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Oracle Chairman Larry Ellison changed his mind on the importance of cloud computing, leading the company to relevance in the industry.<\/p>\n
(Bloomberg) — Oracle Corp.\u2019s Larry Ellison used to scoff at the idea of cloud computing, saying in 2008 that it was \u201ccomplete gibberish.\u201d<\/p>\n
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Now, the success of Oracle\u2019s cloud infrastructure unit is why the company\u2019s stock price has soared\u00a0and made Ellison, its chairman and co-founder,\u00a0the second-richest person in the world.<\/p>\n
The AI boom has dramatically increased demand for\u00a0computing and storage over the internet. Oracle, a software company that\u00a0had long struggled to find its niche in this market, gained a foothold\u00a0through scoring\u00a0major customers. Today, it\u2019s\u00a0helping power Elon Musk\u2019s xAI from a data center in Utah, assembling a cluster of tens of thousands of AI chips for Nvidia Corp. near Singapore\u00a0and\u00a0recently inked what is\u00a0likely the largest\u00a0single cloud deal ever with OpenAI, the leading artificial intelligence company.<\/p>\n
Oracle is on the hook for tens of billions of dollars to develop unprecedentedly large data centers amid energy\u00a0and material shortages. That includes a plan to spend more than\u00a0$1 billion a\u00a0year just to power one\u00a0new megasite in West Texas with gas generators rather than wait for utility connection,\u00a0according to people\u00a0familiar with the plans.<\/p>\n
With\u00a0all of this spending, Oracle recorded a negative annual cash flow for the first time since 1990.\u00a0And questions remain about the longevity and margins of offering infrastructure to train AI models.<\/p>\n
Oracle, founded in the 1970s, had long faded from tech prominence. On the road to its return\u00a0in the AI era were internal battles to convince Chief Executive Officer\u00a0Safra Catz to invest in\u00a0the cloud, recruitment of key customers like TikTok and the rise of a brash executive named Clay Magouyrk. Bloomberg spoke with more than\u00a030 current or former employees and customers to understand how Oracle can deliver on its towering\u00a0promises. They detailed spiraling\u00a0costs, accelerated timelines to satisfy OpenAI, regulatory\u00a0roadblocks and the hiring of hundreds of former Amazon cloud staffers, speaking anonymously to discuss the inner workings of a famously private and litigious company. Oracle declined to comment.<\/p>\n
Building a Cloud<\/p>\n
As cloud computing picked up\u00a0steam in the late 2000s, Ellison had little reason to be excited.\u00a0Oracle\u2019s namesake\u00a0database, which is purchased outright and installed directly on customer servers, is one of the world\u2019s great cash businesses. Adopting a cloud sales model, where users rent access to software, would almost certainly come with lower profits and a need to collaborate with rivals.<\/p>\n
After years of writing off the cloud as marketing, Oracle\u2019s tone changed\u00a0as its business\u00a0came under fire. Amazon.com Inc.\u00a0pushed cheaper database options on its cloud customers. Application rivals like Salesforce\u00a0Inc. promised easier installation and updates. Ellison saw the need to get Oracle\u2019s Fusion apps \u2014\u00a0commonly used for finance and resource planning \u2014\u00a0on the cloud, according to people familiar with his thinking at the time.<\/p>\n
There were competing efforts through the 2010s within Oracle to build a cloud for internal and customer use. An initial attempt, led by Thomas Kurian and launched in 2012, saw limited success.<\/p>\n
A separate group, made up largely of Amazon alumni\u00a0led by Don Johnson, pushed an approach called bare metal, in which clients wouldn\u2019t have to share their servers\u00a0with other renters, \u00a0allowing Oracle to target privacy-focused users. The group\u00a0also focused\u00a0on building smaller data centers, which let\u00a0them expand in countries that\u00a0weren\u2019t yet viable for industry leaders.<\/p>\n
The bare metal approach won the blessing of Ellison, who remains a key decisionmaker despite handing off the CEO\u00a0title more than a decade ago. The new product came to be known as Oracle Cloud Infrastructure, or OCI. Kurian departed the company in 2018\u00a0after his approach was sidelined. He then joined Google to lead its\u00a0competing cloud service and remains in that position.<\/p>\n
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When offering the new product, Oracle had to overcome a long-held reputation for\u00a0aggressive sales strategies.\u00a0Major pitches for OCI\u00a0include cheaper pricing thanks to a simplified set of products and good integration with other clouds. Oracle salespeople often take jabs at Amazon Web Services\u2019 sprawling set of tools, telling customers that paying for Amazon\u2019s cloud means\u00a0subsidizing expensive moonshots like its satellite project, Kuiper.<\/p>\n
An Amazon spokesperson said that \u201cmore customers continue to choose AWS than any other cloud provider because we deliver unmatched choice, pace of innovation, security, and reliability.\u201d<\/p>\n
