The old saying "get your head out of the clouds" is supposed to be derogatory. It usually means someone is wasting their time daydreaming. In the case of Oracle (NASDAQ:ORCL) and SAP (NYSE:SAP), it means heated competition to dominate the cloud-based Software-as-a-Service (SaaS) market.
Competition in the SaaS market has resulted in a battle between Oracle and SAP. SaaS is a software delivery method that allows data access from any device with an internet connection and web browser. It is a web-based model enabling software vendors to host and maintain servers, databases and codes that form an application. Applications on a SaaS platform allow enterprises to have immediate access to software in a more cost-effective manner than traditional products installed locally.
SaaS applications are more scalable and continuously upgraded. Market research firm Gartner is reporting sales of online software at $10 billion in 2010 and it is projecting sales to double, reaching $21.3 billion by 2015. Oracle is rapidly converting its business model into a cloud company, as businesses are moving away from purchasing software the old fashion way. Most organizations prefer to rent from the cloud.
Oracle launched its Public Cloud last fall. The cloud is a complete suite of more than 100 modules based on its Fusion Applications encompassing financial management, human capital management, supply chain management, project portfolio management, procurement, governance, risk and compliance and customer relationship management.
SAP recently announced it plans to acquire the business and commerce network company Ariba. In an effort to stay in the race, Oracle is purchasing Vitrue, an Atlanta-based social media technology startup, for $310 million in cash. Vitrue offers a social marketing platform that enables businesses to target Facebook (NASDAQ:FB), Twitter, Google's (NASDAQ:GOOG) Google+ and YouTube online, or via mobile devices. The latest technology is Social Relationship Management (SRM). Oracle is actively acquiring companies to support this model.
Vitrue's SRM platform manages more than one billion social relationships across 100 countries encompassing more than 4,500 social accounts for its clients. Clients include McDonald's (NYSE:MCD), Yahoo! (NASDAQ:YHOO), American Express (NYSE:AXP) and Southwest Airlines (NYSE:LUV). Knowing what people are saying about a company is invaluable.
The acquisition of Vitrue gives Oracle a solid asset to deliver to its global customers. Vitrue is leading the social relationship market. Oracle will be able to deliver a comprehensive software platform solution encompassing social marketing, monitoring and customer service. Joining forces with Oracle provides Vitrue access to a larger global industry.
Social media is igniting a new form of advertising. It is no longer about creating a product, and purchasing some TV and print ads to drive sales. Now it is all about who buys the product and what they are telling their friends. It makes perfect sense for Oracle to snatch up Vitrue. Combining the power of Oracle, Vitrue and RightNow, which Oracle acquired in October 2011 for $1.5 billion, creates a powerful cloud-based customer management system that interacts across multiple channels.
On the heels of the RightNow purchase, Taleo, a competitor to SAP's SuccessFactors, joined the Oracle family for $1.9 billion. Taleo is a boon for Oracle's cloud HR applications. As PeopleSoft customers are looking for upgrades, the Taleo purchase opens the door for Oracle to cross-sell. Taleo's talent management features compliment Oracle's Fusion HR management system.
Oracle is at times an "old school software company". The recent acquisitions show Oracle is moving into the future, paving the way for social relationship, and marketing management via the cloud. The overall strategy features software and platform (PAAS) offerings in combination with social collaboration tools. Both utilize Oracle's legacy database management systems.
Oracle boasts that it is the only vendor to provide both a cloud infrastructure and cloud-based applications. Competitors such as IBM (NYSE:IBM) have infrastructure, but no applications. SAP may have applications, but not the infrastructure. Oracle is targeting existing customers that want to switch to a SaaS model, as well as new customers looking to utilize cloud for customer relationship or human capital management tools. For many businesses it is a perfect solution to the constant patching and updating of software.
Oracle's strategy seems to be paying off. Oracle President Mark Hurd states SaaS revenues are in excess of $1 billion. Third quarter results appear as expected. Revenue rose a little more than 3%. Growth is up by 7%, spurred by Oracle's business software. Database licenses rose up 9%. Operating income rose 11%. Data information continues to drive Oracle's market. Not many companies can match Oracle's vast array of data gathering, organizing, analysis and decision-making software packages.
Oracle's plan to meld social marketing with its legacy applications is on target with what the market is asking for. The convergence between marketing and technology is transforming the way companies conduct business. Chief marketing officers will most likely spend more on information technology than the company chief information officer.
The demand for platforms that connect a social media strategy with technology will require new innovations, sustaining customers and creating a responsive reflex on the part of business organizations. Technology infrastructure will be the bridge connecting all the parts. It is a delicate balance of managing risk, meeting compliance obligations, and collecting and gleaning insights from various data sources.
Is Oracle too late to the cloud? Not in the least. Oracle is in a unique position. It can provide businesses a hybrid model, both traditional legacy software and cloud computing. Transition takes time. Many businesses maintain huge capital expenditures in their information technology infrastructure and will not move from these types of systems until such time as it no longer meets the company's needs. As businesses add new options, companies will most likely look to cloud computing. Oracle has wisely set in motion a strategy that will continue to move the company strongly forward as technology evolves and changes.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.