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Can NetSuite Take Oracle to $10 Billion in SaaS Revenues?


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It is a bit of a surprise that Oracle ( ORCL ) is still trading near its all-time high, especially since the companyAAAs revenue has been relatively flat since 2012. The growth of the cloud industry directly impacted OracleAAAs traditional business model, selling hardware and software to enterprises that manage their own infrastructure and the company is now fighting tooth and nail to reinvent itself as a AAASaaS companyAAA, in the words of Larry Ellison, former CEO.

The database king realized its mistake of staying away from the cloud business and jumped into it with both feet a few years ago. More recently, they bought NetSuite AA ( N ) , in which OracleAAAs co-founder, Larry Ellison, owns about 45.4% of common stock. The move was intended to add a bit more muscle to their cloud push, especially in the SaaS space where chief rival Salesforce.com ( CRM ) sits with the worldAAAs most popular CRM application. On the other side of the fence is also SAP ( SAP ), the world leader in Enterprise Resource Planning (ERP).

T hat is two major players to contend with at this point and NetSuite could be the edge they have been looking for in the fight against Salesforce and SAP.

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What are the implications of the NetSuite deal?

AAANetSuite is really pioneering cloud and this will certainly add to Oracle,AAA said Bill Kreher, an analyst at Edward Jones & Co. AAAI think acquisitions are certainly consistent with the companyAAAs long-term pedigree and strategy. YouAAAve got to pay for that type of growth.AAA

- Bloomberg

But what is the real motivation behind investing $9.3 billion in a cloud-based company?

NetSuite is particularly strong on the Enterprise Resource Planning (ERP) front. According to the company, they are the most deployed cloud Enterprise solution in the world, with more than 30,000 companies spread across 160 countries.

Oracle is already the number two player in ERP after SAP, but they have half the market share than the German software company. The Global ERP market is expected to reach $41.69 billion by 2020 and the only real competitors in this space are SAP and Oracle.

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Now that NetSuite has joined hands with Oracle, they have a real shot at closing the gap with the industry leader SAP.

Why cloud-based?

With more and more companies ready to take the cloud route, offering services in the AAAas-a-service modeAAA is extremely important, because if you do not do it, someone else is going to. By buying NetSuite, Oracle can make sure that their offerings on the as-a-service model now cover all of their existing clients. That is one of the best ways to prevent market erosion and intense competition. Instead of waiting for someone else to come in and steal them away, Oracle has deftly bought a company that can bridge that gap and keep customers within the family, as it were.

On the CRM front, Oracle is in a head-on collision track with Salesforce, which has literally run away with the market. But Oracle is not going


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This article first appeared on GuruFocus .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Stocks
Referenced Symbols: ORCL , CRM , SAP



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