credit card number. Welcome aboard. So we had to create barriers around not only the perimeter of our cloud, we had to create a barrier around all of our customers, individual customers.
We basically had to create an isolation zone. If this is what they wanted, not again, not everyone cares about this. Not all of our customers care about this. Some of our customers who are writing code, who are developing new applications, they're not worried about getting hacked. They don't care if they're hacked.
They want to get on as quickly as possible, want to be productive, want the lowest price. If it goes down occasionally, it's not the end of the world, right? Not the end of the world. But if you're running an e commerce site and it's the week before Christmas, can't go down, has to be elastic. You can't have anyone hacking in and stealing can't have other people.
You care about reliability. You care about security. You don't want to trust the other people. Anyway, we had to do that. So we had to create these barriers.
That was kind of one thing we recognized we had to do. We had to isolate our customers one from another. And there was no way in the current architecture we could do that. Not really, and I'll explain I'll show you why. And the next thing we had to do is never go down, never fail.
When a threat was detected, we had to fix it immediately. We're being attacked by botnets. We're being attacked by networks of computers that are doing denial of service attacks or trying to stick malware into our cloud, trying to do all of these things. And remember, you have a credit card, you come into our cloud, you make it through the perimeter. So we have to have our own fleet of robots looking around for these threats all the time.
And when we discover that it can't be human beings, it's got to be our own fleet of robots looking around for these threats all the time. Then when you find a threat, you have to be able to kill it. Now killing it, let me explain what I mean by that. Okay, so we find a vulnerability in our database. And we have to get rid of that vulnerability.
That means we have to patch the code of the database. We have to change the database code. Someone's figured out a way to exploit the database or exploit our operating system, the Linux operating system. We have our own version of Linux operating system. We have to be able to so how do you do that?
You just say, I'm sorry, we found this vulnerability. We'll just shut down your e commerce site, patch all of our software, and they'll bring you up. It only takes about 10 minutes or something like that. Don't worry. You're not taking me down.
Then this is what happens. This is why this is a huge problem because when people discover vulnerabilities on premise, they discover vulnerabilities and they want to patch them, there are a bunch of human beings that get involved. They say, oh, I got to schedule a downtime window. I can do it. Okay, I can't do it now.
I mean, I got to wait after the holidays. Maybe there's a I got to find a spot where I can turn this stuff off and I can patch it. It doesn't work. You can't have human beings. You're being attacked by robots.
You can't have human beings in the defense chain. You can't say look for downtime windows as an opportunity to patch everything. I mean, the disaster with Apache Struts where the CEO lost his job was this vulnerability was known for months and they did patch 80% of their struts databases. They couldn't even find all the databases to patch. Human beings can't do this job.
You've got to have autonomous robots. You've got to use a lot of AI. You're being attacked by robots. You've got to have robot defenses. You have to find the threats, and then you have to be able to kill them immediately without taking the system down.
It's really hard problems. So we built Gen 2. The next slide I got 2 slides in front of me now, which is interesting. You got 2 slides also? Okay, let's go to the next slide, the Gen 1, Gen 2.
Here's really a picture of the problem. Here's the Gen 1 Cloud. And this is how it works. You go into Amazon, here's your credit card, you go into a shared computer. And there are 2 problems with the sharing.
One is there are multiple users or multiple customers in the same computer that you have to trust. That is not the worst problem. The worst problem is Amazon's code is also in that computer and they have to trust you. They have to trust their users not to change their cloud control code. That's a it's impossible problem to solve.
These are Intel computers. They don't have memory protection hardware memory protection. I can come in, rent an Amazon computer. I can look around in that computer, I can find the Amazon cloud control code, part of the operating system and I can alter it and I can then go from one computer to the next computer looking around, spreading out laterally, collecting data. I can do all of that.
That's a huge problem. Our solution to the problem is we have 2 kinds of computers in our cloud. We have computers that we rent to customers and the customer can choose to have one all to themselves and not share with other. If you're really security conscious, you say, okay, I'm going to have only my code, only Bank of America's code is going to go in this computer. Or are you going to be someone look, I'm writing I'm a programmer, I'm a startup, I'm writing code, I don't care.
I want to I'm happy to share the computer because I want the lowest possible price and shared compute is cheaper than dedicated or what we call bare metal compute. Great. And we offer both. You can share, you cannot share. It's more expensive slightly more expensive not to share.
But you're not going to share with us. There's no way we're going to put our cloud control code in the same computer that anyone with a credit card can come and just jump in to our cloud. We're not going to do that. So this is why we as we better understood all of this stuff and all of the problems, we decided to rebuild our infrastructure cloud with a separate set of computers that whose responsibility was to do cloud control. Sometimes you call it the control plane to do these are cloud control computers.
Only our code goes into those computers. No user, no customer, we don't trust anybody to put their code into the computer that we use the computers that we use to control the cloud. No way. Now it's expensive. We had to add computers.
And we don't use Intel CPUs. It's not a computer. It's not a computer that's easy to hack because you can't even get at it. There's no real internet access to this computer. Stuff can flow we flow messages through the computer, we encapsulate messages for them flow them through the computer because we're sending messages to 1 customer zone or messages to another customer zone And we're routing them through our cloud control computers.
But those are just messages. There's no way you can get your code into that computer. And that's the way we think we can create these impenetrable barriers, not only around the perimeter of our cloud, but also between customers who care about stuff like that. We had to do that. Everyone's going to have to do that.
But we decided that, okay, we're going to be 1st. We're going to this is our customer base. These are the people who buy the Oracle database. They care about security. They care about reliability.
It's very important. They're banks, they're phone companies. There are people that are just reluctant to move to the cloud. This is why that architecture picture on is why a lot of people are reluctant to move to the cloud. And there are issues.
So we decided, okay, we're going to be the first out with this new secure cloud system, which has these Star Wars defenses, impenetrable barriers, managed by a separate network of cloud control computers and all these autonomous robots looking for threats, killing threats without taking the system down. Okay. This is the bulk of my presentation. Okay. Next slide.
And this is just a picture of these. They're physically separate computers. They're cloud controlled computers, 2 networks of computers. Threats can't enter across the perimeter. Threats can't spread from 1 customer to another, unless the customer chooses to share.
The second you choose to share a computer, you have said I trust the other people in this computer or I don't care. Next slide. Just something about nomenclature. Our 2nd generation cloud is not just infrastructure. We have this thing called OCI Infrastructure, Oracle Cloud Infrastructure, which includes things like the database and compute and storage and networking and all that jazz.
And our generation 2 cloud, it also includes our layer of SaaS applications, because all of our SaaS applications, if they're not there now, everything is moving to the Gen 2 cloud, because they we want all of our SaaS applications to have the same attributes that you can Everything's backed up automatically, everything sticks automatically, never comes down. You can't steal data, all of those things, everything. We're building one kind of data center, one kind of data center, these Gen 2 data centers that run our SaaS applications run our infrastructure. And our SaaS applications are enormously advantaged by running on this infrastructure. They're faster, they're more reliable, they're more available, they're more secure.
There's a rich set of tools you can use to extend the SaaS applications. You have all the infrastructure tools. We're the only enterprise SaaS company that is offering competitive infrastructure. If compared to salesforce.com, they've got this thing called force.com. We've got our Gen 2 infrastructure.
