Eye on Oracle

Jul 2 2008   7:30AM GMT

What is Oracle’s SaaS strategy?

Shayna Garlick Shayna Garlick Profile: Shayna Garlick

It’s no secret that Larry Ellison is in his business for the money. Therefore, his reason for laying low in the on-demand software industry — he says software-as-a service (SaaS) isn’t profitable enough — should come as no surprise.

It may also be easy to question Ellison’s reasoning given the way it’s been embraced by so many in the IT business, including Oracle rival SAP.

SAP, which had a change of heart about SaaS last year (CEO Henning Kagermann called it “game changing” and “the better model”), hopes to have 1,000 subscribers to Business ByDesign, its SaaS-based ERP suite for SMBs by the end of 2008.

Ellison, on the other hand, seems to have dismissed SaaS, at least for the time being. In this recent Information Age article, he points to the low profits of on-demand CRM provider Salesforce.com.

“The entire on-demand industry has to get better at making money in selling on-demand software,” he says.

This isn’t the first time Ellison’s rejected the idea of SaaS, a model that requires less licensing and consulting fees than traditional software. In September, Ellison compared Oracle’s SaaS strategy (focusing on adding value to the large companies it already serves) with SAP’s (going after smaller companies with new products like Business ByDesign).

As ZDNet blogger Larry Dignan puts it:

“Here’s Ellison’s strategy: Let SAP figure SaaS out and crow if the rival fails. If SAP is successful–it probably will be over time–Ellison buys NetSuite [the SaaS ERP provider that Ellison owns a majority stake in] from himself.”

But does Ellison have the right idea?

Some people seem to think so. In his recent blog post, “Does Larry Ellison have the best SaaS strategy?”, Dingan credits Ellison for taking a step back in such a difficult, slow-growing market.

Others, however, have higher hopes for SaaS. Blogger Phil Wainewright has criticized what he calls “Oracle’s misconceived SaaS strategy,” and at the start of this year, Wainewright gave his “Eight reasons SaaS will surge in 2008.” Among these include a wider move to Internet-based services, the emergence of virtualization technology and a slowing economy that will make lower-cost options more appealing for customers.

So, maybe signs are pointing to this being a big year for SaaS. But if it is, how soon will Ellison pounce? Do you think it would be worth it for Ellison to take his customers–rather than his profits–into consideration sooner rather than later? And what does it all mean for NetSuite and Oracle’s existing SaaS-based application Oracle CRM OnDemand, a vestige of Siebel’s foray into the business? Could you benefit from a wider Oracle SaaS offering, or is Ellison right in his strategy?

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