Page last updated at 00:02 GMT, Friday, 24 February 2006

In the software crusher

By Tim Weber
Business editor, BBC News website

Oracle, the US software and database giant, has a tried and tested policy for dealing with uppity rivals: it buys them.

Size is not an issue. Huge firms like Peoplesoft and Siebel have all succumbed to Oracle's advances.

So will - challenger not just to Oracle, but SAP and Microsoft as well - be the next takeover target? "In this case, I think it would be more fun to crush them," says Charles Phillips, the president of Oracle.

Headquarter: San Francisco
Founded: 1999
Staff: 680
Customers: 20,500
On-demand users: 399,000
Annual sales: $309m
Net profit: $28.5m
Earnings data for financial year to January 2006

Getting up Oracle's nose is's founder and boss Marc Benioff, himself a former top executive at Oracle.

Mr Benioff, a laidback Californian with a yearning for the beaches of Hawaii, giggles when he talks about Oracle's threat.

He professes not to be worried by his big rivals and reels off the advantages of's business model. offers "customer relationship management" (CRM) software that allows businesses to track and analyse all dealings with customers in real-time. It can smooth workflows, flag up problems and speed up the sales process.

Salesforce's twist: It provides its software exclusively "on demand", through a web browser over the internet.

Customers don't have to worry about installing and maintaining the software, database or technical infrastructure. Buy it as a service instead, says Mr Benioff, and save money to boot.

Small companies without huge IT departments benefit most, but large firms like AOL, Cisco, Nokia and Merrill Lynch have opted for's on-demand solution as well.

Mr Benioff, a master of the marketing sound bite, brings it to the point in his company's "no software" slogan and ghostbuster style logo.

The rush to market

"On-demand" has been around for a while, although it never really took off.

Marc Benioff, chief executive
Mark Benioff says in-house software is too expensive

But now - and smaller on-demand rivals like RightNow and NetSuite - appear to be on to something.

Growth is rapid, with sales at up from $96m two years ago to $309m during the past financial year, and annual net profits running at $28.5m.

The big players in the multi-billion dollar market for CRM software have taken note and launched their own on-demand products.

Siebel - now owned by Oracle - started offering online CRM services two years ago, while the global market leader in enterprise software, Germany's SAP, announced its own on-demand product at the beginning of February.

Microsoft wants a slice of the action too, with the roll-out of its CRM 3.0 application and tests of its new on-demand "Microsoft Office Live" product.

Mr Benioff, for his part, speaks of defensive moves by traditional software giants who worry that might put "their entire business model... at risk".

A 'disruptive model'

But can survive the onslaught of its well-funded competitors?

Mr Benioff believes his on-demand only approach will win the day, because his rivals try to trick customers with a "bait and switch".

Clients are lured with low-cost on-demand offerings, only to sign them up for more profitable on-premises solutions later.

Firms like SAP and Oracle, he says, "are not really committed to the [business] model" and therefore "not as committed to [on-demand] customer success as we are".

He may have a point.

Jesper Andersen, Senior Vice President at Oracle
Some businesses are not comfortable in putting all their mission-critical sales or financial information on the public internet
Jesper Andersen, Oracle

SAP makes no bones that it is offering an "on demand solution that can over time grow into an on-premises solution".

Microsoft also bets on a mix of on-demand and on-premises solutions, while over at Oracle senior vice president Jesper Andersen argues that customers probably prefer a hybrid of both solutions.

The big software firms, says Denis Pombriant, a CRM specialist and managing principal at Beagle Research, just "do not see the competitive threat of the disruptive model of Salesforce".

They want "to sell their expensive on-premises product, because these are the products that deliver the best returns for their shareholders".

Wherever he has run the numbers, Mr Pombriant says, on-demand has turned out to be cheaper.

The Achilles heel

So will businesses soon stop running their own software and subscribe to on-demand services instead?

Despite offering on-demand software themselves,'s rivals are keen to point out the two Achilles heels of the model.

The first is security: Do you really want all your financial and customer data on somebody else's server?

"Some businesses are not comfortable in putting all their mission-critical sales or financial information on the public internet," says Oracle's Jesper Andersen.