We're trying to compete with beat Amazon, Google, Azure in infrastructure. I don't think you even think about salesforce.com in that marketplace. But if you're extending a Salesforce app, if you're adding a data warehouse to your sales automation system, how do you do it? You do it with force.com. How do you add data warehouse to our SaaS applications?
You use the autonomous database and all of our cloud analytics, etcetera, etcetera. We have an enormously powerful infrastructure and toolset that can be used to extend our SaaS applications. None of the other enterprise SaaS companies have anything like this. They're not even in this business. You think of it as like, well, this is a totally separate market.
You're selling sales automation or something like that. You're not in the infrastructure business, you're not in the database business. Really? We think these businesses are very closely related. Now it's true that Amazon did all of this stuff.
And again, everyone says, hey, we're competing with Azure and blah, blah. We have one set of competitors for infrastructure and another set of competitors for SaaS. But customers need to extend these SaaS applications. We're by far and away the leader in ERP. Well, people want to build data warehouses.
They want to integrate with their on premise systems. They want to build all new custom systems associated with the ERP system. You got a choice. You can do it on force.com. Well, they don't have to even have the ERP system.
But the SaaS supplier to be successful is going to have to provide a facility for extending those applications. And that, by the way, is called an infrastructure cloud. Workday doesn't have anything. What are they how is Workday going to go in the ERP business where they're not doing very well without any ability to extend their applications? I mean, I have no idea how they do it because all of our ERP customers, but once you get to a decent sized ERP customer want to build data warehouses around their applications.
They want to mash up on premise data and SaaS data. And then they want to do analyses and they want to build custom stuff and they want to do a lot of things. Well, Workday's answer is that we don't have an answer. We haven't thought about that. And the market, people just draw this line between these two markets.
And we think SaaS, we think a lot of people are going to come to our infrastructure cloud starting with SaaS, starting with ERP and supply chain and manufacturing and then build out from there a lot of custom stuff in our cloud. We think these are related businesses, not unrelated businesses, even though our competitors in each space are very different. Back to this, so our Gen 2 cloud, when I say Gen 2 cloud, that includes everything, SaaS, infrastructure, everything, the network, the cloud control computers, the application computers. There's this thing called bare metal compute. Some people refer to our Gen2 cloud as our bare metal cloud.
Bare metal compute is one of the options in our Generation 2 cloud. If a customer is security conscious, they can choose not to share their computer, their user their customer computer with other customers. And they certainly not share it with us. So when you buy bare metal compute, there's no Oracle code in that computer. There's no other customer code in that computer.
You don't have to you as a customer don't have to trust anyone. You get bare metal compute. But again, that's just an option that's a part of Oracle's Gen 2 infrastructure. And Gen2 infrastructure is a part of Oracle's Gen2 cloud. Okay, next slide.
Okay, so I mentioned security reliability, that was the driving force of why we rebuilt our cloud, started from scratch. We think we have a huge differentiator in the cloud business that is particularly attractive to our customers, customers who use the Oracle database. And I think most business most enterprise information, most government agencies information, the majority of it is in an Oracle database. And we want to make it easier for them to lift those databases up and those applications up and bring it to our cloud. So we'll make that very easy to do.
And that's the other that's another we have 3 design goals. One is security reliability. It's got to have that. 2nd design goal is we've got to protect our customers' existing investment in Oracle databases and applications on those databases. What does that mean?
Maybe you have to be able to lift those applications up intact, those databases up intact and move them to the cloud. Well, why would they bother to do that? Because of the 3rd design goal, which is there are huge economic benefits of doing that. Therefore, it should run by the way, it should run faster. It should be more reliable, should recover from built in disaster recovery, all of those features.
But it should just be much cheaper to do it that way. Because we have all this automate, we have all these economies of scale, the things you're going to expect from the cloud. But take your existing applications, lift, shift them, press a button, they run faster, they want more reliably built in disaster recovery and your bill is much lower than when you were running it on premise. Those were our design goals. And but the driving force, the driving force for the redo was the current cloud systems are penetrable.
And we think these cyber attacks are going to get worse, not better. And we think we also think we have huge performance event. I don't want to go into it right now why, but we think our Gen 2 cloud is much faster than our Gen 1 cloud, should be. We're much smarter when we built it. It's a much lighter network.
I'm not going to go into all of this stuff, but I will show you some benchmarks. Next slide. Okay. This is kind of making fun of it. Remember where the cloud came from.
It was Netflix. It was Angry Birds. It's great. I think Amazon is a fabulous company by the way. I mean, some companies I admire, some companies I don't.
Amazon is an admirable company. They're amazing. They did a great job and they did a great job innovating the idea of picking this idea of renting compute and renting storage and renting networks was very clever. I thought we were very clever when we invented and we did invent SaaS, starting with NetSuite. And it took us a while to get all of our Fusion apps up and running, but we're way ahead of everybody in SaaS.
If you look at this, the breadth of applications we have, we have all the applications Salesforce has and all the applications Workday has and then a lot of applications no one has. Our SaaS portfolio is enormous and we have lots and lots of integrated pieces because we started a long time ago. Okay. We are the creators of SaaS. Amazon is the they're the creators of infrastructure.
But when they did it, their design goals and their design points and their customers were very different than typical Oracle customer, a big bank, a big telco, people who are running their financials on this thing, it's just a very different profile. Now Amazon has come a long way. They've made a lot of progress, but they have not changed their fundamental architecture and they're going to have to. Everyone's going to have Next slide. The Gen 2 architecture, again, it's we built the autonomous database on Gen2.
It is the foundation for Gen2. It's the foundation for all of our Fusion SaaS apps, where NetSuite is being moved to Gen2. And they're very excited about it because it's cheaper, it's faster, it's more reliable, more available. So all of our SaaS applications are moving to Gen 2. All of our customers are moving to Gen 2.
Our cloud our clouded customer, which we've been selling, the main reason people are buying our clouded customer is to get the Oracle Exadata database service, kind of on premise in a cloud form. That's the major reason they're consuming that. But now with Gen2, with our Gen2 cloud customer, get everything necessary that that cloud works, runs the autonomous database. We automatically back it up, we automatically patch it, we automatically look for threats, threats are patched when it's running. They get full autonomy behind their firewall on the cloud because a lot of our customers are big banks, phone companies who don't want to move to the public cloud, don't trust the public cloud, have regulators won't let them move to the public cloud.
Those are very a lot of our customers and the intelligence agencies are not going to move to the public cloud. They may we might have to not that we won't build a cloud specifically for them. That's what we have to do for some of these customers is deliver cloud to customer, a region of our cloud that builds specifically for a customer. We can do this very inexpensively now for all of our customers with delivering autonomous database at customer, which is a huge opportunity for us. Next slide.
Anything interesting there? Yes, it's more capable, more secure. You've heard all of this. And we have SLAs. We're the only ones that give you uptime SLAs without a lot of caveats.
Amazon has an uptime SLA, but it doesn't include patching, doesn't include software failures, doesn't include hardware failures. Read their SLAs. They say we guarantee this much uptime, but if you but we don't include any of this stuff. We include all of that. The Oracle database is down a couple of minutes a month.
We guarantee it's down to a couple of minutes a month. And that includes and we keep running if there's a software database software failure. We keep running if there's a database hardware failure. We don't fail for any of that. We keep running if the whole data center is blacked out.
