When I was learning to drive many, many years ago, I remember my dad telling me to pay attention to not only where the other driver's eyes were looking but also to where their wheels were pointed. So it was with my search for SaaS at the recent Oracle OpenWorld event in San Francisco. Amid the hundreds of exhibitors and sessions, Cloud Computing in the form of SaaS based applications was being called out, acknowledged and exhibited. There were "campgrounds" of SaaS based applications exhibiting and the normal spread of CRM On Demand sessions. Clearly, Oracle senses the need to position itself as a supporter of Cloud Computing which requires them to encompass and embrace the growing proliferation of SaaS-based services and vendors. Like Levi Straus during the Gold Rush, who made his fortune supplying the miners with clothes and supplies, Oracle has the opportunity to provide the platform and infrastructure that can be a significant enabler in the Cloud Computing story.

But this blog is not about Cloud Computing, it's about where Oracle is with SaaS-based applications. Certainly, they are continuing their efforts to build out their primary SaaS offering, CRM On Demand with new features and social networking capabilities. There were large banners in the exhibit areas for CRM On Demand and a section of the exhibit hall was dedicated to a few dozen SaaS add-on applications like Helpstream, Adaptive Planning and Eloqua. Oracle's decision to allow a huge presence for one of their primary SaaS competitors, Salesforce.com, in the west convention hall was interesting. Even more interesting was the opportunity that was provided to Salesforce.com's CEO, Marc Benioff, to present at an SRO executive session. Marc eloquently thanked Oracle for the opportunity to participate in OracleWorld, talked about the growth of Cloud Computing, their newest offering, Service Cloud 2 and gave away copies of his insightful new book "Behind the Cloud." In comparison to the exhibits of SaaS vendors and the mega-exhibit of Salesforce.com, Oracle's SaaS offerings had a relatively small presence. No new SaaS offerings for key markets like Human Capital Management or Enterprise Performance Management.

So back to my original point, where is Oracle looking regarding SaaS but also, where are their wheels pointing? Gauging by my OracleWorld observations, Oracle definitely feels the need to acknowledge the proliferation of SaaS-based applications. In my opinion, allowing Salesforce.com to present and exhibit is a huge change in course regarding SaaS. Salesforce.com is Oracle's biggest competitor in the Customer Relationship Management marketplace but they also are built on top of Oracle database technology. This is not a unique situation in the Oracle world of co-opetition. SAP, their biggest competitor in the enterprise resource management marketplace, is also built on top of Oracle database technology. SaaS is here to stay and though Oracle is not showing any signs of interest in building out its SaaS offerings, it is very interested in ensuring that its database, middleware technologies and possibly its expansive infrastructure are used in the SaaS gold rush. The question of why Oracle is not looking at SaaS as an application delivery vehicle but has its wheels pointed to supporting SaaS vendors and gets into a discussion of Oracle's business priorities and culture.

Oracle's business model is heavily dependent on maintenance and support revenue. At 22% of license revenue, this represents a significant portion of Oracle's revenue and margin. Any significant move away from license sales and to SaaS will disrupt this model and the business culture that has been built upon it. A second factor to Oracle's delay to move to SaaS-based applications can be found in their sales model. The SaaS sales model is significantly different than the license sales model. SaaS sales typically involve a higher volume of transactions at a lower total contract value. Because SaaS based applications are pay-as-you-go and require limited configuration to be production ready, not only is the software component of the total sale reduced, the consulting component of the total sale is reduced as well. Getting a massive sales organization like the one at Oracle to embrace a SaaS applications focus will be a time consuming, culturally altering and expensive proposition. This is not likely to happen soon.

A more likely strategy for Oracle to pursue if they want to become a leader in SaaS based services would be to focus on the small or medium size business market with a dedicated and independent sales team selling SaaS based applications and not try to convert their existing base of global 2000 enterprise customers. Given the investment by Oracle's CEO, Larry Ellison, in NetSuite, I am tempted to think of them as an experiment to test a new SMB sales model for Oracle. I suspect that part of the reason that Oracle allowed such a significant presence for Salesforce.com at Oracle OpenWorld is that they do not see them as a significant competitive threat to their installed base and need for them to continue their success to help drive the growing need for platform as a service and infrastructure as a service technology, a market that Oracle is definitely interested in. Of course, Oracle could use their merger and acquisition machine to quickly become the leading provider of SaaS based applications. There are definitely candidates out there other than Salesforce.com that could help Oracle accomplish that.

Oracle OpenWorld as usual was an interesting window into the thinking and direction of Oracle. Regardless of the rhetoric that we have heard from Oracle about SaaS, as evidenced by the presence of SaaS on the exhibit floor and Marc Benioff's presentation, Oracle is positioning to be a player in this market someway, somehow.


Gary Damiano has more than thirty years of software technology and application solutions experience. He has served in a number of senior marketing executive roles at companies offering SaaS-based applications including Host Analytics, Workstream, Oracle and Siebel Systems. He is currently a partner of Montclair Advisors and a member of Bi3 Solutions management advisory board. He has an MBA in Finance from the City University of New York's Baruch College Zicklin School of Business and lives in the San Francisco Bay Area with his family. Gary can be reached through LinkedIn or at gedamiano@gmail.com.