Ecosystm VendorSphere: Oracle’s Emergence as a Key Webscaler
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Oracle is clearly prioritising a rapid expansion across the globe. The company is in a race to catch up with the big 3 (AWS, Google, and Microsoft), and recognises that many of their customers are eager to migrate to the cloud, and they have other options. Their strategy appears to be to rely on third-party co-location providers for most of their data centres, and build a single availability zone per region, at least to start.

Oracle Cloud Rollout Ramps Up

Let us consider the following:

  • Oracle’s network spending level puts it in the range of other webscalers. Focusing only on the Network and IT portion of their CapEx, Oracle has now passed Alibaba. Oracle is also ahead of both IBM and Baidu, which are included in the “All others” category in Figure 1.
Annualised Network & IT CAPEX through 3Q21, Top Webscalers
  • The coverage of the Oracle Cloud Infrastructure (OCI) is impressive. It has 36 regions today (some dedicated for government use), with a plan to reach 44 by year-end 2022. That compares to 27 overall for AWS, 65 for Azure, 29 for GCP; regional competitors Tencent and Huawei have 27 regions each, and Alibaba 25 regions. The downside is that Oracle has only one availability zone in most of its regions, while the Big 3 usually have 2 or 3 per region. Oracle needs to build out its local resiliency rapidly over the next year or two or risk losing business to the big 3, especially to AWS; but the company knows this and is budgeting CapEx aggressively to address the problem.
  • Oracle’s initial reliance on leased facilities may be an interim step. The rapid growth of AWS, Azure, and GCP in the late 2010s was a surprise and Oracle started to see serious risks of losing customers to these cloud platforms. Building out their own cloud base on new data centres would have taken years and cost them business. So, Oracle did the smart thing and leaped into the cloud as fast as possible with the resources and time available. The company has scaled their OCI operations at an impressive rate. It expects capital expenditures to double YoY for the fiscal year ending May 2022, as it increases “data centre capacities and geographic locations to meet current and expected customer demand” for OCI.
  • Finally, Oracle has invested heavily in designing the servers to be installed in its data centres (even if most of them are leased). Oracle was an early investor in Ampere Computing, which makes Arm-based processors, sidestepping the Intel ecosystem. In May 2021, Oracle rolled out its first Arm-based compute offering, OCI Ampere A1 Compute, based on the Ampere Altra processor. Oracle says this allows OCI customers to run “cloud-native and general-purpose workloads on Arm-based instances with significant price-performance benefits.” Microsoft and Tencent also deploy the Ampere Altra in some locations.

Reaching Global Scale

Once Oracle decided to launch into the cloud, its goal was to both grow revenues and also protect its legacy base from slipping away to the Big 3, which already had a growing global footprint. Oracle chose to quickly build cloud regions in its key markets, with the understanding that it would have to fill out individual regions as time passed. This is not that different from the big 3, in fact, but Oracle started its buildout much later. It also has lesser availability zones per region.

Oracle has not ignored this disparity. It recognises that reliability is key for its clients in trusting OCI. For example, the company emphasises that:

  • Each Oracle Cloud region contains at least three fault domains, which are “groupings of hardware that form logical data centers for high availability and resilience to hardware and network failures.” Fault domains allow a customer to distribute instances so “the instances are not on the same physical hardware within a single availability domain.”
  • OCI has a network of 70 “FastConnect” partners which offer dedicated connectivity to OCI regions and services (comparable to AWS DirectConnect)
  • OCI and Microsoft Azure have a partnership allowing “joint customers” to run workloads across the two clouds, providing low latency, cross-cloud interconnect between OCI and Azure in eight specific regions. Customers can migrate existing applications or develop cloud native applications using a mix of OCI and Azure.
  • Oracle allows customers to deploy OCI completely within their own data centers, with Dedicated Region and Exadata Cloud@Customer, deploy cloud services locally with public cloud-based management, or deploy cloud services remotely on the edge with Roving Edge Infrastructure.
  • Further, Oracle clearly tries to differentiate around its Arm-based Ampere processors. Reliability is not necessarily the focus, though. The main focus is contrasting Ampere with the x86 ecosystem around overall price-performance, with highlights on power efficiency, scalability and ease of development. 

Ultimately the market will decide whether Oracle’s approach makes it truly competitive with the big 3. The company continues to announce some big wins, including with Deutsche Bank, FedEx, NEC, Toyota, and Zoom. The latter is probably the company’s biggest cloud win given Zoom’s rise to prominence amidst the pandemic. Not surprisingly, Oracle’s recent Singapore cloud region launch was hosted by Zoom.

Conclusion

Over the long run, the webscale market is getting more concentrated in the hands of a few players; some companies tracked as webscalers, such as HPE and SAP, will fall by the wayside as they can’t keep up with the infrastructure spending requirements of being a top player. Oracle is aiming to remain in the race, however. CEO Larry Ellison addressed this in an earnings call, arguing the global cloud market is not just the “big 3” (AWS, Azure, and GCP), but is a “big 4” due in part to Oracle’s database strengths. Ellison also argued that the OCI is “much better for security, for performance, for reliability” and cost: “we’re cheaper.” The market will ultimately decide these things, but Oracle is off to a strong start. Its asset light approach to network buildout, and limited depth within regions, clearly have downfalls. But the company has a deep roster of long-term customers across many regions, and it is moving fast to secure their business as they migrate operations to the cloud.

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Matt Walker is an expert in telecommunications and cloud markets, with 25 years of experience providing independent analysis and consulting to private and public sector clients. Matt has a strong understanding of technology supply chains, economics and geopolitics blended with breadth of knowledge in key technologies used in communications network infrastructure, including data centers. Another of his skillsets is depth in network cost analysis (capex/opex). He has been a telecom analyst for over twenty years, with a decade spent at leading analyst firm Ovum. He graduated from the University of Rochester with a BA degree in Political Science and an MS degree in Public Policy. In his spare time, Matt likes to bike, hike, jog, kayak, and spend time with his two daughters.


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