Breakthrough Customers<\/p>\n
In the pandemic era, a handful of transformative customers joined Oracle\u2019s\u00a0platform. Zoom Communications Inc., struggling to handle a massive spike in demand during lockdowns, selected Oracle Cloud to help handle traffic from consumers. The company secured a nearly $2 billion commitment from Uber Technologies Inc. in 2023.<\/p>\n
By far the biggest win in this period was TikTok. The ByteDance Ltd.-owned social media company\u00a0needed\u00a0to expand its US infrastructure while under scrutiny from lawmakers over its links to China. Oracle, a company versed in national security whose chairman and CEO were supporters of the Republicans then in power, seemed a natural choice.<\/p>\n
\u201cOCI is like before and after TikTok,\u201d\u00a0said Tony Grayson, a former Oracle executive who led the company\u2019s data center build-out around the time.\u00a0The new customer forced the company\u00a0to think on a scale it\u00a0never had before, Grayson\u00a0said. In 2022, TikTok announced that all US user traffic would flow through Oracle servers.<\/p>\n
Annual revenue from the new customer rapidly passed $1 billion and, for a period, TikTok\u2019s business was larger\u00a0than the entire rest of OCI combined, according to people familiar with the figures. Oracle also built\u00a0experience\u00a0in AI infrastructure, running thousands of Nvidia\u00a0graphics processing units \u2014\u00a0chips used for AI work \u2014 for TikTok even before the ChatGPT craze.<\/p>\n
Management by Ridicule<\/p>\n
Within Oracle, there was long disagreement about the purpose of OCI. Some leaders saw it as a way to shield the database business and modernize applications. Others sought to compete with Amazon and Microsoft Corp. for general cloud work and grab a piece of a market worth hundreds of billions each year.<\/p>\n
It wasn\u2019t easy to convince CEO Catz of the expansive vision. She\u00a0expressed\u00a0skepticism\u00a0due to high costs of operating data centers and lower margins of the business, people familiar with her thinking said. This cost consciousness\u00a0fueled OCI\u2019s initial focus on small data centers. But she and other traditional company leaders became convinced as massive deals such as TikTok, and later OpenAI, materialized.<\/p>\n
Safra Catz, chief executive officer of Oracle Corp.Photographer: Zak Bennett\/Bloomberg <\/p>\n
Internal accolades have flowed to Magouyrk, the division\u2019s leader.\u00a0The\u00a039-year-old\u00a0has rapidly climbed company ranks and reports directly to\u00a0Ellison. He was one of OCI\u2019s first employees after a stint at Amazon and recently relocated to Nashville, where Oracle has pledged to move its headquarters. In June, he was promoted to president, and is seen by company leaders as a potential successor to his 81-year-old boss.<\/p>\n
\u201cSometimes you look back and say \u2014\u00a0I\u2019m not sure that I was entirely qualified at each step of the way,\u201d\u00a0Magouyrk said on the podcast in July 2023.\u00a0\u201cBut it seems to have worked out so far.\u201d<\/p>\n
Those who have worked with him describe Magouyrk as highly effective and conflict prone. He once told an executive that his actions were \u201cf—king stupid,\u201d in a room full of\u00a0leadership, according to allegations in a 2021 lawsuit that claimed\u00a0a toxic work culture at OCI. Blunt bosses are\u00a0typical in a company run by Ellison, who once described his leadership style as\u00a0 \u201cmanagement by ridicule.\u201d<\/p>\n
In the early days of OCI, the division\u00a0was known as \u201cSparta.\u201d It could pay its workers more than other parts of Oracle, was based out of Seattle rather than the Bay Area, and adopted the AWS practice of constantly shedding lower performers.<\/p>\n
OCI\u2019s importance has grown as the cloud has become a bigger part of the company\u2019s business. Today, about 23,000 employees report up through Magouyrk. Over the last\u00a0two years, more than 600 workers have joined\u00a0from Amazon, according to an analysis by Workforce.ai. Amazon\u2019s recent five-days-a-week return-to-office rule has made the poaching easier, as OCI remains largely a hybrid or remote workplace, people at the company say.<\/p>\n
Unprecedented Scale<\/p>\n
Today, AI is the biggest driver of OCI\u2019s growth. The majority of Oracle\u2019s backlog, or booked deals, are tied to customers training or deploying AI models with GPU-based servers, according to a person familiar with the figures.<\/p>\n
OpenAI is slated to become Oracle largest customer and has marketed the work as \u201cStargate,\u201d an effort first announced in January at the White House alongside President Donald Trump. The companies have struck deals for more than\u00a05 gigawatts of computing power, an unprecedented sum and enough energy for millions of American homes.<\/p>\n
Work for OpenAI is happening on an aggressive\u00a0timeline.\u00a0The data centers are targeted for completion\u00a0by early 2027, with many servers running as soon as next summer,\u00a0according to people familiar with the plans. Facilities are being designed for training AI models with the assumption that they could also to power the applications\u00a0of those trained models, which is called inference.<\/p>\n
