When popular video-conferencing company Zoom announced a new cloud contract last month, it wasn’t with its existing providers Amazon and Microsoft, or even Google. Instead, Zoom turned to a tech behemoth largely forgotten in the race between the cloud’s big three: Oracle.
Weeks later, Oracle claimed another cloud victory, announcing it had lured away another Amazon customer, communications platform 8×8. Oracle made the reason for 8×8’s defection clear: an 80% price discount compared to Amazon Web Services, Amazon’s highly profitable and market-leading business unit. “Unlike AWS, which locks in your data with extremely high pricing…our approach is to give customers every-day low pricing,” Oracle declared.
It’s not the first time Oracle has taken shots at the competition. But as the Covid-19 pandemic pushes companies to cut costs — and people to live and work remotely over the cloud — industry trackers say Oracle’s jabs could be part of a new race to slash prices among the cloud’s big players. Amazon has already cut some prices by as much as 90%. Others may follow. “The Covid situation, and the assimilation of cloud adoption, will increase the focus on price,” says Deepak Mohan, a cloud industry analyst at IDC. “It’s a new type of price war.”
Cloud computing services are largely unseen by the public. But chances are any big business you use today, from your bank to Netflix, your favorite sports league to your favorite soft drink maker, spend millions of dollars — even billions over the course of some contracts — to maintain their networks, process customer interactions and store data remotely.
In that cloud race, Oracle is a relative latecomer, holding just 2% of global market share compared to Amazon’s industry-leading 32%, according to data from Canalys. Amazon gained its share by being first to market; Microsoft built Azure into a contender in part by offering enterprise-friendly tools to its large customer base. Since entering the market in 2008, third-place shareholder Google has carved a niche offering advanced machine learning and artificial intelligence tools.
Oracle’s recent gains with Zoom and 8×8 point to an area of the cloud in which it eyes a foothold: acting as a last mile delivery service of sorts in the cloud, an area known as “data egress.” The service, which helps customers download data from a central cloud platform, can prove costly for businesses, especially providers of data-hungry video-conferencing tools. When Zoom announced its contract with Oracle, the company said it planned to process seven million gigabytes through Oracle’s cloud every day.
At such volumes, price wins, and Oracle has proven its appetite to push down rates. 8×8, which switched from AWS, is paying just 1/5th what it did to Amazon for data egress, Oracle has said. “Price cutting is how incumbents like Oracle try to grab market share, especially now when all IT costs are under huge pressure,” says Forrester analyst Dave Bartoletti in an email. “For the last few years, unit costs for cloud services haven’t been enterprises’ biggest concern. In a tight economy, price matters again.”
That new reality could usher back a pricing race to the bottom that shifted the landscape — and benefited customers’ balance sheets — in 2014 when Google sought to make its own cloud splash. Then, Google’s price cuts topped 85% for some services, forcing AWS and Microsoft to institute their own discounts. Now, it appears at least Amazon is doing so again. Amazon won’t publicly say what determines price reductions and says it has instituted more than 80 since 2006. But the company’s move to discount five of its AWS products in the past month is still eye opening; for data egress, Amazon cut prices to customers located in South America by 40%. “AWS has a long track record of passing operational efficiencies on to our customers in the form of lower prices,” an AWS spokesperson said in a statement.
At Oracle, cloud executive Clay Magouyrk says the company hasn’t reduced its own cloud prices since their launch in 2016. But Oracle’s clearly gunning for Amazon, and taking every opportunity to say so. “AWS is the trendsetter,” says Magouyrk, who left AWS in 2014 for Oracle. “What we’re showing is how we compare to them.”
There’s no love lost between the two West Coast tech giants. In 2017, Oracle’s then-CEO Mark Hurd proclaimed that AWS’ cloud infrastructure was “old” and that Oracle’s cloud was gaining market share. In response, AWS CEO Andy Jassy took aim at Oracle’s high prices and long-term lock-in contracts and said its “customers are sick of it” at an AWS conference in San Francisco later that year. Oracle founder Larry Ellison has also touted that his cloud division is faster and cheaper than AWS. More recently, Ellison, a confidant of President Donald Trump, offered Oracle’s services to Trump’s administration for its coronavirus response; Amazon founder and CEO Jeff Bezos is a popular target for Trump’s Twitter ire.
Oracle was recently revealed to have been behind a joint bid with Microsoft to win a $10 billion cloud computing contract with the Pentagon in competition with Amazon, dropping the alliance only after the Department of Defense indicated it would offer the contract to just one provider. Microsoft was awarded the plum “JEDI” contract; Amazon is contesting the decision.
Oracle, which is expected to announce earnings next month, does not disclose revenue from its cloud business. But with company-wide revenues in its last fiscal year of not much more than AWS’ $35 billion-in-sales 2019, Oracle has a long way to go to prove more than a nuisance to Amazon’s cloud leadership. “AWS is going to say, oh this is cute,” says Gartner analyst Ted Chamberlin. “To them I think this is an incredibly minor annoyance.”
But Oracle’s bluster and price forays have not gone unnoticed. In his speech at Amazon’s cloud summit held last week Jassy may have been looking to parry Oracle’s Zoom announcement when he publicly discussed AWS’ own business with the videoconferencing leader for the first time: “The vast majority of Zoom’s cloud infrastructure runs on AWS,” he told the virtually-assembled crowd, “and will for the foreseeable future.”