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Oracle may be collaborating on software rentals

The software maker, which rents its business applications via its own Business Online subsidiary, may be turning to other distribution channels.

In light of a recent deal, could Oracle be rethinking its software rental plan?

The software maker has repeatedly said it will only rent its business applications via its own Business Online subsidiary. But last month the company quietly inked a deal with Portera, an application service provider (ASP), to make Oracle's software available to a select group of customers. Portera plans to host its financial, human resources and purchasing software, the company said.

Oracle denied that the deal contradicts earlier statements by its executives--including chief executive Larry Ellison--that it will not partner for software rentals.

"The (Business Online) strategy hasn't changed," said Tim Chou, president of the unit.

But analysts see the move as an indication that Oracle needs additional avenues to reach potential customers, especially as competitors push into the market.

Stan Lepeak, an analyst at market research firm Meta Group, said Oracle's strategy is limiting and may hurt the company.

"Applications are becoming commodities," he said. "Certainly Oracle wants to be an ASP but don't want to limit their commodities by limiting (customers to just Oracle)."

David Boulanger, an analyst at AMR Research, said Oracle is discovering that alliances with ASPs are essential.

"Oracle's ASP model is flawed," he said. "The model for success is moving toward partnerships...(software makers) need to partner with both application hosters and systems integrators."

Oracle rivals such as SAP, PeopleSoft and J.D. Edwards have teamed with ASPs such as Corio and USinternetworking in addition to setting up their own practices.

ASPs host software ASP middlemen try to simplify the market so customers don't have to install and manage it themselves. People access the software from their desktops, and it is typically remotely monitored from a data center. Customers pay outside providers to run everything from complicated enterprise software installations to more common desktop applications, which are often difficult to maintain.

Business Online's Chou said the Portera agreement is different from an application hosting deal because Oracle is licensing software that will add "value" to Portera's existing offerings strictly for the professional services marketplace. He said Portera will only offer Oracle applications to a sliver of the potential hosting market.

Bill Martorelli, an analyst at Hurwitz Group, said Oracle's strategy is unusual because the company is partnering with a broad market ASP that could give it additional ways to attract customers.

"This is quite different than Oracle partnering with a Corio," Martorelli said.

Analysts say it will be necessary for the company to rethink its Oracle-only rental plan if it wants to gain the customer base it needs to survive in an overcrowded market.

"It's challenging enough to find customers in this area, particularly for hosted ASP-style (applications)," Martorelli said.

He added that all business software companies will continue to struggle with attracting customers because the model is in its early stages and constantly evolving. The jury is still out on which ASP strategy is the best, he said.

AMR's Boulanger added that SAP, which has existing software rental partnerships with Corio, eOnline, Applicast and others, is snagging more customers because of these multiple outlets.

While the ASP market is still in its infancy, it is expected to grow to $2 billion by 2003, according to market research firm International Data Corp. Huge projections from research firms has driven participation from a range of technology providers. Companies such as hardware and software makers and even telecommunication companies have recently staked claims in the field.

Still, customers have been slow to embrace the model, which is why analysts say Oracle needs to broaden its strategy.