Oracle building momentum in eSourcing software market with new SaaS products

On the strength of its E-Business Suite, Oracle's fortunes continue to rise in the eSourcing arena, according to Forrester

On the strength of its E-Business Suite, Oracle -- along with Ariba and Emptoris -- has maintained a leadership position among eSourcing vendors, according to a recent study issued by Forrester Research Inc.

All three companies remained at the top of the heap thanks largely to their support for global program management and advanced sourcing techniques, according to the report.

While Ariba and Emptoris continue to nail down the top two spots, both Oracle and SAP are rising fast and have become significant players. Forrester says the two companies together have captured 38% of the market, and they figure to improve that number on the strength of newly focused ePurchasing product management teams, coupled with the anticipated ability to leverage their respective ERP user bases in larger accounts.

Besides Oracle and SAP, only Emptoris has significant sales of on-premise licenses, although those sales are measurably declining. The other eSourcing vendors are now almost exclusively Software as a Service (SaaS). The study notes that a hosted model is best suited for eSourcing because it gives users the ability to run events in a proof-of-concept project before they make a decision to deploy it in production.

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 Many eSourcing software vendors and IT shops still lean toward on-premise, but it is inevitable that SaaS will become the dominant model for new sales, the report states, mainly because it makes it easier to upgrade with less upfront investment.

Oracle probably helped itself to stay among the leaders when, earlier this month, it released its Oracle Sourcing On Demand, an offering intended to bring a faster return on investment.

The offering is based on Oracle's Sourcing and Oracle Sourcing Optimization and will be part of the Oracle E-Business Suite Release 12. Oracle officials believe the offering will serve to shorten upgrade cycles and eliminate certain privacy and security restrictions, thereby reducing the cost of hardware.

The new Oracle product shipped too late to be included in the Forrester report, but Duncan Jones, senior analyst of sourcing and vendor management with the Cambridge, Mass.-based research firm, said the product is a step in the right direction for Oracle.

"This is good because it's the preferred option for most new deals in eSourcing right now. It's not a true SaaS offering, because each client gets its own instance, but it does allow companies to get started with the technology faster and more cheaply than the old perpetual-license, on-premise model," Jones said in an interview with SearchOracle.com.

There is, however, a downside to the product, he said. Users will not get the full range of services they can get from Ariba's offering, although Oracle is claiming it offers supplier support, including how to place bids and passwords.

"This is important, because it's always in the last 10 minutes of a sourcing event that a supplier forgets its access password to your website," Jones said. "And enterprises don't really want to create a whole user support function for their suppliers just for this eventuality."

There is also the commercial risk of becoming increasingly dependent on a vendor with which it's notoriously tough to negotiate, Jones said. "So you'll want to lock prices in for as long as you can to guard against future hikes."

The report notes that effective eSourcing software has been instrumental in saving IT shops significant amounts of money on core products and technologies by allowing them to negotiate online with their suppliers -- no small consideration during the current recession, where every dime is being squeezed.

eSourcing products have become responsible for a number of other tasks besides automating sourcing processes, including combining transparency with optimized analysis of complex bids. This makes it possible for IT shops to save more money than they could by using more traditional manual methods.

For instance, the study cites the example of eSourcing's greater transparency resulting in saving money for the chief purchasing officer (CPO) with one of the world's largest brewers.

The CPO explained that, in the past, a group of three suppliers had purposely kept prices high, which served to discourage smaller competitors. However, the transparency offered by the eSourcing product he was using helped convince new competitors to place bids, which in turn forced the group to break up, as the existing members tried to compete against the newcomer.

The study suggests that CPOs should more frequently analyze their overall eSourcing software strategies and more closely evaluate whether or not their existing tools are producing the expected savings.

The majority of eSourcing software products available are based on a SaaS model, the report notes, which makes it easier for companies to move up to a better product with less upfront investment.

Cliff Godwin, Oracle senior vice president of application development, said: "Increasingly, we see sourcing capabilities able to deliver an immediate impact to an organization's bottom line, helping offset the effects of shrinking revenue."

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