by Aaron Lazenby
Having cake. Eating cake. Alone, either is good. But it’s better to have both. That’s what Oracle CEO Mark Hurd says (more or less) about the increasing adoption of enterprise cloud services in a still-challenging economic environment.
“There’s a lot of pressure on companies to perform,” says Hurd. “Executives need ample flexibility to respond to the market. That means both reducing costs and increasing innovation.”
If “innovation” is shorthand for “new research and development spending” or “expanding the portfolio of products and services,” the challenges of improving margins and making new investments appear to be mutually exclusive. But Hurd believes that new, powerful cloud technologies are allowing companies to achieve both goals. And the attraction is undeniable.
Here, Hurd shares his thoughts on this dynamic, the changing role of the CIO, and how consolidation of the IT industry will help cloud systems span the enterprise.
Profit: Why is cloud computing the right fit for the current macroeconomic environment?
Hurd: Despite the fact that many equity markets have seen significant gains over the past few years, revenue growth of the biggest companies has been fairly flat. For the most part, earnings and market value growth are a result of reduced expenses. In that environment, if companies are going to maintain earnings growth, it’s going to come from somewhere—and IT is not immune to those cuts.
Our customers are constantly going through the evaluation of “How do I get rid of spending that is less important and then reinvest that in spending that is most important?” And so that’s what’s going on in the overall market.
And the cloud, to your question, plays a role in the fact that it can do two things at the same time. It can actually lower your costs. If the cloud did nothing but lower your costs, most of our customers would do it. Because if I can get exactly the same thing and it just costs less, and it’s simpler, and it’s secure, let’s do it.
Now, simultaneously, if I could get all of that and I could actually get more innovation, then it becomes sort of something that’s irresistible.
Profit: In your eyes, what is the relationship between IT innovation and revenue?
Hurd: I know only a few ways to take market share and drive new revenue. I can engineer better products and services, I can build better relationships with my customers and deliver a higher level of service, or I can give my customers a lower price.
It’s counterproductive to lower my price, because I have to sell more units to make up for that lost revenue. Generating brand-new products can take a long time. Improving service is typically the quickest way that I can take market share. So aligning technology strategy to better service customers becomes an essential path to revenue growth.
There are unique opportunities for differentiating yourself from competition. By the way, they don’t come along every day. And usually, they show up in a crisis. If I’m in the airline business, I get to a gate, and there’s one seat left, and two people get to the gate at the same time. Who gets the seat? And you have a shot to make a difference with me that I’ll probably remember the rest of my life.
The way to overachieve in those situations is to have better information, to know who you’re talking to, and to know how to motivate that customer. To seize the very unique opportunity, you have to differentiate that relationship and be nimble enough with your technology to capitalize on that moment.
Profit: How do enterprise applications help companies capitalize on that moment?
Hurd: Data becomes very important. Information, the ability to mine that information, take advantage of that information at those unique opportunities where I can gain share. Then clearly, on the other side of it, there is the fact that I just want stuff that costs less. I don’t want to have a different server from five different companies, three different operating systems, multiple databases, multiple applications, middleware, and all of this different based on each application set.
And so what has happened historically for most of these applications that have automated processes for our customers over the past 20 or 25 years is that they’ve all been very monolithic. They typically haven’t integrated cross-application. They’ve been highly customized to the processes that our customers have had, and those processes were automated 20 years ago.
The world has changed multiple times since then. Consumers now expect immediate gratification. They expect immediate answers to the questions they have, and they’ll make buying decisions based on the ability to access the availability of services or products on a nanosecond sort of basis.
So the ability to serve up content, serve up the desired capability, now becomes not just a nice-to-have but a must-have if you’re going to compete in the next generation. And the ability to get to a modern set of applications—a next-generation set of applications—becomes really critical.
In addition to that, as a cloud user you get a whole set of innovation on a continual basis. This is not like the old days where you would get an application and you might get a release every two or three years. Now you might get five features a week. You might get 300 or 400 features in three or four months. That’s a lot of innovation that, frankly, you had to do almost no work to benefit from.
