SaaS not profitable enough, says Larry Ellison

Oracle CEO and multi-billionaire technology investor Larry Ellison has dismissed the software-as-a-service industry as unprofitable.

Applications and development

Oracle CEO and multi-billionaire technology investor Larry Ellison has dismissed the software-as-a-service industry as unprofitable.

Although his company made money from its on-demand applications business for the first time in its fourth financial quarter, Ellison said that the model had yet to become the profit driver that many had predicted.

“We continue to get better at it and grow the business,” he said in an earnings call yesterday. “[But] it’s not really growing any faster than our overall business.”

“We think that’s going to change over time,” he continued. “But the entire on-demand industry has to get better at making money in selling on-demand software.”

He pointed to the example of Salesforce.com, the on-demand CRM provider founded by a former Oracle executive, in which Ellison has a significant investment. “If you look at the leader, Salesforce.com, they don’t make very much money and they’ve been at it for almost 10 years,” he said.

“It’s hard to point to any software-as-a-service provider that’s doing a good job of improving its profitability,” Ellison added.

Acquisitions pay off

The company this week reported revenues of $7.2 billion for its fourth quarter of the financial year, a boost of 24% compared to the previous year.

Wall Street analysts had expected the impact of softening economic conditions on the company’s finances to be greater, and had predicted quarterly revenues of around $6.7 billion.

Oracle’s executive team attributed the continued strong performance to its acquisition-led growth strategy. It has undertaken many large acquisitions in the past few years, the most recent being its $8.5 billion purchase of middleware competitor BEA.

“Our strategy is resonating with customers,” said company president Charles Philips. “We have tremendous up-sell and cross-sell opportunities.”

Further reading

Oracle’s financials disappoint investors looking for a hero – April 2008

BEA finally succumbs to Oracle’s advances

Salesforce.com on track to break $1 billion barrier

SAP closes the gaps around ERP
Application maker expands product range to plug the gaps between analysis and execution, and between organisations themselves

Find more stories in the Business Applications Briefing Room

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