Oracle’s Ross Brown on Cloud Economics

The cloud is now mainstream. Vendors and partners make more money on cloud and other automated services sold through subscriptions than they do through traditional hardware and software products. A large part of cloud computing’s appeal is the recurring revenue — steady, predictable income with a consistent expense correlation. Unlike fluctuating, seasonal sales cycles, recurring revenue brings certainty.

Recurring revenue sounds simple in explaining the cloud computing model, but accounting for cloud revenue is much different and more difficult. Cloud computing is sold on extended contracts with pricing consideration based on consumption expectations over the lifetime of the engagement. Bookings don’t equal revenue. Revenue isn’t immediately recognized. There are revenue and costs associated with interconnected services. And customers can use “credits” to retire their purchasing commitments, but vendors must pay partners for those sales.

Pricing and accounting in cloud computing are complicated and confusing. Planning for growth, calculating profitability, measuring performance, and defining value to partners and customers are all a matter of how a vendor interprets GAAP (generally accepted accounting principles) and calculates cloud numbers.

Given the pervasiveness of cloud computing in the channel, Changing Channels asked a true expert in cloud services and business models — as well as the channel — to talk about cloud pricing, revenue recognition, and accounting practices. Ross Brown, senior vice president of North America Cloud Ecosystem Partners at Oracle, has one of the most in-depth understandings of cloud economics relative to vendor sales and partner engagement models. The insights Brown shares provide a next-level reveal of what it means to make money in cloud computing.