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Oracle Versus Amazon in Cloud Computing War: Who Will Win?

Zacks

Oracle Corporation ORCL is all set to challenge Amazon.com AMZN in a battle for supremacy in the cloud computing market. The company recently announced a plethora of products that not only “complete” Oracle’s cloud portfolio but also make it much cheaper than the Amazon web service (AWS) offerings.

Per Chairman and Chief Technology Officer (CTO) Larry Ellison Oracle’s “complete suite of cloud offerings” offer twice as many cores as AWS, twice as much memory, four times the storage and 10 times the input-output (I/O) capacity but at-least at a 20% lower cost.

Oracle’s Expanded Portfolio a Challenge for Amazon

By “complete suite of cloud offerings”, we refer to Infrastructure-as-a-Service (IaaS), as well as Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS). While Oracle has a sizeable market share in SaaS and PaaS, its presence is very limited in IaaS.

The recently announced Oracle’s second generation IaaS data centers are expected to improve the company’s competitive position against Amazon in the IaaS market. According to Ellison “The data centers are designed in "availability domains" in different regions, in order to get the data close to users and ensure that catastrophic outages are avoided.”

“The domains are interconnected with a fiber optic ring, with data duplicated in all of them." Ellison added “There's no single point of failure," and if the company lose a data center, the customers and users will not even know about it, as there will be no halt in service offering.

Price and Consensus

Price and Consensus | Quote


In the recently held Oracle Open World 2016, the company also announced a number of products for its hybrid cloud offering Cloud@Customer. (Read More: Oracle's Cloud Offerings to Compete Against Amazon's AWS)

Amazon Dominates IaaS Market

Amazon is the prevailing leader of the IaaS market. Per its latest earnings report, IaaS business posted $2.89 billion in revenues, up 58% on a year-over-year basis. On the other hand, Oracle reported IaaS revenues of $171 million, up a modest 10% from the year-ago quarter in the recently ended first quarter of 2017.

According to Gartner “AWS’s flagship S3 holds nearly twice as much customer data as the top seven other public cloud providers combined.” The S3, which was launched way back in 2006, continues to dominate the cloud storage market despite increasing investments and offerings from the likes of Microsoft MSFT and Alphabet GOOGL.

Per the latest report from Synergy research group Amazon is almost three times the size of its nearest competitor Microsoft in the cloud services infrastructure market. However, Oracle didn’t figure in the top four of the list who controlled well over half of the global market.

Conclusion

We note that compared to many of its traditional peers Oracle is a late entrant in the cloud computing market, while Amazon is a pioneer of the market. Despite aggressive investment we believe Oracle will find it significantly difficult to topple Amazon from its numero uno position at least in the near term.

Amazon’s dominance in the cloud computing market has also driven its returns on a year-to-date basis. The company’s shares have surged almost 14.7% as compared with Oracle’s return of roughly 7.4% and S&P 500’s 4.7% over the same time frame.

Nevertheless, we believe that Oracle’s growing focus on cloud computing will boost its market share going ahead. Moreover, improving cloud revenue will help the company offset sluggish on-premise new license revenues in the near term.

Zacks Rank

Oracle carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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