Oracle pins future success on Web services model

The company announced several initiatives that will offer the applications and network framework for buying and selling products and services over the Internet, a move that the company's CEO Larry Ellison said will attract new sources of revenue for Oracle and transform the software industry.

"We have no choice," Ellison said. "The only companies that will be successful at delivering online services will be software companies."

The company made two announcements supporting this shift to the Internet. One is an extension of its hosted software business to small and medium-sized companies. The second is a push to work with new partners to host, manage and distribute services via the Internet.

"Our movement from software to the Internet is so significant," said Tim Chou, president of Oracle.com. "This is changing the fundamental idea of the software business."

Oracle has offered hosted software packages, or software as a service, for about a year with large corporate customers including General Electric through its Oracle eBusiness Suite. The company extended that to businesses with fewer than 100 customers and revenue less than $US50 million.

"I think the eBusiness Suite is a wonderful idea for big businesses," Ellison said. "But it's the only thing that makes sense for a small business."

To support those small businesses, Oracle launched its Small Business Suite Tuesday, offering financial services such as accounting and transactional services through a Web portal powered by NetLedger, a company whose majority investor is Larry Ellison. Oracle will use NetLedger's financial services applications such as bill payment, Web store, sales invoicing, call center, payroll, purchasing and other accounting functions. All of these functions will be accessed as Web services and paid for through a monthly fee.

"It's a huge new source of revenue," Ellison said. "It will increase our ability to sell more software and we will have a whole new source of revenue through a monthly fee to run the software and host it on Oracle's hardware."

Hosted services will outpace software sales in revenue in five years, he predicted.

The small business service also allows third-party vendors to link their online stores into corporate procurement systems. New partners to do that include content providers such as Yahoo and business services from airlines and online map companies. New partners for hosting those services will also take root under the new strategy. Oracle has already begun partnering with hardware makers, data center providers and telecommunication companies that will build the infrastructure and deliver the services. To facilitate this, Oracle announced its Online Partner Network, to offer development assistance and access to its software.

"We do believe that this is the next wave that's going to hit," said Samir Arora, chief executive officer of NetObjects a Web services infrastructure provider that will become a new distributor for Oracle's online services products.

The announcement parallels a similar strategy from Microsoft which has been increasing its offerings to small businesses through its bCentral Web site, an initiative that grew through Microsoft's acquisition of Great Plains Software. Like Oracle's new hosted software package, bCentral offers content and third-party services to small businesses that run their financial applications on the Web site.

"This is, in effect, a direct assault to Microsoft's bCentral," Ellison said.

Oracle also said it is changing its policy where companies can house the hardware for serving software and services over the Web. Oracle will now allow its customers to store their servers in house, through a certified third party, in addition to offering the traditional model of hosting at Oracle's facilities.

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