Oracle expands hosting services

More than 200 out of 12,000 e-business application customers have hired Oracle to host one or more of the accounting, human resources, manufacturing or other software components included in its software suite--up from 10 customers two years ago.

Oracle expects that figure to reach 3,000 in 2006, generating $1 billion in additional services revenue for the company. Oracle is looking for new sources of revenue since competitors have begun to seriously chip away at database and business applications revenue, causing the $11 billion company to miss sales targets for the last several quarters and lower prices.

Oracle plans to introduce hosting services for its database and application-server products next month. Though the company has already unofficially offered to host those products without the e-business applications running on them for the last year, it will make a concerted push to sell the services, with standardized pricing and terms, according to Timothy Chou, president of e-business suite outsourcing.

The company first introduced hosting services more than two years ago as a separate unit called Oracle Business Online, but the program met with limited success. Oracle has renamed and relaunched the service several times in an effort to promote it, but the message to customers remains essentially the same: License Oracle's software as you normally would, but let Oracle set up, house and maintain the software for you, as well as provide the hardware for 3 percent to 5 percent of the cost of the software per month.

Oracle says the cost of the service is roughly half of what a company would pay staff, database administrators and consultants to maintain the applications on their own.

Few customers have purchased the service, however. Chou said this was because, until recently, Oracle sales people were not adequately compensated for selling the service, and Oracle's 5,000 customer support staff had not been trained on the new model, which is very service intensive. That's all changed over the last nine months, he said.

"We have moved this from being an outpost to being mainstream," Chou said.

But success of the program hinges on more than Oracle simply getting its own ducks in order. Most corporate IT departments have yet to bite on the idea of letting software companies or start-ups host their business applications over the Internet. Many worry about the reliability and responsiveness of the hosting company when problems arise. Some say there is a trade-off in how much one can customize and integrate a hosted application with other software a company uses.

Large companies that already employ teams of database administrators and application experts may question the cost savings of farming out a few applications. That's why most of the companies using the Oracle hosting service are midsize businesses, with less than $1 billion in annual revenue, according to Chou.