The two industry leaders have competed for decades to sell technology to the world's largest companies. But they face growing pressure from new rivals selling often-cheaper services based in remote data centers, and they are rushing to adapt.
The two companies have long collaborated out of the public eye to meet customers' needs, Microsoft Chief Executive Steve Ballmer said on a conference call. "In the world of cloud computing, I think behind-the-scenes collaboration is not enough."
The tie-up does not resolve major competitive challenges the two tech pioneers face in the cloud market, but their cooperation was seen as a symbolically important step.
"Is it a game changer today? Not at all. It shows both companies are serious about their cloud endeavors. The fact that historical competitors are now friends speaks to how big the cloud opportunity is. And it opens up potential avenues of growth down the road," said Daniel Ives, an analyst at investment bank FBR.
Under the agreement, customers will be able to run Oracle software on Microsoft's Server Hyper-V and on Windows Azure platforms, the companies said.
Microsoft will offer Oracle's Java, Database and WebLogic Server to Windows Azure customers, while Oracle will also make Linux available to Windows Azure customers, the companies said in a news release.
Ironically, the pact means Microsoft is effectively promoting Linux and Java-based software, longtime rivals to its own Windows platform. But the software maker stands to benefit from getting any customer to pay for its datacenter services, regardless of the underlying software being used.
No. 3 software maker Oracle last week missed expectations for software sales for the fourth quarter, sending its shares plunging. Investors worried that the company may have trouble competing with software providers like Salesforce.com and Workday, as well as Amazon.com, which has also become a major player in cloud computing infrastructure.
Top software maker Microsoft's large-scale cloud computing initiative, called Azure, has failed to catch up with Amazon's cloud offering, called AWS (Amazon Web Services), which blazed the trail in elastic online computing services in the cloud.
The rivalry between Oracle and Microsoft dates back several decades and has been marked by a personal rivalry between the companies' best-known cofounders: Larry Ellison and Bill Gates.
In 1995, as the Windows franchise was taking off, Ellison began a high-profile but unsuccessful effort to promote a less expensive competitor to the personal computer known as the Network Computer. Gates began aggressively attacking Oracle's core database business in the late 1990s, infuriating Ellison as Microsoft's less-expensive SQL Server gained market share.
In recent years, both have come under attack from a wave of younger companies, like Workday and Salesforce, which charge a single subscription fee for software and support, at far lower margins than for Oracle's traditional products.
Ellison told analysts on last Thursday's quarterly conference call that Oracle had forged alliances with Microsoft and Salesforce.com, which uses Oracle's technology, and said he would announce details this week.
Over the past five years, shares of Amazon.com, which rents remote computing and storage to other companies, have surged 237 percent. Salesforce.com, founded by former Oracle executive Marc Benioff, has risen 105 percent.
During the same half decade, Oracle's stock has risen 38 percent and Microsoft's shares are up 21 percent.
© Thomson Reuters 2013