Enterprise software services provider Oracle's (ORCL) entry into cloud computing through acquisition of companies involved in cloud computing might have surprised a few experts. But for others, it was only a question of time before the software giant step in to the field. In a way, the entry of the software giant could be termed as vote of confidence for cloud computing sector.
The latest to be acquired by Oracle is Teleo for $1.9 billion, which was announced on Thursday. This comes on the heels of Oracle agreeing to buy RightNow Technologies for $1.43 billion in October.
While Taleo is a talent recruitment software provider through cloud computing, RightNow Technologies was involved in handling customer services through cloud computing.
Oracle's move is also viewed in the context its rival SAP agreement to buy SuccessFactors for $3.4 billion. SuccessFactors is a rival of Taleo and that fits well for Oracle.
It was no secret that Larry Ellison, Oracle's CEO, termed the cloud computing as very unprofitable to enter the sector. Compared to software development, cloud computing is not profitable, but cloud computing is affordable for even small vendors.
The apprehension of software developers is quite understandable. If they promote cloud computing vigorously then the revenue will fall, squeezing out product margin. That said, cloud computing has its own disadvantages. One of the major concerns is loss of data or security of such data stored in a common place through the internet. The fear is that about 60 percent of corporate data is not protected.
Yet, corporate are trying to find ways as to when and how to shift to the cloud without running the risk of security but that could save dollars and resources, an official from Microsoft reportedly commented.
A top management official from a software company has also viewed that big players are figuring out ways and means to offer cloud computing due to the volume involved with value editions.
Coming back to Oracle, it is quite evident that the company does not want to lag behind with its direct competitors as well as others in the industry and be a whipping boy at the end of it. Also, IT spending outlook has been reduced at the beginning of the year by research firm Gartner. The economic ambiguity and the European Union crisis will also continue to dent IT service providers at least during the first two quarters of 2012.
As if these were not enough, various research firms is indicating solid growth for cloud computing. The sector is being projected to grow to $240 billion by 2020 by Forester Research. Similarly, International Data Corp. (IDC) estimated that IT cloud services revenues witnessed more than $21.5 billion in 2010 and is further estimated to touch $72.9 billion by 2015 indicating 27.6 percent compounded annual growth rate. This is significantly higher than 6.7 percent CAGR projected for global IT market during the same period, a point which neither Oracle nor SAP can afford to ignore.
Another research report indicates that worldwide government cloud computing will see 6.7 percent CAGR to generate revenues of $118 billion during the period 2015 – 2020. This is exclusive of private sector growth prospects.
Interestingly, IBM is aiming to generate at least $7 billion in revenues from cloud computing by the turn of 2015. The company's intention was made known in the middle of 2011.
Gartner, a market research company, also believes that the industry is poised for a stronger growth through 2014 when global cloud services revenue is aimed to reach $148.8 billion.
At a time when the global economy is passing through a difficult phase coming in the wake of financial imbroglio and credit crisis, Oracle and SAP has to find ways and means to increase their top line as well as the bottom line growth rate. Both cannot sit idle with the available cash and they have to probe various avenues, which they did.
It is quite evident from the various forecasts that if they miss the bus now, they may find it tough to come back after few years.