No Money in Saas?

SaaS stands for Software as a service as is fast rising in popularity over the internet. As the name suggest, Saas software is not sold, meaning that customers will no buy the software or own it for free but they pay for using it. A Saas software is hosted and operated over the internet will the customers will avail of the services through an API accessible over the Web and often written using Web Services or REST

But when Oracle CEO Larry Ellison implied: "Where’s the big money in SaaS?" he caused quite a stir the ERP industry where it is in tight competition with SAP. Ellison remarked that Saas and the small to mid sized markets are very interesting for ERP vendors but not terribly profitable. And as many understood it, it was a word dismissing SAP’s Business ByDesign.

But the real puzzling thing was that Ellison owns NetSuite which is a SaaS ERP provider. Yes, when Ellison remarked about where the big money is SaaS it, he was talking about Oracle and for it to go down-market with an on-demand would mean having less profit compared to Oracle's current business model. But then if he was thinking that there was less money in SaaS ERP, then why is he owning Netsuite still?

The answer, as it was obvious to many, lies in the Oracle strategy. Oracle will not be trying to do a SAP. Ellison's move is having to let SAP figure SaaS out and it SAP become successful, Ellision would buy Netsuite for himself. In other words, if Oracle will buy Netsuite when at the right time. Sounds confusing? Yes, it does as Ellison would really be basically buying his own venture but will done with independent committee when the time comes.

Ellison's long take on the difference between Oracle and SAP strategies is:
"What I’d like to highlight here is the radically different strategies of the two companies for growth. Our strategy for growth is to find a way to add more value to the same customers we already serve, which are the large end of the mid-market and large companies. What we’re doing here is moving beyond ERP to industry specific software. So in the telecommunications industry that would be billing systems and network provisioning systems and network inventory systems; core applications to run their business, to run telco, core applications to run a bank, core applications to run a retail chain of stores. core applications to run a utility. That’s our focus, and that allows us to leverage the existing relationships that we have because we already sell databases to these companies, we sell middleware to these companies. We sell ERP and CRM to these companies, and now we want to sell this industry-specific software.

It’s very different than SAP’s strategy which is to go after small companies; small companies with their new Business ByDesign, formerly known as A1S product. Now, we see the problem in that because we’ve looked at going down market. We’ve looked very closely at it, and we think it’s very hard to make money because there is no synergy. To go down market you need a new product and new product development teams. You spend a lot of money developing a whole new product for the low end. But you also need an all new sales force because we don’t call on those customers. We don’t call on small businesses, and it’s very expensive to call on small businesses. It’s very expensive to do ERP implementations in small businesses. The cost of sales is high. The cost of implementation is high. There are virtually no synergies in sales, marketing, and product development and support."

Well, there is afterall money in SaaS. Everything is just a matter of strategy.