Oracle Could Lead In Cloud Business Apps Within Year

Oracle CEO Larry Ellison's talk at the Oracle OpenWorld event last October cautioned about "false clouds." AP View Enlarged Image

Oracle (ORCL) is all but destined to become the largest seller of cloud business-software applications, analysts say, and perhaps within a year.

What that means in the long run is much debated, though, as analysts aren't sure whether pricing competition might cut into profit or what other issues might develop in the fast-emerging cloud software field.

But the database leader, which is either No. 1 or 2 to SAP (SAP) in business apps overall, simply has the size and scope to overtake current cloud business-app leader, Salesforce.com (CRM), analysts say.

Oracle rolled out its first full suite of cloud applications on June 6. Cloud computing lets companies store data and apps on the Internet "cloud" and access it quickly and easily.

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The applications run the gamut of customer relationship management software to social networking sites for employees, partners and customers.

For longtime software giants like Oracle, the cloud is a big switch. They get the great bulk of revenue from companies and other enterprises buying or licensing software that the customers keep on their own computer systems. Vendors also get annual maintenance fees.

Analysts estimate Oracle is taking in a mere $1 billion or so a year from cloud-based software sales and services now. But while that's just a sliver of the company's $37 billion in sales last year, it's already about a third of the total sales for Salesforce, which is expected to end this year with some $3 billion in revenue.

Operates In 145 Countries

Oracle operates in more than 145 countries vs. about 70 for Salesforce. And Oracle has far more apps than Salesforce.

Revenue doesn't equate to profit, but it's inevitable that huge Oracle will become the largest seller of cloud applications, says Trip Chowdhry, an analyst for Global Equities Research.

"What Oracle has is global presence," he said. "They have two things driving the revenue: breadth of the offering and breadth of the distribution. You put those applications in those sales reps' hands and you get deployments not in just one country but several countries."

At the June 6 event, Oracle CEO Larry Ellison emphasized that his company could and would beat Salesforce.com in head-to-head battles for customers.

Oracle makes software to help companies manage such tasks as customer relationships, recruiting, supply chains, projects, finances and more. That range gives it an edge over all rivals, says Michael Fauscette, an analyst for research firm IDC.

"The only way you can do this sort of mega play long-term is having more and more applications available to sell in the cloud, to help drive growth," he said.

But Fauscette doubts Oracle will catch Salesforce within a year.

"If they're at $1 billion this year and double that next year, they still wouldn't catch up," he said.

Oracle didn't unveil its cloud pricing this month, so forecasting market-share wins for Oracle is nearly impossible, says Bill Hostmann, an analyst for research firm Gartner.

Jury Still Out

Salesforce.com is No. 1 in cloud-based software-as-a-service applications, where customers pay as needed and vendors maintain the apps on their systems.

"The jury is still out on who is going to have the greater advantage in the long run," said Michael Skok, a general partner for North Bridge Venture Partners. "Oracle has an advantage in having a very large customer base, but Salesforce is a SaaS pioneer and therefore may have an advantage architecturally."

SAP is still formulating its cloud strategy. As with Oracle, acquisitions are fueling SAP's efforts.

Last month, SAP agreed to pay $4.3 billion to acquire Ariba, a maker of cloud-based collaboration software. In December, it plunked down $3.4 billion to buy SuccessFactors, which makes cloud-based software to help companies better manage their workforce.

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But just when SAP will start delivering a cohesive cloud offering isn't yet known, says IDC's Fauscette.

"They have a story, but it's 'we are building these new applications in the cloud and they will be available soon,'" Fauscette said.

Oracle's cloud deals include paying $1.9 billion in February to buy Taleo, a maker of talent management software for the cloud.

In October, Oracle paid $1.5 billion for RightNow Technologies, which makes cloud-based customer experience software.

SAP is matching Oracle deal for deal and certainly has the financial wherewithal to be a major factor in the cloud quickly, says Skok.

"I wouldn't count out SAP, even though they are late to the game," he said. "The acquisitions of SuccessFactors and Ariba show they are dead serious about this."

By PETE BARLAS, INVESTOR'S BUSINESS DAILY