Oracle succumbs to Salesforce and Google models

The old line software companies like Microsoft (MSFT) and Oracle (ORCL) have always favored the idea of their products running on their customers' computers and servers.

The notion of "remote computing," where the customer has access to the products over the internet, scares firms like Oracle because clients may be tempted to use only the parts of the software offerings that they need, instead of licensing a whole package.

The internet-based model also moves maintenance costs from customer to supplier, creating additional expenses for Oracle, which has many large enterprise customers.

But progress waits for no man. Oracle will begin to offer server-side software so that its clients can run its products from remote locations. According to The Wall Street Journal, "The software giant is working on seven new online products, including offerings to help business run sales campaigns, keep track of employees and job applicants." Industry research firms say that this new model may compress margins as Oracle picks up the costs of servicing its own software at its own expense.

The model of remote software access has been championed by Salesforce (CRM) and Google (GOOG), which see it as a way to lure customers from their larger and more established rivals. But a move in this direction could hurt margins across the industry, an unintended by very real possibility. Once companies that license software start to lose their maintenance contract income, their revenues will tend to fall and their costs to support the software will tend to rise.

The enterprise software business is about to get a lot less attractive.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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