Microsoft, Salesforce, Oracle show their age

In non-Wall Street parlance, Snowflake’s recent quarter was a blast: Sales rose 83% to $497 million, with revenue now forecast to hit $1.9 billion for 2022. was a much-needed change of mood for an industry suddenly battered after years of crisis. growth.

“We certainly didn’t expect this degree of upside,” Mizuho analyst Gregg Moskowitz and others who were already bullish on the company wrote of Snowflake’s results.

CEO Frank Slootman quickly won the approval of investors, an increasingly skeptical public about the software industry’s prospects. While companies like Salesforce and ServiceNow saw their stock prices plummet after issuing muted sales guidance for the rest of the year, Snowflake rose more than 17% after its earnings.

Snowflake is not alone. Databricks just passed $1 billion in annualized revenue and is aggressively hiring, and Confluent and MongoDB’s earnings have topped Wall Street sales estimates: Both companies provided upbeat annual forecasts. Even private companies like Cockroach Labs and Canva, which serve as alternatives to Oracle, Adobe and other so-called legacy companies, continue to hire, increase sales and fundraise at an impressive rate.

The results are a signal of the seismic change underway in the world of enterprise software: the arrival of the new computing stack.

“Our space will be everyone’s space tomorrow,” said Dave McJannet, who as CEO of infrastructure services provider HashiCorp depends on the adoption of cloud-based tools like Snowflake. “There’s an old-world-new-world paradigm…and you’re seeing some really big companies emerge that could potentially challenge Salesforce to be the biggest employer in San Francisco.”

The discrepancy is glaring. While Snowflake, Databricks and others show no signs of slowing down, Salesforce and Microsoft have trimmed their outlook and are implementing cost-cutting measures such as hiring freezes to bolster profitability. Meanwhile, Oracle is laying off workers.

Economic factors are certainly at play. Faced with a potential recession, some customers are moving away from investing in basic applications, such as HR systems or CRM, in favor of data management and analysis. And to point out the obvious: so-called legacy providers remain much larger and, therefore, are not able to adapt as quickly to wild market fluctuations.

But that’s a stark change from the past three decades, when a handful of names — Amazon, Salesforce, Microsoft and Oracle, for example — seemed to dominate discussion within IT departments.

In 2005, if you wanted to buy a database, the options were quite limited. Now the floodgates have opened. Alongside Amazon and Microsoft — which recently took over Oracle as the largest database vendor, according to Gartner — there are a plethora of new options that customers are turning to.

For some, it’s a missed opportunity. For example, Adobe has seriously underestimated the demand for creative tools among non-professionals and is now under pressure from newcomers like Figma and Canva. Even Microsoft, a close partner of Adobe, openly embraces Figma.

What Snowflake created was by no means an easy build. But if Oracle had simply recognized the impending potential of the cloud much earlier, the dynamics might now be radically different.

And while Salesforce touts its data and analytics capabilities, the foundation of the business is its core vertical applications. Instead, customers seem increasingly interested in consolidating data from various systems into a single repository, such as Salesloft or Clari, for further analysis.

Salesforce “should have done it,” said Guggenheim Securities analyst John DiFucci. The company “let others access this ‘intelligence layer’ much faster. And it is not known whether they will be able to participate in this.

To put it more bluntly: “They’re not a growth name anymore,” DiFucci added.

Amid this pivot, Fivetran, which recognized early on the need to help companies move information from these so-called systems of record to Snowflake and Databricks, expects the sales momentum to continue. unabated despite a broader slowdown in the software market.

“We did the math, and even under pessimistic assumptions, we grew our revenue so much that we outpaced the market decline,” CEO George Fraser told Forbes.

For others, the current struggles are simply the result of the shift to the cloud. It is not uncommon for architectural changes to bring new market dynamics. The move away from mainframes, for example, helped Oracle overtake IBM and cement its former status as the world’s largest database vendor.

In today’s environment, VMware is a prime example. The company, which for 24 years has provided customers with a single platform to run multiple applications or operating systems on a single server, is now on the defensive against a $61 billion acquisition of Broadcom, a company with a notoriously checkered history with customers.

For some VMware customers who are hesitant about the new owner, this raises the question of whether to move existing workloads to the cloud to simply eliminate the need for the company’s flagship products.

VMware “is certainly a hot topic for the larger companies we talk to, not all of whom are very happy” with the acquisition, said McJannet, which competes directly with VMware.

Microsoft, Salesforce, Oracle, and SAP are all companies that will continue to make money, largely from the huge install bases that exist. Power shifts in enterprise technology often take years or even decades to occur.

But as Salesforce has proven with software as a service and AWS has proven with the cloud, these generational shifts are entirely possible. And it is possible that the timeline will be accelerated.

While some legacy vendors look to spend billions on other legacy technologies, Databricks or Snowflake could use their war chests to double down and acquire other key features of tomorrow’s computing stack, creating Salesforce for the era. of AI.

The future is certainly much brighter right now for the new kids in the neighborhood. But as the US government proves, don’t count baby boomers. Yet, as Slootman once said, “Only government can print money; the rest of us have to take it from someone else. It certainly seems to do so.

Update: This story was updated on September 2 to clarify Microsoft’s relationship with Figma and Adobe.

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