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Are Oracle's SaaS and cloud computing efforts all over the sky?

Cloud partnerships with Amazon and Intel, a new data center in Utah and its own SaaS applications have left some puzzling over Oracle's strategy.

Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?
Larry Ellison

Oracle's SaaS and cloud computing efforts seem to be scattered across the sky -- the company is partnering with, buying data center space in Utah, partnering with Intel, and has in fact already been hosting solutions for its customers for years.

So what does the future hold for Oracle? Might the company find it easier and more attractive to sell to other SaaS vendors and let them do the heavy lifting? Or will it offer solutions direct from the cloud to its own customers?

The very definitions of -- and distinctions among -- SaaS, on demand, and cloud computing have become increasingly muddled. SaaS is software offered as a service via the Web, usually via a subscription model, and it is generally understood to work in a multi-tenant environment where multiple customers share space on the same server. Cloud computing is just another metaphor for abstracting the delivery of IT-related services -- applications, management, storage and so on. And the so-called "cloud" itself is just the Internet. All of these terms essentially cover a shift from a company running its own hardware and software from its own physical location to another service-provider location.

A mixed history

Rob Enderle, principal analyst for the Enderle Group, sees a mixed Oracle response to SaaS/cloud computing.

"Oracle is being dragged into the new model," he said.

Indeed, one of the key reasons organizations move to SaaS is to reduce their costs, and cost reduction presents all sorts of problems for a company like Oracle, which banks on annual maintenance fees and license renewals -- spoils of its aggressive multi-year, multi-billion-dollar acquisition spree. Companies turning to SaaS aren't going to want to pay for traditional maintenance and support.

Still, Oracle's founder, Larry Ellison, saw the winds of change back in 1998 when the company announced its first major On Demand initiatives, which started Oracle hosting and renting third-party applications. Ellison also funded NetSuite, a provider of CRM, ERP and e-commerce SaaS applications and was an early backer of

That didn't stop him from expressing disdain over "cloud computing" at Oracle OpenWorld at a meeting with analysts.

"We've redefined cloud computing to include everything that we already do," Ellison told the Wall Street Journal. "I can't think of anything that isn't cloud computing with all of these announcements. The computer industry is the only industry that is more fashion-driven than women's fashion. Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?"

Been there, done that

Chuck Rozwat, executive vice president of product development at Oracle, echoed Oracle's clouded history at OpenWorld.

"You can look at the cloud as an outgrowth of what we've been doing for 10 years with on-demand computing," Rozwat told reporters.

For years, Oracle has been offering customers the option of running their systems on Oracle's internal servers and storage systems -- on-demand.

"To a certain extent, we've been offering our own internal cloud, not just at a hardware level but also managing our software and doing upgrades and patches and migrations for our customers," Rozwat said. Oracle also offers remote management of its own applications on a customer's site and any variant in between.

"I guess you can call that the cloud," he said.

Enter Siebel and SaaS

Oracle bought its way into SaaS with its acquisition of Siebel, which itself had purchased UpShot, an SaaS CRM application.

"Oracle has been a little hesitant to push the SaaS model beyond that," said James Holincheck, an analyst with Stamford, Conn.-based Gartner. "I think, ultimately, Oracle will monitor the market conditions, and in markets where customers want SaaS, they will either look to provide their own or look at acquisitions to provide those offerings."

While many analysts expect SaaS/cloud offerings to become a dominant form of delivery in years to come, transitioning is not without some risk -- and Oracle is likely to be more aware of the risks than anyone else.

"Despite Larry Ellison's provocative cloud comments, I think Oracle's position remains unchanged," said Charles King, principal analyst for Pund-IT. "That is, as a database and business applications vendor, Oracle can provide robust software and middleware for enabling cloud-based hosted solutions."

"The problem for the company is that if the cloud model evolves as many expect it to -- as an increasingly powerful delivery mechanism of essentially transparent services -- it's likely to erode the value of Oracle's brand. After all, if all you want is a database or business app delivered SaaS-style according to a specific service-level agreement, does it matter if it's Oracle-based? Along that line, if you can get a cheaper database solution with the same SLA, will you stick with -- or go to -- Oracle?"

Looking to the channel

Oracle has also turned to SaaS through ISVs that adopt Oracle's SaaS Platform as the basis that lets the ISVs deliver their own SaaS offerings. Oracle has dozens of partners operating in various industries, such as SPS Commerce in the supply chain/manufacturing/procurement segment and In2M for financials.

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On a deeper level, Oracle's efforts to provide its own virtualization products have been setting up the company for SaaS success. Once customers are comfortable with virtualized implementations of their Oracle stack, moving to an SaaS/cloud model becomes less of a hurdle. If a customer trusts a virtualized implementation, the next leap is simply trusting Oracle to host it.

What's in the works right now?

Oracle floated its cloud plans at OpenWorld, making Database 11g, Fusion Middleware and Oracle Enterprise Manager available in Amazon's Web Service Elastic Compute Cloud (Amazon EC2). Partnerships with other cloud providers will probably follow.

Oracle is also providing a set of free Amazon Machine Images (AMIs) to help customers set up Oracle Database 11g, Oracle Fusion Middleware and Oracle Enterprise Linux "fully configured and ready to use within minutes."

Oracle also introduced a secure Cloud-based backup solution called Oracle Secure Backup Cloud Module, which is based on Oracle's tape backup management software, Oracle Secure Backup. It lets customers use the Amazon Simple Storage Service (Amazon S3) as their database backup destination, giving them virtually unlimited storage with little up-front capital expenditure.

Intel on the Inside

Intel and Oracle are currently working on technology and standards to make cloud systems more efficient and secure. Not only will the collaboration benefit Oracle's own SaaS/cloud efforts, it has a direct aim at enterprises that aren't ready to send their data to third parties.

"Oracle understands that enterprises would like the flexibility of choosing to run their enterprise systems in either private or public clouds, but in order to do that, cloud computing needs to be highly efficient, secure and standards based," said Robert Shimp, vice president of Oracle's Global Technology Business Unit.

Intel's collaboration also brings to mind a little side project in Utah.

Adding to all this, Oracle announced in May that it would build a "Global Information Technology" facility in West Jordan, Utah, dropping $285 million on the initial build-out. At the time, Oracle president Safra Catz said the new facility would help support Oracle's growing On Demand business, as well as provide technology infrastructure to support Oracle's research and development and customer service requirements.

The facility is slated to open sometime in 2010, which is also when Oracle's suite of Fusion Applications is expected to be in play in the market.

Bringing Oracle's cloud strategy together

"As sales opportunities grow among SaaS vendors, I expect Oracle to be right in there with every other ISV. In fact, they'll need to do a lot more deals like the one with Amazon to make sure they keep a place in the pack," King said. "But frankly, it'll likely be years -- or decades -- before software sales to SaaS vendors outweigh sales to individual companies."

Still, regardless of Amazon and Oracle's likely new SaaS/cloud partnerships, Oracle's Utah facility points to investment for the future.

"I do not see Oracle ceding too much account control to SaaS providers," Holincheck said. "In terms of infrastructure and DB software, Oracle wants to provide what they need to be successful regardless of delivery model."

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