Profit: How can the office of the CIO influence this cost cutting/innovation dynamic?
Hurd: The role of the CIO is changing. I think historically the CIO built from the bottom up. There was a lot of procurement leverage in the IT strategy, which was sort of “let’s get two vendors in each category baking off and try to lower our acquisition costs.”
Improving service is typically the quickest way that I can take market share. So aligning technology strategy to better service customers becomes an essential path to revenue growth.”
As you know, today, most of our customers’ budgets, or 80 to 85 percent of their budgets, are spent just running the environments they’ve got. So the innovation part of the budget has been 15 percent—not enough to get done all the things we’ve talked about.
I think the role of CIO has to be to get this simple, lower cost of the infrastructure, and at the same time get easy-to-run, easy-to-integrate, easy-to-move data—both intra-application and interapplication—and move as much to the innovation part of the budget as they can.
Profit: What are the most powerful levers the CIO can pull to make this happen?
Hurd: In the IT market, 30 percent of overall enterprise IT budget is spent on the development and testing of applications. It is one of the most underutilized spends in the IT industry. Total enterprise IT spend is roughly a trillion dollars, so US$300 billion of it is “dev-test.”
And that dev-test environment has historically been very much like what you would think of in the rest of on-premises IT today. You buy a server, an operating system, and a database. You buy some authoring tools and put that all in the data center, and developers start to program on it. They would probably use [the environment] 20 to 25 percent of the time, meaning 75 percent of the time it just sits idle in most of our customers’ data centers and in their infrastructure.
I look out in the parking lot and I see my car, and I think about the fact that it’s doing nothing. It just sits there. So my car is utilized, I don’t know, 3 percent a day? 97 percent of the day, it sits there waiting for me to use it. Now, imagine if you could get that car on demand. And you paid for it only 3 percent of the time. Would you do it?
Think of that as much of the way of infrastructure. Let’s just use this dev-test example. 20 percent of the time, dev-test is productive. People aren’t using it on the weekends most of the time. You get a percentage of productivity during the week. Imagine if you could dial that up, and it looked exactly the way you wanted, using exactly the capabilities you wanted or you could access, and you could get it on demand. And you paid for it only when you used it.
That’s an argument for why you see such rapid movement of development and testing, which eats up a lot of infrastructure, to the cloud.
I made a prediction a year ago that you would see all dev-test move to the cloud by the time you got through the next 10 years, which is nine years now. And I think if anything, I could be not aggressive enough. I think the financial case is so compelling, and the technological capability now is so compelling, because this isn’t just like the car example. You actually now can go to the cloud and get more capabilities than you’ve had on premises, while variablizing your cost at the same time. So it’s a very compelling value proposition. And that is budget that is, typically, directly controlled by the CIO.
Profit: While Silicon Valley is synonymous with innovation, do you think the cloud requires a change in mindset from the industry’s big players?
Hurd: This valley is a great place—a lot of innovation, a lot of excitement—but much of what’s happened in enterprise IT has been companies building pieces. I’m an operating system company. I’m a hardware company. I’m a database company. And by the way, customers have been very thoughtful, and they bought the way that the companies have built and then sold.
And then they’ve performed the task of integrating all of this on premises, and that’s what’s created this complexity— all of these different operating systems, all of this different hardware, and all the different databases that are out there. I think a common mistake is that businesses think they can make one isolated move to the cloud and not think about what the destination looks like. They’re not making sure that they have as much commonality as possible.
That’s why I think there will not be nearly as many cloud companies as there were on-premises companies. I think the IT industry will consolidate, it will simplify, and customers will demand more from fewer, to be able to provide a simpler environment, easier to integrate, easier to manage, and easier to innovate.
I’ve said many times that I think one of Oracle’s core differentiators is the fact that most of our competitors are either all cloud or all on premises. The fact that we can do both and be able to align those two worlds, I think, becomes a very critical capability of Oracle’s that our customers benefit from.
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