Oracle's opaque on demand business

Just after salesforce.com announced that it passed the 500,000 subscriber mark, had 27,100 companies using its software and was tracking close to $500 million in revenue for its fiscal year, Oracle issued a press release stating that it has more than 1.7 million users of Oracle On Demand services across more than 2,200 companies. Note that Oracle doesn’t say that it has the 1.7 subscribers.

The 1.7 million figure includes subscriptions, managed applications, and software management consulting services. According to Oracle’s earnings statement, the On Demand division accounted for $397 million for the fiscal year ending May 31, 2006, out of total revenue of $14,380 billion. For the first quarter, ending August 31, Oracle had $125 million in On Demand revenue, which was an increase of nearly 50 percent over the same quarter last year.

Juergen Rottler, executive vice president, Oracle Customer Services (which includes support, on demand and consulting services), claimed that Oracle has by far the largest contingent of on demand users. I asked him for a specific breakdown of the 1.7 million users and more than 2,200 customers. He didn’t have much to offer, telling me that Oracle’s policy is not to break out the numbers.

Rottler defined Oracle On Demand as anything where Oracle has operational ownership for a customer software environment, which doesn’t include any services that the company might provide to customers running their own IT. 

The majority of on demand revenue is coming from Oracle-hosted versions of Oracle E-Business Suite, PeopleSoft Enterprise, JD Edwards Enterprise One and World, Oracle Collaboration Suite, Oracle Database and Fusion Middleware, Retek, ProfitLogic and G-Log, as well as consulting services associated with on demand applications.

For Oracle, users and subscribers are not equivalent terms. Users are customers who touch various licensed ERP, database or middleware systems hosted in the company’s Austin datacenter. “We have the broadest portfolio of on demand services,” Rottler said. “We are not hung up on what you call on demand. Customers have different needs as they maximize their relationship with Oracle.” 

Rottler described subscription pricing is a form of financial engineering for customers. Oracle offers subscription-based pricing for every product for the Latin American market, Rottler said. “If they want annuity billing, we can make it happen for any customer around the world today.”

Oracle offers both multitenant and individual servers to customers. "Multitenancy is a how, and it has mostly downsides other than lower cost," Rottler said. He cited salesforce.com outages as a negative on multitenancy and cited the robustness of solutions based on Oracle's scale-out grid technology.

Salesforce.com and others in the multitenant applications camp cite the lower cost of  single instances compared to individual software stacks, and the ease of upgrading, integration and customization. The growth rate of multitenant software-as-a-service solutions indicates that the single instance architecture is growing in acceptance.

Given Oracle's lack of transparency around its on demand division, it's not possible to determine it's uptime, quality of service or number of subscribers versus competitors. Salesforce.com has a public Web site with current stats into system performance and every quarter updates it subscriber and customer numbers.

I asked Rottler about Siebel CRM On Demand subscriptions. He said that number was in the hundreds of thousands. “Siebel CRM On Demand is growing nicely. Siebel lacked a go-to-market engine and market reach to drive business aggressively, so it’s not as well known as salesforce.com,” Rottler said. “But it is probably a better product and we are going ramp up significantly.”

Oracle’s on demand division added 100 customers or extended existing relationships in the last quarter, compared to 2,300 for salesforce.com’s latest quarter. It would appear that Oracle is focused on getting more wallet share from current customers with its hosted services, and that Siebel CRM On Demand is not slowing down salesforce.com’s rapid growth.

Rottler wasn’t complimentary of salesforce.com's solution. “Salesforce.com is really sales automation solutions. They call themselves CRM, but they are not strong CRM with marketing and services offerings, so they have to have AppExchange.,” he said. Rottler also touted Oracle’s integration platform for plugging Siebel CRM into HR, financial and other ERP applications. Salesforce.com has native connectors for SAP and Microsoft Office, for example, and it's not hard to imagine the company offering bi-directional bridges into Oracle applications.

Salesforce.com CEO Marc Benioff responded to Rottler's comments in an email:

Cisco, Merrill Lynch, AON, CIT, Kaiser and thousands of Oracle’s largest customers have chosen salesforce.com for their on demand services. Why? Because no one has succeeded with on demand solutions like salesforce.com. Now, with over 400 different on demand solutions though our AppExchange, and partnerships with Accenture, IBM, and Deloitte, only salesforce.com is uniquely poised to make every Oracle customer a success on demand. Don’t take our word for it----just ask our more than 27,000 successful on demand customers.

While Benioff spouts his marketing points, it's hard to argue with the company's growth, platform ecosystem build-out and transparency about its business. Given Oracle's lack of transparency, you might think that the company is hiding behind a cloak of undisclosed numbers because comparisons to salesforce.com are unfavorable. Perhaps Oracle will be less opaque about its on demand business in the future.