Software as a service sounds deceptively simple: Host an application, charge folks monthly and customers come running because they don't have to implement software. The reality: SaaS is rocket science and few do it truly well.
This perception vs. reality SaaS gap bonked me over the head at the SAP Sapphire conference last week. Much of SAP's talk about its SaaS suite--Business ByDesign focused on automation on the backend, delivering multiple instances and basic blocking and tackling in the background. Phil Wainewright has his four horsemen of SaaS--Salesforce.com, Omniture, Concure and Taleo. NetSuite is gunning for SAP in SaaS ERP suites. And VCs are dumping dollars on SaaS companies.
Bottom line: SaaS isn't easy. So if you're a big company like Oracle, which will have to deliver its apps via SaaS at some point--what's your plan?
For Oracle CEO Larry Ellison the plan goes like this: Invest a little in NetSuite and Salesforce. Hang back and let these SaaS pure plays figure it all out. And then pounce. That's the takeaway from Dan Farber's interview with Ellison.
Ellison said that SAP's problems indicate how difficult it is to develop on-demand software. Ellison invested early on in two of the current on-demand software leaders, NetSuite and Salesforce.com. He is the majority stakeholder in NetSuite and owns a few percent of salesforce.com, both of which are public companies.
Ellison doesn't appear to be in a hurry to cash out or bring them into Oracle's orbit. It's been 10 years since NetSuite and Salesforce.com were founded, and there isn't a standalone billion-dollar on-demand software company, he told me.
The problem: The SaaS profit model doesn't get Ellison all that excited because the growth is slow. The SaaS trajectory is more like open-source software--initial hype and then a gradual build. Once SaaS becomes big enough Ellison will pounce.
Given how difficult SaaS can be Ellison's plan sounds pretty good.