Oracle fine-tunes rental software plan

Analysts hope that Oracle will announce a clearer software rental strategy that will appeal to information technology buyers looking to cut up-front costs. For some businesses, software rentals could be considered a cheaper alternative in the short term to installing and maintaining applications themselves.

But some expect that for Oracle, like other companies in the growing market, the magic formula for software rentals has yet to be found--and this won't be the last time the company rethinks its rental strategy.

Oracle executives have said they expect it will take at least a year for software rentals to catch on with customers.

"What Oracle is doing is what a lot of vendors are doing--floating a trial balloon to see what is going to be adopted by their customers and what's going to be attractive to them," Gartner analyst Karen Peterson said.

The software maker is expected to introduce a new plan for its Oracle.com service for rental and usage of its software over the Web. Oracle said in a statement that it will "unveil new online business strategies centered on hosting and Oracle.com," but would not disclose further details.

Sources familiar with the Redwood Shores, Calif.-based company's plans said Oracle is expected to detail different delivery possibilities Tuesday for its hosted software. The company is expected to tout a flexible support model that gives companies several options to rent Oracle software as a service.

Oracle can handle as much as the complete package--hosting the application and the hardware that supports it--or offer other options such as hosting the software for the company while the customer runs the servers and hardware. The idea is to provide a range of delivery options that suit various companies' needs.

Oracle, along with most players in the market for hosted software applications, has not been able to find a model that attracts large numbers of buyers. But Oracle clearly sees huge potential in hosted software. The company has said that its ultimate goal is to provide all of its software as a service over the Web.

"Even though the idea is three years old, it's still an unfamiliar concept to most people," Meta Group analyst Dan Sholler said. "This process was always going to take quite some time. There are basic trust issues that had nothing to do with technology per se, but the feeling (from companies) on whether they want to allow critical information to exist somewhere else. That's a big step for companies."

Earlier this year, Oracle trumpeted its new Oracle.com brand name for its software rental hub, where customers can gain access to all of the company's software. It also acts as a portal site for business information created by Oracle and its content partners.

The re-branding effort replaced Oracle's earlier attempts to tackle the ASP (application services provider) market through its Business Online division, also known as Oracle BOL.

"There has been a lot of tweaking on the part of all major hosting providers," said Bill Martorelli, an analyst with Hurwitz Group. "Oracle's (ASP plan) is somewhat of a lightning rod for discussion and subject to a lot of criticism, but the fact of the matter is everyone is trying to push the right buttons."

ASPs gained early popularity based on a simple idea: Customers would prefer not to install or manage software--a process that is time-consuming, expensive and complicated. ASPs would host the applications that customers could access from any desktop for a fee. Seeing the potential dollar signs and opportunities to tap a whole new segment of customers, Oracle, along with rivals SAP and PeopleSoft, jumped on the bandwagon to offer this type of service.

The road has been bumpy for many ASPs, including Oracle. What was then known as the company's BOL division was criticized by analysts for a proprietary strategy of hosting and renting only its software to its customers. Later, the database software giant quietly shifted gears by teaming up with a slew of ASP partners that would also host and rent Oracle software.

Dave Boulanger, an analyst with AMR Research, said it is still unclear whether Oracle is doing anything completely different by introducing a new brand name and hosting strategy via Oracle.com.

Oracle.com "is BOL with a different name," Boulanger said. "Oracle is going to have the same problems they had two years ago with BOL that they still have today."

While Oracle is attempting to make things easier by providing its applications to customers over the Web, typical Oracle customers that buy Oracle software want a "robust, rich application, not a vanilla, out-of-the-box one," he said.

Analysts say Oracle's biggest problem is finding customers willing to try its rental plan.

Although the software-as-a-service model is thought to be easier and makes sense, many customers have been slow to latch on to the new concept, primarily because they are still unfamiliar with it and are wary of changing the way they have been using and buying software for years.

Since the debut of Oracle.com, the company has been steadily adding new business software services.

Earlier this month, the company announced a new bundle of software and services intended to help companies get up and running on a purchasing system within 30 days. Oracle is hosting the application for customers, who can access it via Oracle.com.