Next slide. We're much faster. Yes, this is funny. I mean, we're much, much faster than Amazon. And a lot of people say, yes, yes, Oracle, you're always bragging about performance, but Amazon is so cheap.
Well, when we charge by the minute and they charge by the minute, and we're 10 times faster, if we have the same price per minute, then they're 10 times more expensive than we are. And we have a pretty progressive pricing strategy. So our performance advantage translates into incredible economic advantages if you compare our cloud to Amazon. Next slide. Next slide.
Okay. This is just basic infrastructure. Our basic compute is 50% faster than Amazon. Our block storage is 6 times faster than Amazon. Our network is twice as fast as Amazon.
But that's not the most interesting part. Next slide. The economic advantages are much bigger than the performance advantages. Our compute is Amazon is 3 times more expensive for a compute, triple what we are. They're 30 times more expensive for block storage and much more expensive 10 times more expensive for the network.
Amazon is coming back with a lot of comments about my presentation, but they're not saying, you know this side, this is wrong. They say, oh, that's Oracle saying a lot of crazy stuff. None of which is true. Well, can you be a little more specific than that? I mean, this is pretty obvious.
I mean, this is not subtle. Why don't you just We're much faster and we have aggressive prices. Next slide. And this is for all sorts of this is block storage where we're 6 times faster, but the price difference is crazy. It's absolutely crazy.
Next slide. OCI and big data workloads, this is a Terasort. So again, 3 times faster, 8 times less expensive. Amazon, I should really have 3 times faster, X times cheaper. So you don't have to do the calculations in your head.
But anyway, it's usually 3 times faster or 4 times faster, 10 times cheaper. These are just huge advantages versus Amazon. Next slide. Why are we so much faster? We have a much more modern system than they do.
The great thing about starting over and say, okay, let's do this one more time. Let's redesign this. We're now smarter about this. Let's read our network is totally different than theirs. We have an RDMA network.
That's remote data memory access. It means one computer okay, very simply, it means one computer can take a bit of data and move it to the other computer without those computers really talking to each other. The operating systems aren't talking to each other. There's no interrupt. There's no time lag.
It just suddenly someone just reached into your computer and just stuck data in that memory and then taps you on the shoulder when they leave. So we have a very, very fast they don't have an RDMA network. We have huge broadband network with very microsecond, between 1 and 2 microsecond latency, they don't have any of this stuff. Next slide. By the way, we needed it.
We had no choice. We had to build it because that's how Exadata works. So the problem was we weren't starting with, I don't know who's Amazon, you're the innovator and you say, I wonder who the first customer is going be. I don't know if they ever would have anticipated Netflix, Angry Birds, all gamers and all of this stuff. We knew where our customers were.
There were existing customers who wanted to move to the cloud. We had to make Exadata work in the cloud. You can't make Exadata work without an RDMA network. So we have to build all this stuff in. These are just a bunch of engineering simulations.
Again, we're much faster than they are and much cheaper, but it's the same story. Next slide. This is again also computational fluid dynamics, but it's over and over again. And if Amazon wants to say, oh, they're just making this stuff up, pick any slide. Every slide is backed with a benchmark that's published with all of the details.
You can go to our website, get all of these details that we are this much faster and this much cheaper than Amazon and with our Gen2 cloud. Next slide. And of course, the biggest thing is security. We have all of this security stuff. I'm not going to go into all of it.
But the big thing was re architecting this thing. So we protect the perimeter of the cloud. We protect the user zones. We don't our cloud control code is in different separate computers than theirs and tons and tons of AI, tons and tons of machine learning to detect threats and kill them while the system still runs. Next slide.
We have a key management service. Everything's encrypted, but we have this unique ability to let our customers customers don't trust us with the keys. It's very interesting. Your bank or somebody said, I don't trust Oracle to manage my keys. I want to manage the myself.
I want everything encrypted in the cloud, but I just don't trust these guys. And it's not a problem. We let you do your own key management. We have hardware we actually have hardware that specifically allows you to do that. So you don't have to trust us.
We're the only Amazon can see all your data. A lot of people don't care. They don't care. Again, a bunch of people don't care. Workday can see all your data.
Salesforce is a little bit different. I actually don't know what the situation is with Salesforce, because I don't know what Oracle options they're using. I mean, Salesforce is all built on top of Oracle. And I don't know, we have this facility feature called Data Vault, which if they turned it on means they can't look at your data. And if they didn't turn it on, they can look at your data.
So truth is, I don't know. That's what the situation is in Salesforce. But Workday, I guarantee you, they can look at all your accounting data, all your HR data. And that's just not acceptable to a lot of people. Next slide.
Yes, just more security stuff, application firewalls, We have lots we paid a lot of attention to security. Security is our very first customer is Central Intelligence Agency. Our second customer is the National Security Agency, blah, blah, blah. These people care about that. Next slide.
So we're rolling out our Gen 2 data centers all over the world. In fact, since this slide was created, we added UAE that we have 2 separate data centers in the Middle East and other candidates are coming up. So we're going to be building these Gen2 data centers all over the place. Next slide. And we'll build a Gen2 data center for customers.
If you're a large security conscious customer, if you're a big bank, if you're a government intelligence agency, we'll build you a Gen 2 data center that is all year round. That's all year round. Next slide. The Gen 2 infrastructure, bare metal compute, all that stuff is available right now. Our Fusion SaaS applications are already running on our Gen 2 data center, other SaaS applications are being moved.
We are moving our cloud customer to Gen2, I hope before the summer, I hope as early as January, you press a button and get Gen2. I don't know what I'm not sure when we finish, it's an engineering project. But all of our customers will be able to get autonomous database in cloud form on their premise behind their firewall. The customer people have already bought the Exadata service Exadata is on premise will be able to press a button and get Autonomous Database. And next slide.
Okay, I'm going to go through this very fast. In fact, I think I've next slide. How am I doing for time? I promise I'm going to go very fast. All right.
So lots of automation. I mean, it's a self driving database. There's no there are no database administrators. You press a button, it finds it gets compute, it gets storage, it gets network. If it needs more compute, it gets more compute, automatically backs itself up, data center fails, keeps running, computer fails, keeps running, never breaks.
Next slide. Again, it's serverless. So when you're not running, when you're not running the autonomous database, you don't get a bill. It's not like Redshift. It's not like this thing is completely serverless means when you're not running, you're not paying for any compute.
Your compute cost goes to 0. So it's very economical. It's very, very economical versus other database cloud services. If you're running on one computer and suddenly it's the month end close and you need 3 more computers, it adds those 3 computers for 4 hours then takes the 3 computers away. It's truly elastic while running.
Amazon can't do any of this stuff. Amazon can go from 1 core running Redshift to 2 cores running Redshift or 1 core running Aurora to 2 cores as long as those core in Aurora by the way, Amazon Aurora, which is Amazon's OLTP system, transaction processing system is really just our MySQL open source system renamed Aurora. We built it, Amazon didn't. That's our transaction processing system. And it runs on only one computer.
So there's no elasticity, there's no ability to run a second computer. If that computer breaks by the way, you're down. So this is another claim I'm going to make. Aurora not built by Amazon, built by us, called MySQL. Amazon just gave it a new name.
It's also true of Redshift, right? Amazon didn't build Redshift. That's not what they do. These are just open source pieces where they built that they use to build their cloud. They did a great job.
