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Oracle purchase of Taleo indicates rising SaaS trend

Oracle has spent $3.4 billion on Taleo and RightNow in the past few months, showing that it is serious about hosting applications in the cloud for its customers.

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Oracle’s $1.9 billion acquisition of Taleo signals an increased trend to offer IT users business applications based in the cloud, experts said.

Taking into account the$1.5 billion RightNow acquisition, Oracle has decided to spend almost $3.4 billion on cloud-based customer relationship management (CRM) and human capital management (HCM) software in the last few months.

Jeff Kaplan, managing director at IT consultancy ThinkStrategies, said the size of these deals is a “clear indicator” of how important this market is.

“This is the latest indication that the movement to SaaS or cloud-based applications is growing rapidly,” he said. Kaplan added that acquisitions by SAP of SuccessFactors and by of Rypple show that “the next battlefield in the SaaS and cloud world is human capital management.”

Connecticut-based consultancy Gartner Inc. estimated that SaaS revenues would be about $12 billion in 2011, with projections for it to top $20 billion by 2015. Yet some concerns still exist, particularly around data privacy. According to a recent reader survey, about half of Oracle IT users are not interested in hosting or cloud services. Numbers are similar for a recent survey.

“People are still paranoid about their data,” said Floyd Teter, an Oracle ACE director and applications consultant at Innowave Technology.

“In this business, software vendors drive change because it’s an opportunity to make money,” Teter continued. “And, you know, right now it’s all about let’s move to the cloud.”

That said, Teter said he does expect more IT shops to move toward SaaS, the cloud and hosted options, particularly for the IT infrastructure and staffing savings involved.

So why doesn’t Oracle just refashion its own in-house CRM and HCM applications for the cloud? According to Kaplan, it just not that easy. He said that the “DNA of these offerings is entirely different.” Oracle has attempted to try to host its legacy applications to satisfy demands to SaaS, but Kaplan thinks the hosted version of a legacy application often falls short.

“SaaS is multi-tenant and user-centric, and so while it’s possible to transition your legacy applications to a SaaS model, not many people have succeeded in doing so,” he said. “It’s riddled with pitfalls.”

Kaplan expects the Taleo technology to be merged in some fashion with Oracle’s existing HCM products. Taleo’s approximate 5,000 customers, meanwhile, should be vigilant about watching how Oracle changes how Taleo is packaged, delivered and priced. Kaplan added that Taleo customers should keep an eye on the personnel issues that inevitably arise with any acquisitions, to see how many Taleo employees don’t move over to Oracle, and how that might affect the Taleo technology.

On the flipside, Kaplan said that if Oracle can successfully integrate Taleo’s products with its own, it may offer benefits to Taleo customers who are already running Oracle database or applications.

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