Suppliers offering software as a service (SaaS) solutions via ‘cloud’ computing, enable clients to pay a subscription for access to the software rather than making huge capital investments in software licenses and infrastructure, as well as the accompanying costs for systems integration services that often are 3 to 5 times of the originating investment.
It’s quite clear that SAP and Oracle are now taking a much greater interest in this market. Perhaps the event that memorializes this interest most convincingly is the recent acquisitions of employee performance management SaaS providers, SuccessFactors by SAP and Taleo by Oracle. In stark contrast to Salesforce.com, a customer relationship management (CRM) SaaS provider that emerged as an industry player and eventually came to dominate the SaaS CRM space, it’s clear now that SAP and Oracle are not interested in “allowing” SaaS providers to encroach on what they believe is “their market”. SaaS was traditionally thought of as a great delivery model for the small and medium sized businesses that didn’t already have large scale ERP systems. Increasingly, it is being viewed by large scale clients as a way to reduce dependency on SAP or Oracle while getting highly functioning solutions up quickly and affordably, as the systems integration costs alone for solutions from SAP or Oracle often dwarf the costs of a full blown SaaS solution, even those inclusive of hardware, software, facilities, etc.
Hold over forces from the global financial crisis and the resulting down economy have forced many of our clients to rethink the ways they plan for, deploy and consume information technologies, and many of the emerging SaaS models appear to offer excellent economic and/or strategic benefits. What’s more, many of our clients greatly struggled with the likes of SAP and Oracle during those difficult economic times. Now that they are investing again, they often express concerns about reinvesting with the same suppliers that abandoned them in the most difficult of circumstances. SAP’s and Oracle’s policies regarding reducing annual maintenance obligations are widely regarded as draconian in the industry, and even when clients can demonstrate they no longer use certain software titles, costs often INCREASE after dropping annual maintenance support on unused products.
Organizationally, many clients have required their IT departments to cut costs, and in the search to meet the financial objectives of the organization, our clients have turned to SaaS solutions for special purpose needs at low up-front costs.
Another thing that’s very clear is that the SaaS companies are definitely going after the market that SAP and Oracle want to occupy. Organizations like Salesforce.com have successfully taken share from a market that was once dominated by Siebel, and Oracle’s acquisition of RightNow is indicative that Siebel’s OnDemand business (SaaS) could not keep pace with Salesforce.com.
Since March of 2009, shares of Salesforce.com have quadrupled, and Salesforce.com agreements are now pervasive in our Global 2000 client accounts. During this same time, we have not seen SAP CRM make any major inroads on the CRM market space at large, let alone the CRM SaaS market.
In addition, even though Oracle’s and SAP’s shares have doubled since their low in March of 2009, they have lost major deals to the likes of Salesforce.com, Workday and others; and some experts speculate that it could have a hugely detrimental impact on Oracle’s operating model. Of course those same experts may have been slightly surprised to learn that it looks like Oracle will set all time record highs for operating margin in its 2012 fiscal year, which ends this May.
Oracle and SAP are clearly disruptive to this market trend, and the acquisitions of RightNow, SuccessFactors and Taleo prove it. It remains to be seen if this seemingly defensive acquisition strategy can result in real market change. Oracle doesn’t exactly have a stellar reputation for continuing to innovate the products of its acquired entities, although SAP has seemingly done better in some ways.
It’s not all gloom and doom for Oracle and SAP. When it comes to enterprise scale, security concerns, and massive amounts of data processing, Oracle and SAP likely retain a perceived edge over the competition.
It does certainly appear that Oracle and SAP are quite comfortable to remain in an effective oligopoly in a blue versus red dialogue, but that new SaaS providers have potential to erode market share and be highly disruptive to Oracle and SAP’s market dominance.
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