Oracle’s Bold Move: Freely Embedding Gen AI in Business Apps

April, 2024

NEWPORT BEACH, Calif. — Generative AI (Gen AI) is rapidly transforming industries, and Oracle, a major player in the enterprise technology market, is making a bold move. It is offering its base Gen AI capabilities across its suite of business applications, including Fusion Cloud Applications Suite and NetSuite, at no additional cost.

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Oracle executives presented this strategy and other Gen AI topics at its recent Data and AI Forum in Newport Beach, Calif.

Oracle’s strategy is bold and stands in contrast to competitors such as Microsoft, Salesforce, and SAP, which charge extra for Gen AI features. (For more on Microsoft’s Copilot expansion and pricing, see Microsoft Revs Up Copilot in Dynamics 365: Will It Fly with Customers?)

Oracle’s strategy prompts several questions. Will Oracle’s approach increase its share of the AI market? Is it a brilliant move – or a strategic error? Will existing Oracle customers actually end up paying for AI services through other charges, such as increased cloud services fees? Will it entice more companies to adopt Oracle?

Oracle’s Full-Throttle Approach to Gen AI

In 2023, Oracle announced its aggressive plans to develop and embed Gen AI capabilities. Oracle Chairman and CTO Larry Ellison raved about Gen AI at the Cloud World conference in September, saying Gen AI is “changing everything about Oracle.” Steve Miranda, senior vice president of product management for Oracle Cloud Applications, emphasized the company’s commitment to democratizing AI: “We believe generative AI has the potential to fundamentally transform how businesses operate … By making it readily available within our core business applications, we’re empowering organizations of all sizes to leverage this powerful technology and unlock new levels of efficiency and productivity.”

At the customer forum in Newport Beach, Oracle senior director Jody Clayton said that Oracle’s Gen AI approach is just par for the course for the database and software giant, something customers are used to getting: “Every quarter customers get new capabilities,” Clayton said. “Every three months, you go to sleep on a Friday night, and you wake up the next morning, you have new capabilities. And you have the option to leave them off or turn them on when you’re ready. We’re keeping the power in the hands of users.”

However, some forum attendees we interviewed had a different view of the situation. One Oracle implementation partner was surprised to learn that Oracle is not charging extra for Gen AI capabilities. He first learned about this approach at the forum, he said. Another user of Oracle solutions speculated that, while base Gen AI services may be free now, Oracle may eventually charge for them later, in some form or fashion. Or it may charge for more advanced features. She likened it to a free trial of Hulu, or the lesser version of Hulu, where the viewer must endure ads in the middle of shows, rather than paying a little more for the ad-free version.

Multi-Pronged Strategy

While Oracle isn’t charging for base Gen AI functionalities, we believe the company has a multi-pronged strategy for generating revenue from this technology:

    • Increased cloud adoption: By offering a compelling value proposition with free Gen AI capabilities, Oracle aims to attract new customers to its cloud platform. This strategy leverages the network effect, where a larger user base attracts even more users, potentially growing Oracle’s position in the cloud market. Furthermore, AI is very compute intensive, and running more AI probably means more cloud usage.
    • Upselling advanced features: As mentioned, the free Gen AI offering includes basic functionality. Oracle may hope to then upsell more advanced features, such as specialized models for specific industries or capabilities that require a greater level of processing power.
    • Enhanced data management: As Gen AI thrives on data, Oracle can potentially offer tiered data management services, where higher tiers provide better integration with Gen AI features, encouraging customers to invest in more robust data solutions.
    • Consulting and support: Implementing and managing Gen AI effectively can be a challenge. Oracle can offer consulting services to help customers tailor Gen AI solutions to their specific needs. Additionally, premium support packages can be offered for ongoing maintenance and optimization of Gen AI functionalities within business applications.
    • Loss leader strategy: Oracle executives may decide that they will lose money on AI to gain in adoption, while at the same time making other Oracle products more attractive.

