Oracle is forging ahead with its application outsourcing service, announcing 15 new customers as well as a host of partnerships with global telecommunications firms, Internet data centers, systems integrators and independent software vendors (ISV). The moves shift Oracle's ASP (application service provider) business from the "evangelisation" to the execution stage, according to one International Data Corp. (IDC) analyst.
Speaking at a press conference at the World Trade Center on Tuesday, Chief Executive Officer (CEO) Larry Ellison argued on behalf of the economic benefits of Oracle's application hosting service, in which users pay anywhere between a few dollars to $US695 per month to access applications from Oracle and partners via the Internet or private network. "Windows is no longer the most economical way to deliver software. The Internet is," Ellison maintained.
Outsourcing also offers the IT industry "economies of scale" by off-loading some of the labor, capital outlay and infrastructure from companies and their IT staffs, said Ellison, who also joked that such duplication of efforts is why the IT industry suffers from a labor shortage.
Ellison emphasised that Oracle's BusinessOnline strategy does not simply involve reselling Oracle applications. Instead, it hinges on partnering with ISVs -- and getting ISVs on board is Oracle's top priority. "We need to convince ISVs to build for the Web, not for Windows," Ellison said.
In a couple of years, half of Oracle's new application customers will opt for the service instead of purchasing the software, he predicted.
To ensure standard service levels, Oracle will not sell its applications to any other ASPs, according to Ellison. "We want one standard way of delivering services all over the world with standard data replication centers," he said.
Getting standard service -- as well as data -- across the globe was behind one international concern's decision to use Oracle's financial application via ASP. Pedro Mello, managing director of InternetCo Investments, a 20-person Brazilian-based company, said that the companies in which he invests can easily access financial information even as they set up international offices.
"I don't have to worry about it being 10 pm in Switzerland and the (IT) guy is asleep so I can't get the report," Mello said.
Mello was also pleased that getting users up to speed on the service took just weeks and a single person on his staff. "If I had three people working on [financial applications], that would be more than 10 percent of my workforce. ... If (the application) is taking a lot of time from me or my partner, then it's taking time away from my business."
However, standardisation may mean less flexibility for IT managers, as users can't change the underlying code. Meredith Whalen, an analyst at Framingham-based IDC, said she believes that since outsourcing applications takes some control away from IT, Oracle is finding a more sympathetic ear among business managers, for whom cost is more important than control.
Oracle's ASP strategy differs slightly from competitors PeopleSoft, SAP and J.D. Edwards, which are all partnering with outsourcing firms instead of providing the hosting service themselves.
Though in his presentation Ellison deemed Oracle the largest application hosting service provider in Europe and the Americas, Whalen believes it's too early to calculate market share, as the whole ASP market is still in its infancy.
However, application outsourcing may prove a significant revenue source. IDC forecasts that the ASP market, for enterprise software, will leap from $150 million in 1999 to $2 billion in 2003.