Oracle’s database dominance eroded by rise of cloud-first rivals

The company had for years relied on Oracle products to manage the photo libraries of its more than 20 million active customers. But as Shutterfly progressed on the effort to switch its systems to internet-based services from Amazon.com Inc.’s cloud division, Chief Technology Officer Moudy Elbayadi recognized it also needed to shift its database to something that was easier to use.

“The amount of time and energy that was consumed purely running just the plumbing was immense,” Elbayadi said in an interview. And reviewing other options in the marketplace, Shutterfly found that Oracle’s systems didn’t “fit our desires to have that level of openness and flexibility,” he added.

Shutterfly isn’t the only company taking advantage of the boom in database vendors to diversify beyond Oracle. Businesses are opting to align with newer providers such as MongoDB Inc., Databricks Inc. and Snowflake Inc. instead of Oracle, the sector stalwart, as a result of changes across the enterprise technology landscape.

The move to the cloud is challenging the systems of the past. Newer providers are also making it much easier to adopt their technology directly, alleviating the need for corporate purchasers to negotiate large contracts with salespeople and allowing end users to more easily pick their own tools. Offerings from the newer software makers can also be deployed without large teams of database administrators that are typically needed to support Oracle’s products, a cost-saver for organizations that would otherwise have to fight against other businesses for these in-demand engineers.

The evidence of the shift is widespread. JPMorgan Chase & Co. chose Cockroach Labs Inc. as the database vendor to support its new retail banking application in Europe. Nasdaq Inc. is working with closely held Databricks and Amazon.com Inc.’s Amazon Web Services, among others, in its quest to upgrade from on-premises Oracle data repositories. Alongside AWS, database products from rival cloud vendors Microsoft Corp. and Alphabet Inc.’s Google Cloud are also growing quickly. And many businesses, like JetBlue Airways Corp. and Automatic Data Processing Inc., are tapping Snowflake to help store and analyze corporate data to power sales dashboards, among other uses.

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“We have actually quite rapidly been reducing our Oracle footprint,” said Nikolai Larbalestier, Nasdaq’s senior vice president of cloud strategy and enterprise architecture. “There are plenty of good alternatives today.”

Collectively, the initiatives are just a small fragment of the estimated $155 billion database market. But it’s evidence of a tectonic shift happening within the industry, one that is threatening the leadership status Oracle cultivated over the past 43 years, ever since co-founder Larry Ellison and his team brought to market the first relational database, or one in which information was organized in tables that could be more easily accessed, manipulated and analyzed.

Still, Oracle remains an industry leader for its ability to provide consistent quarterly earnings growth. With the Austin, Texas-based company scheduled to release fiscal fourth-quarter results Monday, analysts project revenue will increase 4% to $11.7 billion — far more than its newer, smaller competitors. And the company just completed its $28.3 billion acquisition of electronic medical records provider Cerner Corp., opening a significant new area of potential expansion.

“Oracle presents an interesting opportunity for better-than-expected EPS growth in a choppy marketplace,” Keith Weiss, an analyst at Morgan Stanley, wrote in a report June 6.

Databases are critical to modern life. There isn’t an online service, retail transaction or medical procedure available today that doesn’t have a database supporting it on the back end, keeping track of people’s choices and results. And the corporate dashboards that executives rely on to manage day-to-day operations are propped up by curated data repositories long-sold by Oracle and others.

It’s hard to overstate Oracle’s influence in the evolution of the technology. Despite all the hype of cloud computing, many large businesses still run their databases via on-site centers. Companies that were in existence before 2000 are almost certainly still using mainframes. Moving from either is difficult and companies don’t take make such changes lightly. Instead, many are opting for a step-by-step approach: keep the old Oracle systems running, but use another vendor for new projects.

“Someone is not going to wake up one day and say they need to replatform their Oracle database,” MongoDB Chief Executive Officer Dev Ittycheria said in an interview. “It’s not the bulk of our business because we are seeing so much explosion of new apps. But we are seeing a very healthy take-rate of customers migrating off of legacy relational databases like Oracle.”