They did a great job of making those pieces available in a coherent deliver them in a coherent cloud. I give them a lot of credit, but they don't build databases. Amazon still runs all of their all of Amazon on Oracle database. They are trying, they promise because they don't like me reminding them of that publicly. They said they're trying to get off Oracle by 2020.
It's very interesting because SAP has been trying to get off Oracle for 10 years. And SAP has its own database called HANA. But SAP still runs SuccessFactors on Oracle. They still run Concur on Oracle. They still run Ariba.
And they've had Ariba for more than a decade. They run Ariba on Oracle. The EU did a study of how many SAP customers in Europe, big customers in Europe used Oracle and they looked at 100 they're 100 top customers. We didn't get all 100, we only got 99. It turns out that Nestle use IBM DB.
SAP has been trying to get off Oracle for a very long time. It's not easy. Amazon just moved a bunch of their warehouses to Aurora and shut them down cold. You can read the Amazon documents. We can send you copies of the Amazon documents.
Aurora is our other database. It's our low end database. It's our database. It's not theirs. Well, it's open source.
Anyone can use it for nothing. They moved to Aurora. Their warehouses were shut down. Next slide.
Yeah.
You don't read about Oracle databases being hacked and data being stolen, doesn't happen. Next slide. By being fully autonomous, you eliminate human error. Most airplanes crash because of pilot error. Most cars crash because of driver errors.
Computers are better at this than we are. So it's much cheaper to have autonomous systems. The Oracle database not only is much faster than Amazon, but there's no human labor. So it's much cheaper to run to have your data in an Oracle database than have it in Amazon database. And it's much more reliable because there are no human errors.
And plus, if something breaks, we tolerate the failure. Their systems are not fault tolerant. Next slide. Next slide. We've been doing this for a long time.
We've been adding a lot of automation to our database software. Next level, that's not enough. Next slide. To build a truly autonomous database, you have to automate the database software, you have to automate the underlying infrastructure completely. If I say data center fails, data center fails and your application keeps running uninterrupted.
I mean, obviously, something has to happen that's beyond just the database software. We have to automate the database software, automate the infrastructure and automate the inter data center connections and all of that. And that's slide. And that's what we did. That's what the autonomous database is.
It's a combination of infrastructure automation, database automation and data center automation all rolled into 1. They get a full autonomous system. Next slide. I'm not sure I'm going to do this. Let's next slide.
Next slide. Next slide. Wish I could just click. Next slide. That's fine.
That's fine. Okay. This is interesting because we have one database for transaction processing and data warehouses. Amazon has one database for transaction processing, Aurora and they have another database for query processing. Redshift, we have one database.
You will see why their approach is problematic. Next slide. And by the way, all of our stuff is autonomous. We came up with automated autonomous data warehouse about a year ago and about 6 months ago, we announced autonomous transaction processing. Next slide.
This is very interesting. When we took highly tuned systems from a stock exchange, a manufacturer and a bank threw away all their tuning and let the system tune itself, computers were better than the experts. They're all real customers. Then we took next slide. Then we even took NetSuite.
And we which is tuned by lots of smart people who work for us and just threw away all their stuff and the system tuned, did a better job than they did, though the difference was much smaller than a typical data warehouse. Next slide. All right, next slide. Just like we have bare metal for general compute and infrastructure, we also have bare metal for autonomous database. So you can say I want that Exadata machine and all Autonomous Database runs on this Exadata machine.
I want that Exadata machine all to myself. I don't trust anybody. I don't want anyone else's code, anyone else's data. I want only my stuff. I want you to give me a completely isolated system.
We can do that. Sharing tends to be cheaper than having dedicated hardware, but dedicated hardware gives you more security. So we've introduced that option to our customers. Next slide. Again, I mentioned this, press a button, you can get full autonomous transaction processing, data warehousing at customer and cloud to customer version 2 coming out early next calendar year.
Next slide. Next slide. Again, the Autonomous Data Warehouse. Next slide. Again, we guarantee that your Amazon bill will go down by half.
If you're running on Redshift, whatever you're running on, if you bring that same workload to Oracle, we will guarantee that our bill to you that bill will go down by half. But that's not even the big savings. The big savings is there's no human labor. There are no human beings running our system. Our system is autonomous.
You need human beings running their system. And plus our system doesn't break in and secure and has all these other advantages. But just your Amazon bill, we guarantee will go down by half. Next slide. And when we can guarantee that because we're so much faster than Amazon systems.
Next slide. Next slide. All right. So oh, we don't have the benchmark slides in here? Oh, darn.
Anyway, well, this is a summary of the benchmark slides. The first one was a data warehouse application. And you can run it. We have the workloads. It's all published, all the details we published.
We're 9 times faster, 8 times cheaper than Amazon. Same exact data warehouse, Oracle versus Amazon Redshift. And we tested this a year ago, they haven't gotten any better. They're not in the database business. On our new transaction processing system versus Aurora, standard benchmark, standard transaction processing benchmark.
Okay, we're 11 times faster, 8 times cheaper. This is the one that's interesting. Well, what if you put queries and transaction processing into the same workload? What if you test Aurora and that means Redshift doesn't do transaction processing. The only option is Aurora.
What happens then if you have a mixed workload of queries and transaction processing? Then we're 100 times faster than there. They don't have a database that can do normal things. A normal thing is a combination of transactions and queries. We're 100 times faster than they are.
Now you think they would say, well, this is really a lie. This is a big time lie. Let me just point out how wrong this is and explain to you why they're just making this crap up. Not a word. It's all published.
It's all published, not a word. Okay. And I'll tell you, they have one great database that runs in Amazon, the next one. Oracle, when they run the Oracle database on the Amazon Cloud, we're only 3 times faster. That's the best they can do when the customer brings their Oracle database.
Now the problem and by the way, if there's a bug or you're patching or there's a hardware failure, then we're infinitely faster because they're down. They're down a lot. And when they're down, you're still paying for the computer. It's not serverless. So we're infinitely faster and infinitely cheaper in that case.
Next slide. Okay, this is just a summary. The Gen 2 cloud, we had to add a new collection of computers to the Gen 2 cloud to protect the perimeter of the cloud and protect the perimeter of every user zone. Autonomous robots find threats and kill them while the system is still running. The autonomous database, no human labor, no human error, never goes down.
And as much but if you want a system that's highly secure and never goes down, you have to be willing to pay a lot less. I'm going to stop right there. Okay. All right. Yes.
Thanks, Ken. Thanks, Larry, very much for all that. Is the goal and the focus of Oracle Cloud Infrastructure still primarily to run Oracle workloads? And how much are you trying to optimize non Oracle workloads? And if not, can you get to the same scale as
your other competitors?
Well, I think you saw earlier in my slides that we compared TeraSort's big data, HP high performance computing, scientific computing. Our goal is to pursue all workloads. So however, we think we have a huge built in advantage. So interesting question, in Corporate America, how much of the data I don't know, pick an AT and T, Bank of America, how much of their data think is stored in the Oracle database? Most of it.
I think most of the world's data is in an Oracle database.
Most of the
world's high value data. I'm not talking about cat videos because cat videos have 2 problems. 1 is, it's a lot of data. I love cat videos by the way. It's a lot of data, but it's not really high value data.
