One of the biggest acquisitions in the cloud space happened this month when Oracle paid €8.4bn for its cloud rival NetSuite. NetSuite is considered by many to be the first cloud-based company offering ERP software through a software as a service (SaaS) model. The deal reunited NetSuite’s CEO Zach Nelson with Larry Ellison, his old boss and early investor.
So what made Oracle shell out the cash? Firstly, it is worth noting that whilst Oracle has emphasised the importance of cloud, it only made up 6.5% of its total revenue for Q4 2015, a tiny percentage. Oracle believes it can compete with some of the larger players in the cloud space, leveraging its brand by building a portfolio.
The last decade has seen revenues from traditional legacy-based software and hardware declining. In Oracle’s case hardware fell by 7% to €1.8bn and its software licensing revenue dropped by 2% to €6.8bn. Its SaaS and platform as a service (PaaS) revenues on the other hand rose 68%.
The acquisition also allows Oracle to target a new type of customer from its enterprise heartland. NetSuite has made strong inroads in the SME market, a space Oracle has been working hard to move into. This market is relatively untapped and offers a huge opportunity.
Oracles does, however, have mixed success with its acquisitions; how successful this one will be, only time will tell.