Ellison spurns SaaS for easy ERP pickings

Ellison spurns SaaS for easy ERP pickings

Summary: Software buyers take note: Larry Ellison let the cat out of the bag last week when he said Oracle won't start selling SaaS because "so far no one has figured out how to make any money at it."


Information Week's Mary Hayes Weier has spotted that Larry Ellison rather let the cat out of the bag on Oracle's earnings call last week when he said the company won't start selling SaaS because "so far no one has figured out how to make any money at it." She notes:

"If Ellison's observation isn't a red flag to CIOs, than I don't know what is. 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."

In other words, there are so many big enterprise buyers out there still willing to pay huge sums for Oracle's conventionally licensed applications and middleware that he would be crazy to start offering them a low-cost subscription-based alternative. No wonder he's smiling.

Of course, as the majority investor in NetSuite, Ellison understands the cost structure of SaaS business software vendors only too well. The selling cycle is tough and the returns from subscription licensing are paltry until renewal volumes start ramping up. In fact, the only people who are reaping real returns while the SaaS vendors get themselves established are their customers.

While the early adopters reap those rewards, the majority of enterprise software buyers prefer to stick with proven, conventional licensed solutions. And as Ellison reveals, those vendors are going to reward their loyalty by maximizing their own profits for as long as the party lasts.

Topics: Cloud, Emerging Tech, Enterprise Software, Software

Phil Wainewright

About Phil Wainewright

Since 1998, Phil Wainewright has been a thought leader in cloud computing as a blogger, analyst and consultant.

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  • Larry's not dumb...

    Oracle wants nothing to do with Saas because it is a model that Larry fully understands. If he didn't he never would have put money with Evan and Zach. But to Larry's credit, he understood that Oracle DOESN'T understand Saas.

    For those who claim it is simply a different delivery model for the same business benefits, I would reply that the argument is akin to comparing a 747 to a taxi. Sure they both are modes of transporting people and baggage from point A to point B but the 747 achieves huge per mile efficiency over a taxi provided that a critical mass is in place and economies of scale can be exploited.

    In the same manner, Saas requires massive amounts of upfront investment, patience in ROI recognition and a COMPLETELY different culture than traditional software.

    Larry dabbled in Saas in the late 90's and quickly realized that enterprise sales reps used to closing multi-million dollar "vapor-ware" deals were not going to stick around and wait on annuity based compensation plans to kick-in, Big-5 consulting firms used to charging millions for drawn out software implementations were not going to recommend Saas, and on-going support staff (based in India) used to resolving technical issues could not be taught overnight to address REAL business issues.

    Give Larry credit, he understood that Saas was the future. He understood that Oracle was too big and too set in it's own ways to ever make the cultural shift required to change it's 25 year distribution model. Not to mention that he was beholden to share holders looking for Oracle profits, the largest of whom is himself.

    So he hedged. He went out and found some REALLY smart people with a lot of vision and started NetLedger. Within two short years, there was a brain-drain at Oracle, all the smart guys who weren't already Oracle stock millionaires split and went to Netsuite. My applause, they are all going to get rich on the IPO. My applause to Larry, he is going to get a lot richer because he can afford to wait.
    Edgy Saas Guy
  • I like your take on it

    You're right, Oracle has spurned not only SaaS but also the SME market. They're right also. Their marketing, sales and distribution channels are all set up for conventional software sales to large companies. I know that Larry's remarks were in the context of SAP's new Business By Design SaaS offering, but what does this say about Microsoft's efforts to turn Dynamics into a SaaS offering? If there aren't any synergies, as Larry stated, then the job is bigger than just climbing, er re-engineering, a mountain of code.