Bank America doesn't have a huge number. AT and T doesn't have a lot of cat videos. But if you get rid of the silly things like movies and all the data that's created on your iPhone, It's great to store all that someplace. But if you look at corporate information, government information, airline reservation systems, banking demand deposit accounting systems, loan origination systems, switching systems and phone companies, inventory systems and personnel systems and militaries. If you look at those applications, what percentage of that data do you think is stored in Oracle database?
I'm asking you, what do you think? Most of it. So if I were to say we're just going after Oracle workloads, how big if we got the Oracle workloads in our cloud, how big would our cloud be? Anyone want to guess? Seriously, I'd love for someone just 100,000,000,000 dollars Yes, I think certainly north of $100,000,000,000 right, but $100,000,000,000 be a very safe conservative estimate.
It's a lot. So but we're greedy. And when we make and we make the infrastructure fast for Oracle workloads, kind of accidentally, we make it fast for other workloads. We don't know how to make it fast for Oracle workloads and not for example, CERN is a huge customer of ours. And they store vast amounts of data in the Oracle performance computing.
As we built our very fast network, our RDMA network, which we had to do for Exadata, that was perfect for high performance computing. And Amazon doesn't have that. So as we make things run fast in our cloud, we accidentally optimize non Oracle workloads, even if we're not trying to do that. But if we were to get Oracle workloads, I mean, it's actually way more than $100,000,000,000 It's way north of that. I think if we were just get the Exadata workloads, probably be $100,000,000,000 And if we're to get kind of all of the Oracle workloads, it's crazy because it's most of the world's data, most of the world's high value data.
So I believe my friends would say, well, that's a big business opportunity. And I think so we're pretty optimistic about our ability to get a significant percentage of the Oracle workloads. And the next thing is I also think in applications, if you look at the last application war, which was between us and SAP, and you kind of forget an SAP won, they won we were second. I think they had about a 25% share. And I don't know how you figure our share 12%, 13% or something like that, maybe.
I mean, I've seen our share up at 16%, but I'm not sure it was that high. But between the 2 of us, we had what 40% of the market. There's another 60% of the ERP market that neither one of us have. I don't think that's going to happen within the new generation of cloud ERP. I think it's going to be like everything else.
There's Google search And there are other people who try to be in the search business. I mean, let's ignore China just for a minute, it's like another planet. It's against the law. I mean, it's against the law for Google to do search in China. Let's do Google is willing to do some natural acts and maybe they are.
But if you ignore China, the cloud, the network effect is very, very powerful in the cloud and suddenly you have the network effect for ERP And you get the network effect for HCM and all of these other things. And then once you get ERP customers in the cloud, then they use your infrastructure to expand and build data warehouses and do all of these other things. All of the network effect is not only horizontal and the more ERP customers you have, the more ERP customers you'll get. And then they start transacting with each other via the ERP systems and other business A buys something from business B, that's just a Oracle Fusion ERP purchase going from one ERP system to the other ERP system, tells you any available promise. So there's the horizontal expansion network effect, but then there's the vertical expansion, the vertical integration, the fact that we have infrastructure, we have a generation 2 cloud underneath our SaaS applications, which really lets them build out and keep in the same data center, their data warehouses, their ERP data, their HCM data, their field service data, keep all of that stuff together is a very interesting story.
And it's all secure and it's all reliable. So it's all built on this highly reliable infrastructure, highly secure infrastructure. We think that's going to be well, it's kind of exotic right now and we certainly spent a lot of money and put a lot of effort saying, okay, we're going to redo what we have. We think that puts us in a very good position going forward.
Keith Bachman from Bank of Montreal. I wanted to get your thoughts on what you think the timeframe associated with Autonomous Database will be for your customer set? And then secondarily is, how do you think about Mark and Safra spent some time talking about how applications may indeed inflect up here in terms of growth rates? And how are you thinking about autonomous database ability to help the growth of platform and infrastructure category as you look out?
Yes. I mean, that's obviously a time. So when truth is that I don't know. That's the real answer. How fast it grows, I just know that no one has anything like the autonomous data.
There are huge number of people who use Oracle and they'll get huge benefits from using autonomous database. Here's the catch. Most of our customers are on premise and Autonomous Database is a cloud product. So it's a really interesting, right, really interesting problem. So to adopt autonomous database, you have to move toward the cloud.
Now the good news about just focusing on autonomous database. The good news is this new Gen 2 Autonomous Database at customer For the first time, sometime early next year, we're going to be able to put autonomous database on premise, albeit it's called cloud at customer. But just like Jedi, Amazon's Jedi bid, that's clouded customer. I mean, that's not really Amazon's public cloud. CIA is not using Amazon public cloud.
We're bidding on that. We're not that's not a public cloud. That's a cloud. It's just a big data center going into a customer. And we have ambitions of building big data centers, not only for the government, not only for the security agency, which is our heritage, but big data centers, Gen 2 data centers for our biggest telco customers.
And, is our plan to do that. So if you're I think some of our smaller customers will adopt the majority of our customers, I think will adopt autonomous database in our public cloud. I think with Gen 2, we've done a bunch of things on Gen 2. Most recent our biggest focus in Gen 2 to be completely forthcoming is just getting the usability down where it's really easy to get to Autonomous Database. We had all of these features and functions.
But to tell you the truth, it was not that the UI just navigating our cloud wasn't that easy. Amazon was way ahead in terms of ease of use of the cloud. We think right now, I mean literally right now, our cloud is as easy to use as Amazon and we have ambitions to be better than easier to use. It should be easier to use because autonomous database is much easier to use than their databases. But we've got to make it very easy for our customers to get to autonomous database in the public cloud.
We think we're kind of there now. And we think the uptake in 2019, we're going to see a major inflection point in public cloud in 2019, but also for autonomous data, but also cloud to customer. But I can't tell you the slope of that curve. I just I'd love to no one wants to know more than me. I think another way to ask you questions, hey, great presentation, when are we going to see it in the numbers?
And next year for sure, and I just can't tell you the slope of the curve, but it's a very big deal for us. There are 2 strategic businesses we have, database and ERP. ERP is the biggest application SaaS application segment. And we are right now dominant in the cloud in ERP. SAP is dominant in on premise and ERP, we're number 2.
In the cloud, I think the biggest segment is going to be data the biggest piece of infrastructure is going to be database, because it's called the information age, not the compute age, not even the movies on demand age, it's called the information age. And I think that I think the database is a very big deal. We're the dominant provider of database on premise. Now the question is moving all of that to the cloud.
We decided to
bite the bullet, build generation 2 of the cloud, then push the and then start encouraging our customers to move off premise into our public cloud using autonomous database, because now the public cloud is secure and reliable and all of those great things. So I expect an inflection point next year, but I can't tell you what month, but the question is when are you going to start seeing it in the numbers? I think sometime in 2019, it's going to show up in the numbers. And it's obviously going to have at some point, it's going to have huge impact.
To your point about the presentation, it sounds compelling. How tied is the movement of the database to the cloud, to the autonomous database to customers moving their applications to the cloud, right? The obvious answer would be that they're tied very intimately. And then secondarily would be how I just recall one example of an ERP implementation, I think it was Pepsi came out with a Pepsi came out with a press release a couple of years ago and they said they had just completed their global ERP migration and it must have been like, I don't know, 15 years, I don't know how many 100 of 1,000,000 customers have a depreciation cycle on this stuff, right. So how tied is the momentum of your installed base moving to the cloud with our ERP and application systems?
So this is a SaaS specific question.
Well, I don't know. You tell me. I'm not doing my whole.
Okay. So let me talk. There's 2 kinds of migration to the cloud. There's the migration to the cloud where you take your existing application and your existing database and you lift it up and you just drop it down to the cloud. And as a result of doing that, it runs faster, it's more secure, it's more reliable.
And maybe the most important thing is just much cheaper to run. So that customers can do right now in Gen 2 right now rather. And that's a rather straightforward technical process. It's not a terribly difficult technical process. Our Gen2 cloud remember, the second design point of our Gen2 cloud was easily lift and ship database and related applications, lift it up out of in prem, drop it down to our cloud.
That's pretty easy. What you're talking about what I gleaned from your question was, people who have spent a lot of money implementing ERP, SAP ERP, some of these implementations cost $1,000,000,000 SAP is actually going back to their customer base right now and saying, hey, we got the new generation of SAP. The current generation you're on expires in 2025. So you need to start planning now to move to the new generation of SAP, which is really cool because it uses all the SAP tried and true code. So there's no risk really, except it all runs on the HANA database.
You can get rid of that Oracle database and you got to move again. Now I know that you've heavily modified that version of SAP. That's why it cost a 1,000,000,000 you can't implement a standard application for $1,000,000,000 It's not possible. You have to hire a lot of people to write a lot of code and make a lot of modifications and a lot of extensions to the code. So you're going to have to do that again as you migrate to the new version of S4HANA in the cloud.
And S4HANA in the cloud has nothing to do with the cloud. S4HANA in the cloud is the old SAP code and running on the new SAP database that has exactly zero to do with cloud. It's the same on premise code that they wrote 35 years ago. There's almost no new code. There's a slightly new UI on it.
But anyway, so but SAP is now telling their customers they're going to have to move. Thank you, God. So they've actually submitted $1,000,000,000 proposals to some of their customers to get them going on the next gen S4HANA in the cloud. How much will that cost? Looks like $9,000,000,000 actually for you, not $1,000,000,000 cost you $1,000,000,000 last time, this time only $900,000,000 That's a real number from a real customer.
SAP proposed a $900,000,000 move to S4HANA in the cloud.
So SAP
is doing us, I think, a very big favor by pushing their customers off the Oracle database onto HANA because the new S4 only runs on HANA, it doesn't run on any other databases. And to get the benefits of HANA, you got to be willing to pay $900,000,000 It's a lot of money for a database that's not that loses benchmarks to Oracle by 10 to 1 and doesn't have any of the reliability features or any of that other stuff that we talked about. So there's a huge opportunity in the SAP install base and it's happening now because SAPs end up liking their current product. That's a big opportunity in SaaS. But there are other opportunities.
But that's SAP, which is a real company with real engineers. And I think some of these companies are going to pay the $1,000,000,000 They're going to say, hey, I'm screwed. SAP has got me. I can't take the risk of moving something else. I'll pay the $1,000,000,000 But a lot of rich companies are not happy with this.
And I think we can get a lot of those guys moving because we can move those companies off to the cloud or our ERP in the cloud for oneten the cost. Seriously, 1 tenth the cost and much faster, no risk. And we are moving people. I'm not going to go down a list, but we're moving SAP customers, big SAP customers to our cloud, big SAP customers, companies you've heard of, guaranteed. We're doing that now and it's it was all kind of provoked by SAP saying, hey, you're going to I need another 1,000,000,000 dollars But then there are these other companies like Lawson, also AKA In for that In for bought all these companies like Lawson and in the healthcare industry.
I mean, what are you going to do, wait for the next generation of In for? So we are moving a lot of this other 60% that wasn't Oracle or SAP, we're moving these guys got no place to go. And these guys are desperate. And they're moving at very rapid rate. I mean, I can mention Cleveland Clinic.
I can mention a whole bunch of companies and healthcare companies that are moving off of Lawson onto our cloud ERP. And they're moving as a group. I mean, they all talk to each other and kind of the whole industry is going to move off of Lawson and on to off of In for and on to our European Cloud in the healthcare industry. And there are other industries I can talk about. Our own customers, I didn't I saved you, I used up my whole 45 minutes on infrastructure and database.
But our own applications, Fusion applications have all this automation, a cool new voice interface. So our customers, our PeopleSoft ERP customers, our E Business Suite ERP customers, our JD Edwards ERP customers, they now are motivated to migrate from their current ERP system to Fusion. And we've actually built a system, an automated system, a machine learning system that will take an E Business Suite customer and do a semi automated, it's not autonomous, a semi automated upgrade to take you from your on premise system to the cloud. So back to it, so a quick summary. There's 2 kinds of moving to the cloud.
There's one like in ERP, where you throw away your current ERP system, like E Business Suite, and you move to Fusion or you throw away SAP and you move to Fusion or you throw away Lawson and you move to Fusion, that's a project. That's a project. But there are huge benefits because you get this very modern cloud based system. There are other moves to the cloud There are simply lifting what you have, don't change it. Lift the Oracle database, lift the application and take that and just drop that into our cloud.
That's a much simpler process. And we're in the middle of both of these things. So in a way, you would think the harder of the 2 would be winning all was this winning in SaaS, because you got to have people basically throw away their current ERP system, throw away their current HCM system and move over and do a reimplementation with your cloud system. It's not a lift and shift. It's a reimplementation.
We're doing very well there. We started a long time ago and we are on our way to being by far the largest SaaS supplier in the world. So we're going to go from number 2 in applications behind SAP, I believe, to an overwhelming number 1 in SaaS. It's like what I believe, okay? I might be crazy.
The easier of the 2 things, the easier of the 2 things, I said Oracle has 2 strategic businesses, ERP, SaaS, get all of those applications over to the cloud. We can go from there the prize is to go from number 2 to number 1, and it's a big business. It's $20,000,000,000 plus business, right? The bigger prize in a way is much simpler to win, because all we need is for our customers to lift their existing Oracle databases and their existing applications up and then just drop them into our cloud. So that, albeit building that cloud was very building a secure cloud, making this thing reliable, turned out to be really hard to do and took much longer much more time than we ever thought it would take.
But we're there. And now this lift and shift could happen relatively rapidly. That's why the earlier question, when do we see the inflection point on autonomous database people taking their existing workloads and moving them over to the cloud. I think now that Gen 2 is there, autonomous database for transaction processing and data warehouses is there, all the pieces are there. We just have to help our customers get a few workloads moved.
And after they get the first few move, they should be very motivated to move the remainder of their workloads. Yes, sir?
Hi, Larry. Anurag Rana from Bloomberg Intelligence. So as I look at the hyperscale cloud providers right now, Microsoft has a good on premise product base, good public cloud. Amazon didn't have a good on premise base, so they went and partnered with VMware. Google doesn't have a good on premise product base.
Why not partner with them? It'll help you and it'll help them. Say it again. Why not partner with Google? It'll help them and it'll help you.
Why not partner with Google? We're suing Google and they're suing yes, we're suing Google. They stole Java from us. They stole Java from us and built the Java telephone, which they called Android. They were found in federal court to have stolen, infringed on all of our copyrights.
Now why wouldn't we partner with them? Well, we're trying to the next phase of the trial is to come up with damages, see how much money they owe us for stealing all of Java. Why wouldn't we part with Google? Google's cloud is not like our 2nd generation. So A, I don't think it's very hard for 2 companies.
