- TikTok would become a big customer for Oracle that could help it generate $1 billion in revenue a year, but it still needs to win over more enterprise customers to make a dent in the cloud wars, analysts say.
- Analysts say that while Oracle is an established enterprise tech vendor, many of its own database and applications customers are hesitant to move to its cloud because it lags behind Amazon Web Services, Microsoft, and Google Cloud.
- Still, having a major consumer customer like TikTok could help its brand, analysts say, similar to how Amazon, Microsoft, and Google have plenty of consumer recognition.
- Visit Business Insider’s homepage for more stories.
Assuming the deal passes muster in Washington, DC and in Beijing, Oracle is all set to enter into a much-discussed partnership with TikTok — a deal that will see the viral video app become one of Oracle’s marquee cloud customers.
With an existing cloud deal with videoconferencing titan Zoom already on the books, a TikTok deal would mean that Oracle is poised to power two of the biggest success stories in the pandemic era.
Still, in order for Oracle to prove itself as a more serious cloud player and competitor against the likes of Amazon, Microsoft, and Google, analysts suggest that the database giant now needs to focus its efforts on bringing over larger enterprise customers. Many, if not most, of the largest companies in the world are already users of other Oracle products, but they may still be hesitant to move to Oracle Cloud Infrastructure (OCI)
“We believe Oracle will still need to land a multitude of major enterprise accounts to compete seriously with the likes of AWS and Microsoft Azure, which today dwarf Oracle in terms of IaaS market share, breadth of services, and partner ecosystem,” Jason Ader, equity research analyst at William Blair, wrote in a note to clients this week.
Oracle only has 1.1% of total cloud infrastructure market share, according to analyst firm Gartner’s latest report, meaning it far lags AWS at 45%, Microsoft at 17.9%, and Google at 5.3%. While Oracle doesn’t disclose cloud revenue, analysts estimate that AWS, which pulled in $10.81 billion just last quarter alone, generates as much as 40 times the amount.
Still, Oracle has made some progress in the sector. Oracle’s cloud has actually accelerated the most, according to Gartner, even as it signs major customer deals like Zoom.
What’s more, analysts from William Blair estimate the TikTok deal could contribute as much as $1 billion in cloud revenue to Oracle’s finances each year. That’s not enough to close the gap with its larger competitors, but it would grow Oracle’s market share, and therefore increase its credibility and recognition as a cloud provider, says Ted Friedman, distinguished research vice president at Gartner.
All of that said, however, without more established, legacy businesses staking their bets on Oracle, customers may continue to turn to Amazon, Microsoft, or Google for their cloud infrastructure.
“They’re building up a base of business in the cloud but nowhere near the big three,” Hari Srinivasan, senior research analyst at Neuberger Berman, told Business Insider. “Nobody wants to be a guinea pig to try out a new product.”
A consumer customer like TikTok will still benefit Oracle
Having a major consumer company like TikTok as a customer certainly will have its benefits, analysts say, and hosting consumer applications has helped other cloud providers grow in the past. Netflix was one of the first major AWS customers, and Chinese tech giant Tencent grew its cloud by hosting popular video games.
Snapchat, another app that requires high bandwidth needs because it hosts photos and videos, uses both Google Cloud and AWS. TikTok could be just as big, or bigger.
“For Oracle, this represents a change in the narrative,” Alex Zukin, managing director at RBC Capital Markets, told Business Insider. “People are talking about Oracle a lot more than previously. They’re talking about accelerating growth for Oracle on its cloud basis, the ability for them to gain incremental market share. All this for Oracle is a positive.”
In addition, this partnership could give Oracle additional consumer recognition, analysts say. Amazon, Microsoft, and Google all have major consumer audiences, like Amazon with its e-commerce store, Microsoft with its Xbox games console and Windows PC business, and Google with its suite of search tools.
“Oracle is generally viewed as an IT-centric provider with little recognition outside of corporate IT departments and corporate business functions that run Oracle’s applications,” Friedman told Business Insider. “Oracle’s engagement with TikTok could raise the visibility of Oracle with consumers and add to the vendor’s desire to be viewed as fresh, young, digital, and cloud-centric.”
TikTok may not be enough to convince enterprise customers
Still, it’s up in the air whether large enterprise customers will see Oracle hosting TikTok as a plus, says Dave Bartoletti, vice president and principal analyst at Forrester.
“Will success hosting TikTok translate to broader enterprise appeal?” Bartoletti told Business Insider. “That’s the open question.”
Bartoletti predicts it won’t advance Oracle’s position in the cloud wars, although he agrees TikTok has certainly been turning eyes and ears towards the titan. He points out that under the terms of the deal as currently written, Oracle would buy a 12.5% stake in a new TikTok Global entity — something that has to be factored into the pros and cons.
“That should help Oracle add to the attention it got for hosting some of Zoom’s infrastructure,” Bartoletti said. “But Oracle would be paying for the right to run TikTok, so from an enterprise B2B buyer standpoint, I don’t think there is any immediate impact.”
On top of that, Oracle may have created more problems for itself, analysts say. Oracle could potentially find itself in the spotlight if TikTok faces security issues, especially given the political scrutiny over its ties to China.
Similarly, Oracle may now need to come face-to-face with the same data privacy concerns as other social network operators like Facebook, Twitter, and Google, especially at a time when the government is bringing on more scrutiny to social media apps.
“The one downside of the deal, in our mind, is that Oracle will now be in the hot seat when it comes to data privacy and security, as the onus will be on the firm to ensure US user data is safe and secure,” Ader wrote in a note.
It’s also unclear what Oracle plans to do with TikTok’s data, and it does not seem to directly benefit Oracle’s products, although Friedman says it can possibly be used for video learning in Oracle’s applications.
“To date, Oracle has not expressed any intent regarding the use of TikTok’s capabilities to enhance or extend existing Oracle products,” Friedman said. “We do not see a substantial synergy here from a product point of view, as Oracle’s products are all enterprise-focused and not consumer-oriented.”
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