Never the one to lose in high seas or in the Cloud, Oracle is pursuing a $2 billion flight plan that could put any air combat to shame.
Fresh off a mixed quarter with flat software license and Cloud subscription revenues and a 6% rise in its maintenance business, Oracle announced that it planned to pay $1.5 billion for Responsys in another expensive Cloud purchase. Founded in 1998, Responsys specializes in Cloud-based business to consumer marketing software with 451 customers and 1,000 employees.
Thomas Kurian, executive vice president of Oracle development, said it plans to complete the deal in the first half of 2014, extending its Customer Experience Cloud, which will be anchored by Responsys and Eloqua for end-to-end marketing automation. Oracle acquired Eloqua for $871 million in early 2013.
The message from Oracle’s proposed acquisition of Responsys is simple: It needs to double its Cloud application sales to $2-billion level pronto.
As noted in its recent second quarter fiscal 2014 earnings results, Oracle’s Cloud bookings jumped 35%, but recurring revenues were slow to come by because of lengthy implementations of Fusion applications. At last count, Oracle reported more than 650 Fusion applications customers including 220 that have gone live so that the vendor can recognize regular recurring revenues, more than three years after the product became generally available.
In many respects, Oracle’s runway has been cut short since the database giant has squandered the Cloud market opportunity as it tried to fit too many moving parts into its Fusion applications suite.
Instead of building a new runway to allow its burgeoning number of Fusion applications(CRM, EPM, ERP, GRC, HCM, PPM, Procurement, SCM) to take off easily, Oracle is practically buying a new fleet of short-range and long-range aircraft from Airbus, Boeing, Bombardier and whomever it finds useful to help it dominate the cluttered Cloud marketplace as soon as possible.
Responsys is one such aircraft for the database giant to out maneuver all others in Cloud marketing especially for campaign orchestration, pairing it up nicely with Eloqua for revenue performance management and Compendium for content marketing.
The latest acquisition brings Oracle’s Cloud strategy into sharp focus by driving revenues rapidly. Based on our Oracle model, the vendor’s Cloud applications subscription revenues reached $1,002 million for the preceding four quarters, up 43% from $702 million in the same period last year.
It was decent growth, but Oracle is desperately looking for the cruising speed that it needs to overtake the Cloud leader Salesforce.com, not to mention thwarting the growing threats from SAP, Workday and thousands other best-of-breed Cloud applications vendors.
Without the air cover from Responsys, which is comparable to the prices it paid for Taleo($1.9 billion) and RightNow($1.5 billion), Oracle would have found itself mired in its past mistakes. One can argue that Oracle has spent too much time trying to make Fusion applications perfect for its diverse installed base of E-Business Suite, PeopleSoft and JD Edwards customers. Its data center expansion plan was also a sticking point as it dawdled over whether extending its relationship with Equinix, a data center and colocation provider, or investing in its own facilities, which could lead to substantial near-term capital expenditures. For the record, Oracle announced its plan to open four new data centers in 2014, bringing the total to 17. It’s not clear how many of them are Oracle’s own facilities or under leases from Equinix.
In the meantime, Oracle’s Cloud subscription revenue growth has been uneven at best. In the second quarter of fiscal 2014, Oracle was able to grow its worldwide Cloud subscription revenues to $259 million, a 19% increase from year-earlier quarter. However Cloud subscription revenues in Japan fell 1% during the same period.
Buying Responsys with its annual run rate of $140 million in Cloud subscription could help Oracle reach the goal of hitting an annual run rate of $2 billion, perhaps by the end of 2014.
Now the trajectory will depend on how well Oracle is able to retain Responsys’ key accounts. In its latest 10Q filing, Responsys states it has 451 key accounts, each paying at least $3,000 in quarterly subscription fee. Of these 451 accounts, 20 big customers made up 34% of its revenues in the third quarter of 2013.
Keeping these major accounts happy will be instrumental in Oracle’s Cloud future, similar to the daunting task of merging American and USAir as they try to win the commercial air travel market by not alienating their top fliers.