And Leo Apotheker, SAP's president of customer solutions and operations, warns that most customers "don't want on-demand because it's not under their control". dashboard screenshot
On-demand software can be as fast as in-house applications, says

Denis Pombriant at Beagle Research does not agree: "The on-demand industry has shown that it has better [data] security than most of its customers."

The second issue - reliability - is much more worrying.

Will company bosses still be a fan of on-demand software once their network, their on-demand service provider or the internet itself suffer major outages? annoyed plenty of customers when late last year the launch of a new data centre went wrong and triggered several long service outages. Oracle describes it as "crushing itself".

Marc Benioff, who usually speaks with the zeal of a missionary, suddenly sounds contrite: "The past six weeks were an unfortunate period."

But he still insists that his firm's on-demand services "have a much higher reliability than most people with on-premises applications".

After all, being online and available is "our core competency, we do it better than anybody else," he says.

To calm customer nerves and counter bad press, he has launched the website, where everybody can check the status of the company's data centres.

Rod Favaron, chief executive of Lombardi Software, says that despite the outages he is a happy customer.

For him the on-demand model makes economic sense and works as long as the software in question "does not need to be integrated into the customer's infrastructure".

One-trick pony

But can CRM-specialist be more than a one-trick pony?

Unlike SAP & Oracle, the company does not have the reach or resources to develop and provide the full and integrated range of enterprise software solutions that larger businesses demand.

Leo Apotheker, SAP's president of customer solutions and operations is not even a rival
Leo Apotheker, SAP
Mr Benioff hopes a new application-sharing service, called AppExchange, will do the trick.

It is a platform for customers, software partners and itself to write and share customised on-demand software solutions.

It promises to extend's service into highly profitable sectors like healthcare and human resources.

"We have a desire for our customers to use our product more ... [and] with these apps it makes sense for customers to buy more [subscriptions]," says Mr Benioff.

The real battle

But will it be enough to challenge the big players?

Oracle for one doesn't take the AppExchange very serious. It offers a few "nice toys", says Mr Andersen, but no truly customised applications.

SAP's Leo Apotheker is even more scathing: " is not even a rival."

"We specialise in delivering mission-critical solutions," he says, where customers can't rely on the vagaries of on-demand.

" reminds me of Siebel three or four years ago. Today Siebel doesn't exist anymore."

To Oracle and SAP it probably doesn't even matter whether grabs market share at the edges of the CRM business.

You don't have to be large to win battles in the technology industry
Marc Benioff,
They are fighting a much bigger battle for domination of the hugely profitable market for enterprise software, which according to SAP will be worth $70bn by 2010.

Oracle has grown its market share rapidly by buying up smaller rivals.

SAP in turn has used the turmoil to sow doubt amongst Oracle's customers, marketing itself as the company that is immune to the disruption a rapid series of mergers can bring.

The battle has turned nasty, fought with fierce but impossible to verify claims and counterclaims about customers won or lost.

SAP says it has scooped up more than 200 Oracle customers and a pipeline of defectors that according to Mr Apotheker "is significantly larger than that".

Oracle's Jesper Andersen calls these claims "complete baloney ... ridiculous, untrue." In some markets and industries, he admits, SAP is doing better, but says that in others it is constantly losing out.

The art of software war

Maybe this is Salesforce's opportunity. While the giants fight, it can steadily grow its on-demand niche and turn it into a huge market.

"When rivals who have long dismissed our model finally embrace on-demand, minds and markets are opened to us," says Mr Benioff.

Even SAP's Leo Apotheker acknowledges that the "on-demand party has just barely started".

Mr Benioff quotes the "Art of War", written by the ancient Chinese general Sun Tzu and a favourite read with many managers.

"In the military more is not better, you don't have to be large to win battles, and that's true in the technology industry as well," says Mr Benioff.

Maybe. But Sun Tzu also wrote that "though an obstinate fight may be made by a small force, in the end it must be captured by the larger force". must hope that not all Chinese wisdom applies to the software industry.

The $60bn software battle
13 Apr 05 |  Business
Net's biggest changes loom large
23 Sep 05 |  Technology
Microsoft hails 'strategic shift'
02 Nov 05 |  Business

The BBC is not responsible for the content of external internet sites

Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit


Sign in

BBC navigation

Copyright © 2019 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific