The Flawed Logic Behind Oracle’s NetSuite Deal

Oracle Corp.’s $9.3 billion bid for cloud financial software provider NetSuite should help boost Oracle’s lagging cloud business. But Oracle is paying a high price, particularly as NetSuite is too small to really move the needle for Oracle. Another big issue: NetSuite plays in a software category—financial management systems—whose mojo is being sapped by newer apps.

There’s no question Oracle needs to expand in cloud: That part of its business accounted for around $2.9 billion in revenue during its fiscal year ending May 31, only 8% of its total. Its biggest cloud rival, Salesforce, had close to $6.7 billion in sales during its fiscal 2016.

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Oracle’s move here probably also makes life a bit tougher for NetSuite’s most direct competitor, Microsoft, whose Dynamics financial software, which is aimed at the same mid-market customers as NetSuite. But Redmond has many other irons in the fire, so it’s unlikely that this deal changes anything in the short term.

—Kevin McLaughlin contributed

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It’s hard to imagine Oracle had to fight too hard for the NetSuite as Oracle CTO and co-founder Larry Ellison owns more than 40% of the company.