In a major strategy reversal
) is teaming up with
), its fierce competitor in the cloud-based customer relationship
software market. This is Oracle's second successive high-profile
deal within a short span of time, after it announced an alliance
with long time foe
) on Jun 24.
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The Oracle-Salersforce partnership spans over a nine-year period
and covers every aspect of cloud computing. Under the terms of
the deal, Salesforce software will run on Oracle's Linux
(previously Salesforce used Red Hat Linux) and its cloud based
applications will support Exadata hardware.
Oracle entered the hardware market through the acquisition of Sun
in 2010. However, the hardware business failed to achieve
significant traction and has been a drag on top-line growth over
the last couple of years. Oracle expects hardware growth to
rebound in the upcoming first quarter of 2014.
We believe that Salesforce's endorsement of Oracle's engineered
systems (Exadata, Exalogic, Exalytics) is a much needed boost to
Oracle's hardware segment in terms of revenues as well as
customer expansion going forward. In the past, Salesforce has
used Dell hardware.
The partnership is also expected to ensure tighter integration
between Oracle and Salesforce clouds, which will help customers
to easily move their data between the two platforms. Salesforce
also agreed to use Oracle's cloud-based human resources and
financial applications. However, the deal did not specify any
details about Salesforce's involvement with Oracle's new
cloud-based database 12C platform.
We believe that the partnership is mutually beneficial for both
the companies going forward. However, the deal will particularly
help Oracle, as it not only removes a significant competitor but
also creates a cross-functional sales opportunity over the long
Salesforce is regarded as one of the pioneers of the
cloud-computing model, while Oracle has been a late-entrant in
this field. Although Oracle aggressively tried to gain market
share through several acquisitions (Taleo, RightNow, Endeca
Vitrue, etc), stiff competition hampered its progress.
In such a scenario, the partnerships with Salesforce and
Microsoft are expected to provide a significant boost to Oracle's
cloud-computing endeavors. We believe that the deals
significantly add to Oracle's competitive strength against
established players such as SAP and
) as well as against new entrants such as Workday, VMware and
However, we believe that the synergies from the partnerships will
take some time to occur. In the meantime, Oracle needs to improve
top-line growth in order to boost investor confidence in the near
term. However, the continuing macro-economic weakness and stiff
competition will make execution rather difficult in the near
Currently, Oracle has a Zacks Rank #4 (Sell).