Oracle and Microsoft: In Weakness There Is Strength

NEW YORK ( TheStreet) -- Sometimes the best that two monopolies can do when the market changes is to become one competitor.

Oracle ( ORCL) and Microsoft ( MSFT) have announced what they call an "enterprise partnership." ( Here's the press release.) The agreement lets Oracle database users move workloads to Microsoft's Azure cloud platform and creates license interoperability between the two firms' main enterprise tools.

It's a move both companies felt forced to make for competitive reasons.

What David Linthicum of Infoworld has called Oracle's "faux cloud" wasn't fooling customers who wanted the savings real cloud provides. Those who demanded commodity hardware and per-hour pricing were threatening to ditch their Oracle databases to get them, and those customers may now stay on.

Microsoft's Azure cloud platform, meanwhile, is being hammered by Amazon.com's ( AMZN) Amazon Web Services, according to Morgan Stanley analysts quoted in Barrons. The analysts now see it as a long-term threat. Microsoft badly needs allies if it's going to take on that challenge.

The deal means that Oracle customers can now get "real cloud" and Microsoft can lock in enterprise spending that was previously behind Oracle's walled garden.

That is not the way Oracle is explaining it, of course. It talks about protecting investments in developer skills, and taking database share from both Microsoft and IBM ( IBM).

In other words, there's upside for both companies here, a chance for each to poach some of the other's Information Technology spending, with Oracle databases running on Microsoft hardware.

Even two years ago, a deal like this might have raised antitrust hackles, but no more. Neither Microsoft nor Oracle is the monopolist it once was. The cloud has changed all that, by driving down hardware costs and giving customers a chance to rewrite their infrastructure while saving money. So this is a defensive deal, telling customers they can continue using what they have while gaining cloud savings.

Forrester analyst James Staten writes that, with this, Oracle is "embracing the broader cloud landscape" accepting pay per-use licenses in a pay per-hour world. "The company is clearly making moves to cloud-enable its portfolio," he writes.

For Microsoft, meanwhile, it can now tell defensive-minded enterprise guys that it will match Amazon's pricing, as ServicesAngle reported in April, and that they will not lose their software investments as they move workloads to the cloud.

Both companies sacrifice something, of course. Oracle is going to have a tough time keeping up hardware sales if customers can just move to Microsoft Azure with no penalty. Microsoft is sure to lose some database share by letting Oracle customers into its house.

But Oracle CEO Larry Ellison and Microsoft CEO Steve Ballmer apparently concluded they were going to lose those sales anyway, in time. Best to team up and protect the water hole rather than fight each other while a more dangerous tribe is attacking from just beyond the trees.

At the time of publication, the author was long IBM.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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