OpenWorld: Ellison says on-demand software will be vital

He also says Oracle will consider different pricing strategies for hosted software

Oracle Corp. CEO Larry Ellison took pains during his OpenWorld keynote address yesterday to emphasize the important role he expects Siebel Systems Inc.'s hosted, subscription CRM OnDemand service to play in his company's product lineup once its acquisition of Siebel closes (see "Update: Oracle to buy Siebel Systems for $5.85B").

"You'll see us redoubling our efforts in the on-demand area," Ellison said. Asked during a question-and-answer session with attendees to predict what the applications market will look like in five years, Ellison said he expects on-demand vendors such as Salesforce.com Inc. and NetSuite Inc. (of which Ellison is the majority owner) to be "very serious players."

Ellison's remarks came after competitors, most notably Salesforce.com, loudly proclaimed that Oracle's Siebel buy would mark the end of Siebel's hosted customer relationship management (CRM) service, which runs in IBM data centers. Ellison shot down that idea and said he expects the on-demand business model to be increasingly influential.

Oracle has its own on-demand business unit offering managed services for its applications. Jurgen Rottler, executive vice president of that division, said it has been one of Oracle's fastest-growing businesses for the past four years. But Oracle's hosted software pricing strategy differs significantly from those of Siebel and Salesforce.com. While those companies offer their hosted CRM software on a monthly subscription basis with per-user pricing as low as $65, Oracle charges the full list price for its applications and then sells management services on top of the software licensing cost. Rottler estimated that Oracle's on-demand contracts range from $50,000 to $10 million annually.

Oracle will consider different pricing strategies for hosted software as it learns more about customers' needs, Ellison said in a discussion with reporters following his keynote speech. "We're gradually figuring it out. We think it's a huge and important part of our future," he said. "We have to be good at this, or we have a problem."

Another popular issue confronting Ellison is the composition of Oracle's shopping list. The acquisitive company has purchased around a dozen software companies in the past year. For now, Oracle has no large acquisitions in mind, Ellison said. He also professed little interest in middleware maker BEA Systems Inc. -- a company that many analysts expect to be sold off and that Oracle considered buying before it went after PeopleSoft Inc.

"At one time, BEA was very high on our list. I think it's less so now," Ellison said. "We've gotten bigger and grown fast, and they've gotten smaller."

Ellison used his conference keynote to run though a lengthy list of initiatives Oracle is working on, including its new Fusion applications suite, its software for managing computing grids, its industry-specific applications functionality and its database security. Security will soon be "the No. 1, 2 and 3 issue" IT executives worry about, he said.

He also addressed the lingering question about whether Oracle's forthcoming Fusion applications will support non-Oracle databases, particularly IBM's DB2. Earlier this week, Oracle announced it would certify IBM's WebSphere middleware for use with Fusion applications. Ellison called the decision about DB2 a question of which is a higher priority for customers -- database choice or security.

"We're talking with [customers running DB2] about why they made that decision and what are the issues for them going forward," Ellison said. "If you ask me right now which way I think it's going to go, I think it's a toss of a coin. I don't know."

Copyright © 2005 IDG Communications, Inc.

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