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October 30, 2000

Up to a quarter of Oracle's new US sales this year could be for hosted software rather than traditional in-house implementations, a top company executive has told ASPnews.

Timothy Chou, president of the company's online applications division Oracle Business OnLine, revealed the unexpected surge during an exclusive briefing with ASPnews ahead of announcements scheduled for Monday (Oct 30th).

"Our pipeline moving forward is extremely robust. We could do 25 percent of deals online in North America this year. The demand side for this stuff is huge - absolutely huge," said Chou.

"But it's only a good thing for the software guys," he added, arguing that ASPs who host software from third-party vendors cannot exploit the real benefits of the ASP model.

It is the complex and imperfect chain of communication in technical support that makes traditional computing so much less efficient than online solutions, he explained.

"The online world is going to be ten times faster, ten times cheaper and ten times more reliable than the offline world because of the compressed cost of support of the software," he said. "That's why all software ultimately has to be delivered this way."

ASPs that deliver third-party products are in the same position as traditional IT outsourcers, he said. He predicted they will find it increasingly difficult to survive against software vendors that act as their own ASPs.

"The IT outsourcer has no economic advantage," he said. "They're living on the offline, IT outsourcing side of the spectrum. They have to stand in line [for support] at Peoplesoft, Siebel and Broadvision, and bear all the costs of that. Their cost of support is going up all the time because they are not the software company. [Whereas] for the software company, the cost is going down as we learn more about this [delivery model]."

Shifting model

Oracle now has slightly over 100 online customers for hosted enterprise resource planning (ERP) software, and just over 50 for its Oracle Exchange digital marketplace platform. Oraclesalesonline, the online customer relationship management (CRM) offering that launched at the end of August, last week announced customer numbers in excess of 6000 companies. "That [number] tells you a little bit about what the future might hold. It's really starting to shift the model towards the online software model," said Chou.

The 25 percent share of new business predicted by Chou this year represents the proportion going to the company's ASP division rather than an increase in Oracle's overall sales. However the level is significantly higher than the figures announced by rival ERP vendors. SAP chief Henning Kagermann told ASPnews earlier this year that he believed its ASP-related revenues will not go beyond 10 per cent of overall revenues in the next two years - see ASPnews.com article, SAP Aligns with Telcos to Reach ASP Market, Jul 27th 2000.

In contrast, Chou said that Oracle fully expects online software to completely reverse its current one percent share of Oracle's total revenues, compared to 99 percent for offline, by the end of the decade. "In less than ten years, it's completely inverted. It's the future of all software companies and therefore it's the future of Oracle."

In line with that trend, Oracle will downplay Business OnLine's profile as a separate division within the company, said Chou. "This is really the future of Oracle. We're trying not to create a separate brand here. [As a customer of Business OnLine], you just happen to be an online customer of Oracle, not an offline customer. You'll be starting to see the morphing of Oracle itself into an online company."

Previous Business OnLine stories:
• Oracle Puts CRM Online For Free, Aug 29th 2000
• Oracle Tames Sales Channel for ASP Success, Aug 4th 2000
• Oracle BOL spreads its wings, Oct 7th 1999
• Oracle will host third-party apps for rent, Oct 8th 1998

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