America’s Cup sailboat owner, billionaire and founder of Oracle Corp. (NYSE: ORCL) Larry Ellison attacked cloud industry leader Amazon.com Inc. (NASDAQ: AMZN) with a program that will cut the e-commerce company’s cloud services costs by half. That may pressure margins at Oracle because cloud computing is not a high-margin business, even at Amazon, and in a cutthroat industry, costs are coming down.
In the keynote address at Oracle World, Ellison said:
Amazon is five to eight times more expensive running the identical workload than the Oracle Autonomous Database.
We guarantee you contractually to cut your Amazon bill in half. It’s fairly easy when you’re five to eight times faster. We feel pretty comfortable.
He added that Oracle’s cloud operation is more reliable than Amazon’s, even though the difference is barely discernible:
The direct comparison also highlighted the difference between Amazon’s 99.95 percent reliability and availability SLAs, which exclude most sources of unplanned and planned downtime, and Oracle’s 99.995 percent SLA guarantees.
Oracle says that its cloud product can run without human help:
With total automation based on machine learning, Oracle Autonomous Database Cloud eliminates the human labor required to manage a database by enabling a database to automatically upgrade, patch and tune itself while running.
The claims not only affect Amazon. Several other companies, including Alphabet Inc. (NASDAQ: GOOGL), Microsoft Corp. (NASDAQ: MSFT) and International Business Machines Corp. (NYSE: IBM) have large cloud businesses that they rely on for revenue growth and improved earnings. All these claim they also have powerful artificial intelligence services that augment use of their cloud and data businesses.
Will the margins in the industry become too compressed for cloud computing to be attractive to companies that offer it? Price cuts may determine the answer. Amazon Web Services had an operating income of $916 million in the most recent quarter, against revenue of $4.1 billion. As the market share leader of the industry, it also may be the most profitable.
Ellison’s offer may draw customers, but will not drive profits.