Oracle’s Business Model and the Hard Truths About The Future
How AI-driven Business Model Innovation reshapes the Revenue Model of software companies
Artificial intelligence is fundamentally changing the business model of software companies. What once were capital-light, high-margin revenue models are increasingly turning into capital-intensive, infrastructure-driven businesses. Using Oracle as a case, this article analyses how AI-driven business model innovation reshapes the revenue model, alters the underlying economics of software firms, and forces a shift from classic software logic to utility-like economics. The focus is not on technology hype, but on the hard financial consequences of AI for margins, capital intensity, and long-term value creation.
The Classic Software Business Model: High Margins, Low Capital
For decades, the economics of enterprise software were almost embarrassingly attractive. Revenues were recurring, marginal costs close to zero, capital expenditure modest, and cash flows predictable. Once embedded in a customer’s core processes, software monetised time, not infrastructure.
Artificial Intelligence as a Business Model Disruptor
Artificial intelligence breaks this logic. Let’s look at Oracle.
Oracle’s historical revenue model was built on licences, maintenance fees and later cloud subscriptions layered on top of an already amortised technology base. Value creation was decoupled from physical assets. Growth improved margins. Scale reduced risk.
AI and the New Revenue Model: From Software Economics to Infrastructure Economics
With AI, revenue is once again tightly coupled to capital. Every additional dollar of AI-related revenue requires massive upfront investment in data centres, GPUs, energy contracts and long-term leases. Revenues may grow, but unit economics deteriorate. Scale no longer automatically improves profitability; it amplifies capital intensity.
Changing Cost Structure and Capital Intensity in AI Business Models
The numbers make the shift visible. Oracle’s capital expenditure has moved from below 5% of revenue to levels that consume the majority of incremental sales. Free cash flow, once the defining feature of the business, has turned negative. Return on capital has fallen sharply, despite double-digit revenue growth (The Economist, Dec 11, 2025).
Business Model Innovation by AI: A Structural, Not Cyclical, Shift
This is not a temporary dip. It is a change in the underlying revenue logic. AI turns software revenue into something closer to infrastructure revenue: long-term contracts, high fixed costs, financial leverage and dependency on utilisation rates. In economic terms, Oracle no longer monetises software scarcity, but compute capacity.
Why AI Turns Software Companies into Utilities
Seen through this lens, it is no surprise that Oracle now resembles a utility or a resource company more than a classic software firm. The risk profile, capital structure and investor expectations must follow suit.
The Broader Lesson for Business Model Innovation
The broader lesson extends well beyond Oracle. AI does not simply add a new revenue stream. It redefines the cost structure beneath the revenue model. Companies that fail to recognise this will continue to talk about “software margins” while running infrastructure economics.
AI changes not just what companies sell—but how money is made at all.
