Microsoft Joins Oracle in Cloud-Computing, Rivalry Thaws

Microsoft Corp. (MSFT)’s cloud-computing service will offer Oracle Corp. (ORCL)’s database and Java tools as an option as the companies cast aside a longstanding rivalry to attract businesses moving their software online.

Microsoft will offer businesses using its Windows Azure service the ability to run Oracle’s widely used database software, application-connecting middleware and Java programming tools, Microsoft Chief Executive Officer Steve Ballmer and Oracle co-President Mark Hurd said yesterday on a conference call to unveil the alliance. Customers are demanding that more of the companies’ products work in tandem as they create Web services that incorporate offerings from both, the executives said.

It’s about time, and we’re really glad to have the chance to work in this much newer and more constructive way with Oracle,” Ballmer said. “The partnership has an immediate benefit to customers of every size and shape.”

Both companies are facing competition from nimbler rivals delivering computing power over the Internet, including Google Inc. (GOOG), Inc. (AMZN) and Inc. (CRM) Microsoft is seeking new sources of revenue from online services as demand for personal computers slumps, and Oracle is shifting its focus to business software sold through online subscriptions rather than installed on customers’ own computer servers.

Compatible Software

The collaboration would lure customers seeking more technical compatibility between Microsoft and Oracle products. Oracle plans to support versions of its software that customers run through the online Azure service, and when using Microsoft’s Hyper-V virtualization software, which lets servers run more efficiently, Hurd said. Oracle also will let customers use their current software licenses on Azure, he said.

Oracle’s database, which will be upgraded later this year as a new version called 12c, competes with Microsoft’s own SQL Server. Companies using Microsoft’s Azure cloud service, which lets companies build and run programs online, will be able to put information into Oracle’s database.

The alliance with Microsoft lets Oracle offer its customers the option of sticking with its database and middleware at a time when businesses are moving more of their software to cloud-computing services. Oracle reported on June 20 that fiscal fourth-quarter software license and subscription sales grew just 1 percent, less than analysts had projected.

Oracle controlled 45 percent of the $28.2 billion worldwide database market in 2012, compared with 20 percent for Microsoft and 18 percent for International Business Machines Corp. (IBM), according to IDC.

Cloud Market

Azure’s main competitor is Amazon Web Services, in a growing area called infrastructure as a service, which lets companies rent computing power, storage and database software via the Internet. That’s the fastest-growing part of the cloud market, according to Gartner Inc., which estimates sales in the market segment to surge by an average of 38 percent annually to $30.6 billion by 2017, from $6.17 billion last year.

Microsoft, which said in April that revenue from Azure and related software sales topped $1 billion annually, has pledged to match Amazon Web Services’ prices.

“This deal gives Microsoft clear competitive advantages against two of its top rivals,” James Staten, an analyst at Forrester Research, said in a blog post. It bolsters Microsoft’s efforts to compete with VMware Inc., the market leader in virtualization software, and “gives Windows Azure near-equal position against Amazon Web Services in the cloud platform wars,” he said.

Oracle also will make its version of the open-source Linux operating system available through Azure.

“The cloud is the tipping point that made this happen,” Hurd said. “This made a lot of sense for both of us.”

Trash Talk

The two companies have a long history of competition stretching back to the dawn of personal computers in the 1970s. Oracle CEO Larry Ellison, who first publicized the alliance on his company’s earnings conference call last week, used to deride Redmond, Washington-based Microsoft as a “convicted monopolist” after it was found guilty in federal court of illegally defending its Windows monopoly to squelch competition.

In 2000, Redwood City, California-based Oracle said it hired detectives to comb the trash of two organizations supporting Microsoft in its antitrust trial. Ellison added that he’d be happy to ship his garbage to Redmond for inspection.

Still, Microsoft and Oracle have cooperated before. Oracle’s database also runs on Windows, and developers using Microsoft’s Web services software can build applications using Oracle’s software tools.

Still Competing

Ballmer said that the companies would continue to compete, and that much of their cooperation so far had been done out of public view. The very nature of cloud computing, in which software applications span multiple companies’ infrastructure software and Web sites, meant that approach was no longer sufficient, he said.

“That behind-the-scenes collaboration is not enough. People wanted more from us,” Ballmer said. “In the world of cloud, you’ve got to do that kind of partnership actively, not passively.”

The announcement was reminiscent of a 2004 detente between Ballmer and former Sun Microsystems CEO Scott McNealy, who appeared onstage together at a San Francisco hotel to swap hockey jerseys, demonstrate interoperability between their products and announce a settlement to legal disputes between the longtime rivals.

Ellison is mending fences with other rivals too. He said last week that Oracle would announce deals with and NetSuite Inc. (N) — of which he’s a partial owner — to use the 12c database. Salesforce and NetSuite already run Oracle’s database to power their applications.

Oracle’s deal with Salesforce that Ellison mentioned last week comes after CEO Marc Benioff was scratched from a speaking spot at Oracle’s OpenWorld conference in 2011, leading Benioff to stage a mock protest before speaking at a nearby hotel.