Providing infrastructure for AI training is\u00a0generally thought to be a lower margin business than inference because it requires more advanced semiconductors and cooling.\u00a0Exact timing and design details for the OpenAI work could still change, the people said.<\/p>\n
Finding data center developers and\u00a0power providers to support this project at palatable prices has been a challenge, people involved with the development said. Costs for many goods and services have gone up over the last year owing to tariffs and vendors capitalizing on intense demand.\u00a0Plus, it can take years to get approval and infrastructure to draw the scale of electricity needed\u00a0from local grids.<\/p>\n
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The site Oracle plans to power entirely with gas generation is located in Shackleford County, Texas, near another Oracle server farm in Abilene.\u00a0It is being developed by\u00a0Vantage Data Centers, partly owned by DigitalBridge Group\u00a0Inc. and Silver Lake, and\u00a0will\u00a0have a\u00a0compute capacity of 1.4 gigawatts, making it among the largest known sites.<\/p>\n
Part of OCI\u2019s\u00a0popularity with AI firms\u00a0is its long-standing focus on bare metal servers. This has become the standard arrangement for AI work, and Oracle was first among major vendors to offer it. Users and employees also point to Oracle\u2019s networking quality and willingness to do high levels of customized work.<\/p>\n
Semianalysis, a popular industry analyst, listed Oracle Cloud near the top of its rankings for AI infrastructure vendors in March, citing its cost-effectiveness,\u00a0networking quality\u00a0and strong customer service.<\/p>\n
\u201cThey\u2019re aggressive on price, which definitely helps,\u201d said David Talby, CEO\u00a0John Snow Labs, which trains and deploys AI models in health care. His company\u00a0picked OCI in part because the offering had high performance and was well optimized for use with Nvidia AI chips.<\/p>\n
Another of Oracle\u2019s largest AI customers is Nvidia, which uses\u00a0OCI for internal development and to power its own cloud infrastructure service. The chipmaker, codenamed \u201cpathfinder\u201d internally,\u00a0rents capacity from an Oracle\u00a0cluster of H100 chips in Japan and from a data center being built\u00a0on Indonesia\u2019s Batam Island. Oracle is also in talks with Meta Platforms Inc. and Musk\u2019s xAI for further capacity, according to a person familiar with the plans.<\/p>\n
Oracle\u2019s cloud business is still orders of magnitude smaller than Amazon, Microsoft\u00a0and the No. 3 provider, Alphabet Inc.\u2019s Google. But\u00a0plenty of room for growth exists. The market generated almost\u00a0$100 billion in revenue in the most recent\u00a0quarter and is expanding about 25% year over year, according to Synergy Research Group.<\/p>\n
The big question is how\u00a0Oracle will fund this development and what it does to the company\u2019s profitability, said Mark Moerdler, an analyst at Bernstein. Still,\u00a0the company hasn\u2019t had to borrow money to develop its centers like\u00a0smaller rivals such as\u00a0CoreWeave Inc.<\/p>\n
\u201cWe believe the margin will rebound and cash flow will be substantial once they get through this investment phase,\u201d Moerdler said, comparing this moment to Microsoft\u2019s cloud transition under Satya Nadella. \u201cOracle is going through a business model transformation that is even more impactful over a shorter period of time.\u201d<\/p>\n
(Adds detail on Vantage Data Centers ownership in 30th paragraph.)<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
\u00a92025 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"Oracle Chairman Larry Ellison changed his mind on the importance of cloud computing, leading the company to relevance…\n","protected":false},"author":2,"featured_media":13243,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[261],"tags":[291,1463,289,290,4932,12430,1346,5527,18,19,6394,17,12429,778,82,1150],"class_list":{"0":"post-13242","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-artificial-intelligence","8":"tag-ai","9":"tag-amazon","10":"tag-artificial-intelligence","11":"tag-artificialintelligence","12":"tag-bloomberg","13":"tag-clay-magouyrk","14":"tag-cloud-computing","15":"tag-data-center","16":"tag-eire","17":"tag-ie","18":"tag-infrastructure","19":"tag-ireland","20":"tag-larry-ellison","21":"tag-nvidia-corp","22":"tag-technology","23":"tag-tiktok"},"share_on_mastodon":{"url":"","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/13242","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=13242"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/13242\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/13243"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=13242"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=13242"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=13242"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}