Intelligent Enterprise

Well, it had to happen. Somebody who sells enterprise software had to push back on SaaS. In this case it was Oracle's Larry Ellison. Ellison told financial analysts in a quarterly earnings call last week that Oracle hasn't participated in the software-as-a-service trend because there's no money to be made there.

Of course the bloggers went wild, including this this post by Mary Hayes Weier:

"What Ellison is saying, essentially, is that SaaS stinks because customers would pay so much less to Oracle. There's less consulting fees, integration fees, and no big up-front license fees. Ellison called subscription-based software 'very interesting, but so far no one has figured out how to make any money at it.' Oracle's plan is to keep selling to big companies, pitching them on vertical applications once they've filled up on databases, middleware and general ERP. It offers Siebel CRM On Demand, and has said it's willing to host software for customers, but Oracle, by far, is primarily an on-premise software company."

The core issue here is market share. Oracle and SAP have it, SaaS is beginning to eat into it, and that's not good. Thus, you can fight them, ignore them, or join them. Ellison is choosing to do the second. Not smart if you ask me, but, heck, this is a SaaS blog.

The trouble with SaaS, as far as Oracle is concerned, is not that it's a drop-in replacement for many of their enterprise applications, but enterprises that move to SaaS won't need as many databases, development tools, and middleware layers either. Thus, the entire Oracle stack is at risk of losing share, and that's something Oracle has not done much of in the last 20 years.

Truth be told, SaaS is a large opportunity for Oracle, if they would just figure out a good strategy around it. Clearly, it's a trend in the way people want to use software, and perhaps middleware and development environments as well. Indeed, most enterprise applications and data could be remotely hosted in 10 years, which would hack the guts out of conventional enterprise players such as Oracle. Even Microsoft is looking to figure out SaaS. Oracle should move in the same direction.

Don't get me wrong, SaaS is not a cure-all, and I don't think for a minute that all enterprise applications will be SaaS-delivered, just some. However, it's a viable mechanism for providing value to enterprises, and it's a model that's now well proven, with SaaS subscription sales amounting to many billions per year.

The conventional enterprise vendors need to get a clue, else they will find themselves selling buggy whips as cars begin to roll off the assembly line. You can spin the trend, but eventually it will catch up to you.

David S. Linthicum is a managing partner with Zapthink, a consulting and advisory organization dedicated to SOA planning, implementation, training, mentoring and strategy. He is a well-known application integration and SOA expert who has authored 10 books on related topics. Write him at david@linthicumgroup.com