Earlier in the day, Larry Ellison, CEO at Oracle was crowing about the company's Q2 results. Larry Dignan reported the numbers but in amongst the commentary, the company claimed to have made 365 direct wins against SAP. I live Twittered the call in conference and at least one SAPper called that claim into question, claiming it doesn't stack up based on assumptions about the relationship between new customers and existing. During the call, Ellison said there are no longer 'SAP accounts' but 'SAP and Oracle accounts.'
Regardless of the veracity of those kinds of statement - which have been consistently been shown up as well massaged - Oracle is on a roll, generating billions of dollars in free cashflow. The trend, where Oracle is now able to sit side by side with its major competitor must be a concern to SAP at a time when it is trying to wrap up its friendly acquisition of BusinessObjects.
Later, Phil Wainewright reported that Netsuite catapulted to a strike price of $26, twice the lower end estimate contained in the offer document. That's amazing and far beyond where my Irregular colleagues thought it might land. Larry Ellison owns a large controlling stake in Netsuite, a company that's now valued at $1.5 billion.
I'm no investment analyst so I won't pass much thought on the Netsuite valuation but I suspect there is a touch of market madness in play here. Tech IPOs of this kind have been thin on the ground and I wonder whether excessive liquidity forced investors to drive the price.
However, despite this one-two for Ellison, we should not be all aglow. Margins at Oracle climbed to 41.3%, up from 38.8% in the same quarter of last year. Part of that is being driven by its high value vertical market applications but part also comes from maintenance charges for years' old product. Sooner or later customers are going to wake up and declare - enough is enough. I suspect that will be sooner rather than later as the subprime crisis eats into the IT budgets of companies affected by the downturn.
On Netsuite, while I congratulate the team for achieving this valuation, we should not automatically take that as a validation of the saas market. Netsuite still sells like any other ERP vendor using a collection of direct and indirect channels. That brings risk because the SMB market which Netsuite serves is highly price and service sensitive. Mis-steps in upgrade prices will cause resentment more likely to reach the public domain than would occur at the enterprise level. Netsuite has yet to leverage the on demand model to drive out cost which could be passed on to the end customer. However, Netsuite has demonstrated there is enthusiasm for saas vendors serving the lower end of the market. this is something many of us have suspected would likely be true. It is bound to concern Microsoft and put a smile on SAPs face as it readies a rollout of its Business By Design on-demand offering.
Curiously, Ellison said on the call that he sees no mileage in saas for Oracle's business model. Yet Netsuite is providing validation. I call that having your cake and eating it.
Expect to see more analysis on these companies over the coming days and weeks, especially in light of SAPs upcoming results.