Why doesn't Ford partner with Tesla? They're competitors. We're a competitor with Google. Ford doesn't partner with Tesla because Ford was trying to compete with Tesla. We don't partner with Google because we're trying to compete with Google.
Google, I don't think it would be a very good partner because they built the wrong cloud. They built a Gen 1 cloud with all of these problems. And they can't run our Exadata workloads. They have not gotten RDMA network. They have not separated their cloud control code from their application user code.
They haven't done any of that stuff. So I guess those are the two reasons that we're not partnering with Google. They're thieves and their technology is not that good. But if it was search, it was search, we'd love to partner with them in search. Yes, sir.
Thank you. This is Keith Weiss from Morgan Stanley. Thanks for taking the time to talk to us. In talking to a lot of partners this week, including some of your biggest size, you definitely get the sense that Gen 2 architecture is really ready to turn and they're really excited about the opportunity within the installed base. And I think some of their benchmarks might be even better than yours that they have run internally.
Mark gave us a really good sort of benchmark of how to think about application customers coming over to the cloud in terms of that 3x. Can you give us kind of like an idea how we should think about an existing on prem database customer when they come into use the cloud, like what does that look like?
I think that's the right question if you're a betting man, right? So if you have anything to do with trying to predict markets and the investment community and doing the stuff. That's the question. What I think I can tell you what the end state looks at like, but it's so crazy. It's very hard.
What you really want to know, if I'm an investor, by the way, my 2nd largest investment, I will disclose it now, I'm not sure people know. I'm very close friends with Elon Musk and I'm a big investor in Tesla. And so Tesla had a good day. And I think Tesla has a lot of upside. Do you know the most popular car by revenue in the United States over the last 3 months, the number one car in the United States by revenue and the Tesla Model 3 outsold in revenue.
Forget about Ford and GM, they weren't even close, outsold Honda and Toyota. I loved all the articles about and I would Elon doesn't know what he's doing, the pictures of him smoking dope. And the Wall Street Journal writing all these articles, he's going to have to go out for money. I'm really smart. I work for the Wall Street Journal.
I know a lot about writings for the Wall Street Journal. This is not going to dearest the Wall Street Journal. Though I read it every day. I do. It's my favorite newspaper.
It's my favorite newspaper. Yes, that's my favorite newspaper, more than The Economist now. So and then people, oh, there's going to have to go out for more money. This is all nonsense. I said, who are you?
This guy is landing rockets. He's landing rockets on robot drone rafts in the ocean. And you're saying he doesn't know what he's doing. Well, who else is landing? You ever land a rocket on a robot drone?
Who are you? I mean, okay, okay, you're telling
me he's an idiot. You're telling me he's
an idiot. I just want to know who you are. So I know why should I believe you as opposed to my friend Elon who and we're out here watching this Rocket Land and which I think is really cool and you're there in front of your Apple Macintosh and typing up an article saying Elon's an idiot. Okay, so all right. I had to get there, but Tesla had a good day.
So but picking what quarter, let me tell you something about Tesla. Elon says we're going to get this done and we'll ramp up the Model 3s by Q3. And he's told the whole he's got the whole Tesla team excited and we're trying to get this done and we missed Q3. God damn it. We're going to Q4 for sure And but motivating the team, setting tough goals.
But it turns out it's very hard to predict what quarter. So there was some relation to your question, my little riff here. You're saying, okay, when what quarter does Oracle just kind of surprise you? Where did this revenue come from? We don't expect this is not any we can't this point just kind of snuck onto our chart from nowhere.
You quote your revenues kind of flat and actually it's not flat. Some things are growing very rapidly and other things are shrinking and we're kind of managing to flat, right. The only way it could be flat for this length of time is if we are kind of deemphasizing businesses we don't care about, growing businesses we do care about, and going through this transition in a kind of a market acceptable way. And that's what we've been doing trying to completely so underneath the coverage, you get underneath the revenue and you look at this business, some of the businesses are exploding. Some of the businesses we just don't care about.
We want to shrink them. We don't a lot of those businesses we don't care about. Anyway, there's no way to until we get the first data, a few data points on autonomous databases, see what the adoption rate is and kind of start to measure the slope of that curve, there's no real way for me to tell you. I mean, is it 1st calendar quarter in 'nineteen? Is it 2nd calendar quarter in 'nineteen?
I don't know. But I do know like Elon knows, this is a pretty good product. We got to get it to the market. And we're going to sell a lot of this stuff. I just can't tell you exactly what quarter.
Now when it hits and you get a couple of data points, you get a let's say it hits in Q2 and then you get another data point in Q3, you start to sense the slope in the curve, It's growing and then all you guys can place your bets. But I fully understand somebody who would say, well, I don't see it in the numbers, hell of a as I say, nice presentation. When is it going to show up in the numbers? I'm just going to wait to when it's going to show up in the numbers. You can do that.
I mean, that's the choice, right? I could have waited in terms of buying a lot of Tesla, wait until it just shows up in the numbers. Prove to me. But I went, he dragged we have dinner at the goddamn Tesla factory. Go to the Tesla factory.
I went home, Elon slept there. Go to the Tesla factory, look at the Model 3 line, look at the Model 3, go to the Gigafactory, do all of this stuff, talk to the people, talk to figure out good product, Really cool assembly, really cool assembly line, Gigafactory, amazing. Are there problems? Yeah, there's huge problems with Panasonic, because you're trying to get these batteries to work and your primary cell manufacturer, Panasonic, is having problems. You got to work through that engineering.
It's an engineering project. It's hard to get all these pieces together. But if you get all these pieces together, it's hard for other people to compete. And I think at this point with autonomous database and Gen2 data center, we've got a really firm infrastructure foundation underneath our most strategic product, which is our database, where and most of the world's data being stored in that, we think is going to migrate to a combination of our public cloud and clouded customer. I don't know where else it's going to go.
You can't people have tried, believe me, people have tried to move an Oracle workload to Redshift or Aurora. They've even tried to move it to Microsoft SQL Server. It doesn't work. We're much faster. We have many more features.
There's a reason why we beat Microsoft in the database business. We beat IBM in the database business. We do have a majority of the database business. Most of the world's data valuable data is in an Oracle database. Now we have an even better database in the cloud and it's very easy for people to move.
And they're going to start in earnest in 2019. And where this ends up? Again, low bid $100,000,000,000 business. What do you think the I can tell you some SaaS margins. When we get a new SaaS customer, we get another SaaS customer, what do you think the margin someone gives us $5,000,000 a year, nice sized contract, dollars 5,000,000 a year to run ERP in the cloud.
What percent of that $5,000,000 do you think is margin
incremental?
$70,000,000 Any other guesses? $90,000,000 $90,000,000 maybe more, but certainly 90. It's a good business. It's really it's a good business. Just like search, it's a good you get it
all, good business. Social, basically, you
get it all, it's a good business. ERP, you get it all. It's a good business. Database, you get it all. It's much bigger than any of those businesses I've just mentioned.
Much bigger. Yes, sir.
Thanks. Hi, Larry. Brad Zelnick with Credit Suisse. Thanks for the time today. From this whole week, it's clear that your new Gen 2 cloud is differentiated.
It's a premium offering. And that's not a surprise given what we've come to expect from Oracle, whether it be database or applications.
