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.