That’s why, at least for the foreseeable future, Oracle will continue to be a force in the industry. The company’s database business pulled in an estimated $15.6 billion in 2020, according to research firm Gartner. Oracle doesn’t disclose financial results specifically for its database business. Much of that revenue comes from providing support and maintenance for existing customers versus new sales.

But Oracle’s influence is slowly fading. While it owned an estimated 27% of the database market in 2019, that fell to 24% in 2020, per Gartner. In the same time frame, Amazon went from 17% market share to almost 21%.

Oracle declined to comment for this story.

Rivals are growing quickly. At MongoDB, for example, sales rose 57% to $285 million in the most recent quarter. Those results, analysts and company executives say, indicate businesses are using MongoDB for increasingly larger projects.

Part of what is driving that change is the emergence of the cloud, which is giving businesses an option to move away from legacy vendors and use more specialized systems that can be tailored to support certain applications or workloads.

“Every time there’s a transition of infrastructure, there’s a recasting of the core markets,” said Dave McJannet, CEO of HashiCorp Inc., a company that helps users manage applications across different cloud environments. “People are not deploying net-new Oracle.”

Databases from vendors like Timescale, for example,

at pulling information within a specified time frame, such as how many sessions one user logged on a gaming platform in the previous five days. In-memory databases from Redis Labs Inc. can run queries in milliseconds by scanning data without the need to save it in a separate storage center, letting a client, for example, analyze the feed from internet-enabled sensor to determine if a machine needs maintenance.

The move to the cloud and changes to the way databases work have escalated demand for developers, a role that is gaining more influence within organizations. In the past, building an application required a team of administrators with high salaries who could work with the standard database to make it fit a company’s needs. That’s not feasible for many businesses.

For example, Andreessen Horowitz-backed video-game creator Mythical Games is sitting at a $1.2 billion valuation, but CEO John Linden acknowledged it would be impossible for them to hire the staff needed to support Oracle.

“Oracle hits us up every week,” he said. But “we’d have to have a massive team in place to run it appropriately.”

With Cockroach, Mythical Games developers are able to immediately build applications and run them. For startups and large enterprises alike, that can be a major cost savings.

“I can’t even hire people if I told them that we majorly use Oracle,” said Yao Morin, chief data officer at JLL Technologies. “People are yearning for better tools.”

Despite the migration from some businesses away from Oracle, there are big reasons why customers stay.

Oracle has very powerful and reliable technology. When Moderna Inc. was running clinical trials for its Covid-19 vaccine, partner Medidata Solutions used an Oracle database to manage and analyze billions of records, a spokesperson confirmed. Oracle also has a deep history of working with the world’s largest businesses. While the mandate to invest in technology is clear, many companies are risk averse and are fine sticking with Oracle instead of undergoing a massive, complicated IT overhaul.

There’s a good business reason the company emphasizes its database: Oracle makes a significant portion of its revenue on existing customers. Every few years, when companies have to renew their contracts, Oracle can raise prices for maintenance and support — a business with margins hovering around 95%, according to Craig Guarente, a 16-year veteran of Oracle who is now CEO and co-founder of consulting firm Palisade Compliance.

“The entire profit of the company comes from Oracle database maintenance,” he said. With each contract negotiation, “you go from paying $20 million a year, to $30 million a year, to paying $50 million a year.”

Oracle’s dominance has led to questions from analysts over just how much success smaller rivals will have persuading businesses to move away from the company, particularly when it comes to the most critical operations.

Still, the competition is gaining. When American Tire Distributors Inc. was seeking to upgrade its on-premises databases to the cloud, it chose MongoDB. While the company declined to disclose which vendors it used previously, Chief Information and Digital Officer Murali Bandaru said the relational databases that dominated the landscape are no longer equipped to handle the digital-first nature of most businesses.

“We had systems that were built for the last decade of growth,” Bandaru said. “We had to liberate that data into more modern systems.”