Oracle to Acquire NetSuite: Why Oracle Is Shifting To Cloud?

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Software giant Oracle (NYSE:ORCL) announced late last month that it will acquire leading cloud based software suite provider NetSuite for $9.6 billion. With the increasing shift of software to cloud-based services, on premise software solutions are quickly losing market share. Oracle derives approximately 72% of its revenues from on premise Software services, which is consistent with its long-held focus on Enterprise database and applications computing. Yet with so much investment focused on the Cloud, this core business is no longer generating much growth.  And to retain customers and sustain its business, the company is actively building a cloud alternative.  To cope with the growing cloud market, Oracle is relying on acquisitions of cloud players such as Maxymiser (2015) and NetSuite (2016). This comes in at a time when Oracle is lagging behind in the cloud computing market as compared to its competitors, with only 8% of its total revenues coming from cloud based operations of IaaS, PaaS and SaaS, as of FY 2016. With recent acquisitions and increased cloud spending, we expect Oracle to achieve reasonable growth in cloud.

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Both Companies To Complement Each Other

  • NetSuite is among the top players in cloud ERP (Enterprise Resource Planning) market that can compliment Oracle’s ERP software segment, which has around 12% share in global ERP software market.
  • NetSuite is the fastest growing company in the FMS (Financial Management System) segment with 40% revenue growth in 2015.
  • The company has around 30,000 customers across the world, the number which can get a boost from Oracle’s wider channels and resources. In return, Oracle can gain a ground to consolidate its position in cloud ERP and CRM markets in competition to Salesforce, SAP and Microsoft.
  • With the acquisition of NetSuite, Oracle can penetrate into the higher growth mid size enterprise segment as compared to its present customer base primarily comprising of large enterprises.
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