“Every Layer of Our Stack”

Oracle positions its Gen AI offerings as secure and tightly integrated with its existing business applications and throughout its technology stack. Its Gen AI service is built on Oracle Cloud Infrastructure (OCI). This allows developers to integrate Gen AI capabilities into custom applications, potentially creating new revenue streams through developer tools and platform access fees.

At the forum, Oracle executives emphasized that the company has embedded AI capabilities throughout its stack and why this “holistic approach” has many advantages.

“If we think about how Oracle is differentiating itself in this space, really it’s all up and down the stack,” said Ryan Krebs, AI and application innovation director at Oracle. “It’s one of the things that we do really well.” Oracle’s investment in AI throughout the stack “provides maximum gains,” he said, in the realms of speed, efficiency, application integration, and security.

Oracle’s application layer is of particular note, Krebs said. “If you think about what Oracle’s been doing over the last several decades, we build industry applications. We bring a lot of that knowledge into embedding AI into the application layer for customers. Whether it’s healthcare, financial services, retail, manufacturing, or public sector, we’ve got you covered. We really have learned how to optimize these workloads and solve some of our customers most strategic challenges.”

To achieve its Gen AI goals, Oracle has established a strategic partnership with Cohere, a company specializing in building and deploying large language models (LLMs). Oracle’s collaboration with Cohere benefits its Gen AI strategy in several ways:

    • Customization and integration: An advantage of Cohere’s LLMs is their ability to be customized. Oracle can leverage this feature to tailor the models for specific industry needs and integrate them with their existing suite of business applications.
    • Faster innovation: Partnering with Cohere allows Oracle to accelerate its own Gen AI development. It can leverage Cohere’s existing LLM technology as a foundation, enabling Oracle to bring Gen AI capabilities to their customers faster.
    • High-performance infrastructure: OCI provides Cohere with a secure, scalable platform to train and deploy its LLM models. OCI’s high-performance computing capabilities accelerate the training process, making it more efficient for Cohere.

Gen AI Options for Oracle Legacy Customers

It’s important to note that Oracle’s embedded Gen AI applications are part of Oracle Fusion and NetSuite offerings. But what about the large number of customers that are still running older Oracle applications, such as JD Edwards, PeopleSoft, and E-Business Suite? These customers do have options through Oracle partners, such as Astute Business Solutions.

We interviewed Astute representatives at the forum. They described how they tailor support services, migration services, and Oracle Cloud expertise for customers on legacy Oracle applications. Astute offers several ways for customers to access Oracle’s cloud-based Gen AI applications. For instance, regarding accounts payable, Astute’s Gen AI solution uses Oracle AI to process invoices automatically. This involves extracting data from invoices, classifying them by vendor and expense type, and flagging potential discrepancies for manual review. The Gen AI solution also analyzes historical payment data to predict cash flow needs and optimize payment schedules. Other ways Astute’s Gen AI solutions can be tailored to leverage Oracle AI include marketing automation, lead generation and qualification, and sentiment analysis.

Although these partner offerings carry a licensing cost, they do give customers options for Gen AI other than having to immediately migrate to Fusion or NetSuite.

Strategy Depends on Gen AI Effectiveness

Oracle’s free Gen AI offering is a bold move that could disrupt the enterprise software market. By making AI capabilities readily available and tightly integrated with core business applications, Oracle will likely entice more customers to adopt its AI solutions.

Its focus on security and seamless integration throughout the stack could be a key differentiator for the database giant, attracting customers concerned about data privacy and the complexity of integrating disparate AI solutions.

The company’s monetization strategy aims to generate revenue through increased cloud adoption, upselling advanced features, and offering complementary services. However, the success of this strategy hinges on the effectiveness of the free Gen AI functionalities and the value proposition of the additional features. If successful, Oracle’s free Gen AI offering could be a game-changer.

By Tom Dunlap, Avasant Director of Research