Oracle Not Enthusiastic About SaaS

Implications: According to the media and several prominent individuals, SaaS is the future of the software business.  The “old-fashioned” licensed software model is doomed.  Yet the most profitable and biggest software companies have only a limited presence in SaaS.  Does this mean they are out of step with the future, or do they actually know something?

Analysis: Articles appear almost daily touting the benefits of SaaS and proclaiming the end of the licensed software model.  Licensed software is a dinosaur that just hasn’t realized it’s dead!  CIO’s should fully embrace SaaS today or be seen as out of touch with the industry!  It’s easy to find articles talking about how a CIO is saving time and money by using a SaaS vendor.  The market cap and growth rates of SaaS vendors such as Salesforce.com and SuccessFactors are the envy of everyone.  Does this mean that Microsoft, Oracle, SAP and others must fully convert their software to a SaaS model or perish?

Perhaps a note of caution is appropriate before dashing headlong into the SaaS model.  Ellison’s comments in the attached article about the difficulty of making SaaS a profitable business must be considered.  Yes, he does have a bias – Oracle makes a lot of money off the “old-fashioned” licensed software model.  Yet for all his failings, Ellison has never been slow to seize any opportunities to make more profits.  If he truly thought SaaS was the place to be, Oracle would now be fully converted to SaaS.  Ellison has quite a lot of experience with SaaS, both from Oracle’s SaaS offerings and his personal investment in NetSuite.  So it’s probably safe to assume there is at least a kernel of wisdom in what he says.

Nonetheless, even if vendors can’t make a lot of profit off SaaS, can it still dominate software?  Not necessarily!  One crucial factor that seems to be continually overlooked in the press is that companies such as Salesforce.com and SuccessFactors are more than SaaS vendors.  It is true they deliver their products via the SaaS model, but it is also true their products are relatively new and built following the latest Web principles, unlike most traditional software vendors.  Software users (that would be Sales people, HR people, Operations and the like) don’t know or even care how the software is delivered.  The business users care about functionality and ease-of-use.  Most successful SaaS vendors today are growing and doing well because they are delivering the software users need and like to use.  The SaaS model they use may facilitate the sale, but it certainly does not make the sale.  No business user ever decides they want to buy some SaaS software.  They decide they want to buy HR or Sales software, and don’t care about the delivery model.

The decision to go SaaS or not, given otherwise equal software functionality and interface, is purely a decision between IT and Finance.  SaaS requires little or no CapEx and no large upfront cash outlay, so SaaS is very attractive to companies needing to conserve cash.  Also, SaaS software requires little staffing or technical expertise by the customer, so it works best for companies with small IT departments, or where IT departments don’t wish to acquire staff and expertise in a particular software package.

SaaS as a delivery model certainly has a robust future, but it’s difficult to see it conquering the software world.  Software that is modern, capable and easy-to-use will absolutely conquer the software world, whether that software is delivered via SaaS or license.  Today’s SaaS success stories will have more challenges when the large vendors start delivering modern, easy-to-use software, such as Oracle’s Fusion Apps promise to be.