Larry Ellison co-founded Oracle Corporation in 1977 with Bob Miner and Ed Oates under the name Software Development Laboratories (SDL). Ellison took inspiration from the 1970 paper by Edgar F. Codd on relational database management systems (RDBMS) named “A Relational Model of Data for Large Shared Data Banks.”
He heard about the IBM System R database from an article in the IBM Research Journal provided by Oates. Ellison wanted to make Oracle’s product compatible with System R but failed to do so as IBM kept the error codes for their DBMS a secret. SDL changed its name to Relational Software, Inc (RSI) in 1979, then again to Oracle Systems Corporation in 1983, to align itself more closely with its flagship product Oracle Database.
In 1995, Oracle Systems Corporation changed its name to Oracle Corporation. Oracle sells database software and technology, cloud-engineered systems, and enterprise software products, such as enterprise resource planning (ERP) software, human capital management (HCM) software, customer relationship management (CRM) software, enterprise performance management (EPM) software, and supply chain management (SCM) software.
In this strategy story, we analyzed the business model of Oracle to understand what Oracle does and how does it make money.
What does Oracle do?
Oracle provides products and services that address enterprise information technology (IT) environments. Oracle’s products and services include enterprise applications and infrastructure offerings that are delivered worldwide through a variety of flexible and interoperable IT deployment models.
Oracle’s customers include businesses of many sizes, government agencies, educational institutions, and resellers that Oracle markets and sells to directly through Oracle’s worldwide sales force and indirectly through the Oracle Partner Network.
Using Oracle technologies, Oracle’s customers build, deploy, run, manage, and support their internal and external products, services, and business operations. For example,
- a global cloud applications developer that utilizes Oracle Cloud Infrastructure (OCI) to power its software-as-a-service (SaaS) offerings;
- a multi-national financial institution that runs its banking applications using the Oracle Exadata Database Machine; and
- a global consumer products company that leverages Oracle Fusion Cloud Enterprise Resource Planning for its accounting processes, consolidation, and financial planning functions.
Oracle’s comprehensive portfolio of applications and infrastructure technologies is designed to address an organization’s IT environment needs, including business process, infrastructure, and application development requirements.
Oracle applications and infrastructure technologies, including database and middleware software as well as enterprise applications, virtualization, clustering, large-scale systems management, and related infrastructure products and services, are the building blocks of Oracle Cloud Services, partners’ cloud services, and customers’ cloud IT environments.
Oracle Applications Technologies
Oracle applications offerings include Oracle Cloud SaaS offerings, which are available for customers as a subscription, and Oracle applications license offerings, which are available for customers to purchase for use within the Oracle Cloud, and other cloud-based and on-premise IT environments and include the option to purchase related license support.
Oracle Cloud Software-as-a-Service (SaaS): Oracle’s broad spectrum of Oracle Cloud SaaS offerings provides customers with a choice of software applications that are delivered via a cloud-based IT environment that Oracle deploys, manages, upgrades, and supports and that customers purchase by entering into a subscription agreement.
Oracle Applications Licenses: Customers can license Oracle Applications, including Oracle E-Business Suite, PeopleSoft, JD Edwards, and Siebel applications, among others, for use within the Oracle Cloud or their own cloud-based or on-premise IT environments. These licensed applications are designed to manage and automate core business functions across the enterprise, including HCM, ERP, EPM, SCM, Customer Experience, and industry-specific applications, as described above, among others.
Oracle Infrastructure Technologies
Oracle infrastructure technologies are marketed, sold, and delivered through Oracle’s cloud and license business. Oracle’s cloud and license business infrastructure technologies include the Oracle Database, the world’s most popular enterprise database; Java, the computer industry’s most widely-used software development language; and middleware, including development tools.
Oracle’s hardware business infrastructure technologies consist of hardware products and certain unique hardware-related software offerings. They include Oracle Engineered Systems, enterprise servers, storage solutions, industry-specific hardware, virtualization software, operating systems, management software, and related hardware services.
Oracle infrastructure technologies are also marketed, sold, and delivered through its hardware business, including a broad selection of hardware products and related hardware support services to power cloud-based and on-premise IT environments.
How does Oracle make money? What is the business model of Oracle?
Oracle made $42.4 billion in FY22. Oracle makes money from three segments: cloud and license; hardware; and services; each comprising a single operating segment. Oracle primarily (85%) makes money from its cloud services, providing comprehensive and integrated applications and infrastructure services delivered via cloud-based deployment models.
Cloud and License Business
Cloud and license revenues include the sale of cloud services and license support, and cloud licenses and on-premise licenses, which typically represent perpetual software licenses purchased by customers for use in both cloud and on-premise IT environments. The cloud and license business segment contributed 85% to Oracle’s revenue in FY22.
Oracle Cloud Services integrate the IT components, including software, hardware, and services, on a customer’s behalf in a cloud-based IT environment that Oracle deploys, manages, supports, and upgrades for the customer and that a customer may access utilizing common web browsers via a broad spectrum of devices.
Oracle cloud license and on-premise license deployment offerings include Oracle Applications, Oracle Database, and Oracle Middleware software offerings, among others, which customers deploy using IT infrastructure from the Oracle Cloud or their own cloud-based or on-premise IT environments.
Hardware revenues include the sale of hardware products, including Oracle Engineered Systems, servers, storage products, industry-specific hardware, and hardware support revenues. The Hardware business segment contributed 7% to Oracle’s revenue in FY22.
Hardware business provides a broad selection of enterprise hardware products and hardware-related software products, including Oracle Engineered Systems, servers, storage, industry-specific hardware offerings, operating systems, virtualization, management and other hardware-related software, and related hardware support.
Oracle’s hardware support offerings generally provide customers with software updates for the software components that are essential to the functionality of the hardware products purchased and can also include product repairs, maintenance services, and technical support services.
In Services, Oracle makes money from providing cloud-, license- and hardware-related services, including consulting and advanced customer services. The services segment contributed 8% to Oracle’s revenue in FY22.
Oracle’s consulting services are designed to help customers deploy, architect, integrate, upgrade, and secure their investments in Oracle applications and infrastructure technologies. Oracle’s advanced customer services are designed to provide supplemental support services, performance services, and higher availability for Oracle products and services.
Results of Operations
As per Oracle’s FY22 annual report,