A lot
of people have forgotten. We're actually a pretty good engineering company. No, I get it. I mean, this infrastructure stuff was way harder than we thought. And when we did it the first time, it was not a very pleasant experience to kind of look at this like, well, I think I now know enough to know that copying Amazon was not a good idea, That doing what everyone else is doing was not good enough for our customers.
So we had to do more engineering. But we are pretty good at this. We have when MIT the MIT club meets, it meets at Oracle. So we have a lot of talented people working on this problem.
Sorry. No worries. I didn't forget. But I think what is maybe a little bit more surprising are the price points. I don't think Oracle was ever known to have competed on price, whether it be in database or in applications.
I just want to know your thinking behind the pricing strategy.
That is so so so
so so differentiation.
I will tell you a great story
because
Oracle's always had a very high list price. I remember I was at Davos and I've gone through phases with Bill Gates and Bill Gates and I are very good friends right now. In fact, I gave him $1,000,000,000 I mean, why would I give Bill Gates? After I give him $100,000,000 I didn't give him $1,000,000,000 for his foundation on a particular project. And I didn't give him $1,000,000,000 $100,000,000 was bad enough.
He asked for 100,000,000 that's what he got. If he'd asked for more maybe we got more. Anyway, I'm on this panel years ago with Bill and this one Bill and I were fighting. And I said something about Microsoft and he said, Larry runs this company where people pay ridiculous amounts of money for a database that's only slightly better than ours. And they pay 10 times more money for a database that's only slightly better than ours.
I'll never understand that. Why would people do that? I guess it's because it's not their money. What I never told Bill was it is true our list price is 10 times more than SQL Servers. But Microsoft sold all of their SQL Server pretty much through dealers.
They didn't have direct salespeople. So they have dealers. So they had their list price actually meant something. That's you got a discount off the list price. That's what you paid.
We sold our database for about half the cost of Microsoft SQL Server because we had these huge quantity discounts. I mean, we had discounts that were just 90%. In the early days, when we're competing with Microsoft, we have these crazy discounts, all you can eat. Couldn't even compute the discount because there were unlimited licenses. We wanted to take down AT and T.
We want to take down Bank of America. Now we had a much better product. We had a better product than they had. We had better product than IBM, but we were hyper pricing. No one knows this.
I'm not sure I've ever told the story. No one knows this, that we were incredibly price aggressive because it was a land rush, right? We knew we had to get AT and T. We knew we had to get all these big banks. We had to get everybody.
And once they were an Oracle customer, we'd have an opportunity to sell them more stuff. So we during the highly competitive phases of the database business, when we had real competition from IBM and real competition from Microsoft, by the way, that eventually went away. By time we were Oracle version 7, that competition went away. We were very, very price aggressive. We undercut them all the time.
And so it's well, again, that was back in the day. That's the day, right? It's a land rush now for cloud. And we have the opportunity to be very price aggressive where it's very hard for Amazon to meet us because a lot of Amazon's profit, it's a huge business for them, right? And right now, it's kind of found money for us.
We already sell the database. We already get database license fees. So when you use our cloud, you're taking your existing Oracle license and bringing it to our cloud. We can afford to be much more aggressive on pricing than they can be for two reasons. One is we are trying to undercut them on a per CPU hour just make sure our prices and then we run 10 times faster than they do.
So they run takes them 10 hours, what takes us to do 1 hour to do. So we're dramatically cheaper than they are. So we're going to use that advantage just to grab share, grab more share. After we do that, we want even more share. We want momentum.
We want to get into a leadership position and we have the opportunity to do that. We're a pretty profitable company prior to being in the infrastructure business. We're just barely in the infrastructure business. We're a very, very profitable company already. We think this is going to be a hugely profitable business for us even at these prices.
Our performance advantages translate into price advantages, which are significant. So we think we can make huge margins. Now the margins in the infrastructure I mentioned the margins in the incremental margins in the SaaS business is 90%. The margin, the infrastructure business, it depends exactly on what you're buying, but it's 50. Even at these prices, which is kind of the company margin we're shooting for is 50% margins.
This is not going to dilute our margins, we'll take it. And we think we can get a lot of people to move to our cloud with those prices.
Hi, Larry. It's John DiFucci from Jefferies. So the emphasis today has been Gen 2 in the cloud. And you say yourself, you're not sure when the autonomous database is going to take off. You have some confidence next year?
I can't pick the quarter in 2019. Okay. But I think you'll get data points in 2019. You'll see a little bit of inflection and then it will go up. There'll be some surprises in 2019 for sure, which are revenue infrastructure revenue surprises.
And you'll see the beginnings of this.
Okay. But as you know, your customers, large enterprises, one of the things you can't tell is sometimes like they look at this too and you believe it and if they believe it, sometimes it still takes time for them to move. And I just wonder like I've been waiting for them to really start to adopt in mass some options that haven't been around that long like in memory and multi tenancy. And I don't know if we've even seen that in the numbers yet. And am I wrong to think that we will see that even before because that'll take time for them to move to the cloud?
Well, I think in memory multi tenancy, which are very interesting and important features is very different. I think people have really been focused on coming up with a cloud strategy. What are they going to do with the cloud? How are they going to do this? I think there is a sense of urgency, at least to come up with a cloud strategy.
So I think you're going to see people experimenting, taking lifting Oracle workloads and trying this workload and trying that workload and starting to move. And with Gen 2 of the cloud and autonomous database, we should be able to show enormous savings. But again, you'll see the beginning of it in 2019. I think you'll see. But it's very different.
I mean, you can get people to talk about the cloud. It's very hard to get people to even talk about in memory databases. We have a faster in memory database than HANA, which SAP is very proud of. Our in memory technology is way better than theirs. It's not surprising.
We're in the database business. They're not. But I think so many of our customers are focused on developing a cloud strategy. They have not been entirely excited with by what they saw from us in Gen 1, what they see in Amazon, the hard stuff, to quote senior engineer Oracle, the hard stuff hasn't moved to the cloud yet. And I think these Oracle databases, some of them, these are fairly complicated applications and fairly hard to move to a Gen 1 cloud.
In a Gen 2 cloud, it suddenly becomes a much more straightforward process to lift and shift this stuff. So I think you'll see real movement our customers and you'll see it in 2 forms. You'll see the autonomous database at customer become very popular amongst some of our largest and most conservative banking and telecommunications customers. And you'll see that. And then you but then you'll see the bulk of our high end still high end customers picking the public cloud option and moving to autonomous database, because now we have dedicated Exadata you can get dedicated Exadata hardware, dedicated bare metal hardware.
We build a barrier. We basically build you your own private network. You've talked this barriers around the customer zones. So we can set up a customer with their own exadata machines, their own compute machines, they're not sharing with any other customer. We can provide that level of isolation to give our customers comfort.
So we think a lot of people are going to be going that way in our public cloud. So we're optimistic. We think now that we got Gen 2 of the cloud working, now that we have autonomous database for both transaction processing and data warehouse working, that we're going to see this migration begin and the scale of the migration in the by the time it's finished is actually hard to imagine. Thank you very much.
Thank you. Thank you all for attending today. We've got some slides that we'll be uploading shortly. So please keep a lookout. You should have on your chairs, the links to do that.
And we'll also get that out publicly as well. Thank you very much for attending today. Bye bye.