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A showdown over software

SAN MATEO, Calif. -- Oracle Corp. chief executive Larry Ellison knows all about battles with old friends.

After all, Oracle just pulled off high-profile takeovers of PeopleSoft Inc. and Siebel Systems Inc. -- a pair of rival software makers run by former subordinates who turned against him.

Now, Ellison is straddling another set of fractured friendships in a drama unfolding around Inc. and NetSuite Inc.

The pioneering upstarts -- conceived by a younger generation of Ellison's corporate progeny -- have been helping steer the business software industry in a new direction with applications that are accessed directly over the Internet.

Once considered a crazy idea, the concept of online, or ''on-demand," software has turned into a hot market as thousands of companies decide they would rather lease applications monthly than pay an upfront licensing fee and then deal with the costs -- and headaches -- of installation, maintenance, and the inevitable software upgrades.

Earlier this year, the research firm IDC estimated spending on ''software as a service" -- another euphemism for over-the-Internet corporate computing -- will double during the next five years, totaling $10.7 billion in 2009.

The rise of on-demand software already contributed to Siebel's downfall, driving the distressed company into Oracle's arms in a $5.85 billion sale expected to be completed early next year. Siebel boasted a $50 billion market value in early 2001 before its deep sales slide.

Ellison knows the on-demand market well. He invested early in and NetSuite in a show of faith in Marc Benioff and Evan Goldberg, former proteges who started their own companies during the dot-com boom of the late 1990s.

Benioff, 41, is the extroverted chairman and chief executive of San Francisco-based Salesforce. The more-reserved Goldberg, 39, is the chairman of San Mateo, Calif.-based NetSuite, leaving the CEO duties to Zach Nelson, yet another Oracle alumnus.

The corporate competition already has strained relations between Benioff and Goldberg, who first hit it off working together at Oracle 17 years ago. They eventually became so close that Benioff ministered Goldberg's 1998 wedding.

Benioff and Goldberg remain cordial enough to swap e-mails about a favorite television comedy (HBO's ''Curb Your Enthusiasm") but they have spent more time recently feuding over customers and bickering about whose company has carved the best market position.

The connections binding Oracle, Salesforce, and NetSuite add another intriguing twist to a looming showdown likely to include other industry heavyweights, SAP AG and Microsoft Corp.

Worried that on-demand software could threaten its dominant Office software and Windows operating system, Redmond, Wash.-based Microsoft recently reshuffled its management to delve deeper in Net-based applications.

Microsoft chairman Bill Gates and Ray Ozzie, the executive charged with leading online efforts, are expected to give more details about the company's strategy in San Francisco tomorrow.

Several lesser known on-demand vendors also figure to enter the fray. The most notable is RightNow Technologies Inc. -- a Bozeman, Mont., company that has enjoyed 31 consecutive quarters of revenue growth.

''I'm the only guy in this [on-demand] space that's not part of this dysfunctional family from Oracle," said RightNow CEO Greg Gianforte.

Benioff has been on-demand's chief evangelist, demonstrating a flair for showmanship that he picked up from the colorful Ellison. Although Benioff's flamboyance irritates many people, it's helped build into the largest and best-known of the on-demand vendors.

With 308,000 subscribers and counting, is expected to generate more than $300 million in revenue in its fiscal year ending in January 2006. The company's stock more than doubled from its June 2004 initial public offering price of $11, leaving it with a market value of about $2.6 billion.

That's just one reason Benioff seems unfazed by the backlash aimed at him and his company.

''We believe in the art of war," said Benioff. ''We are trying to get our competition to attack us with angry, virulent energy, so we can transform that into larger market share."

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