I guess we should be surprised that only three companies in the top ten IT companies (see the Goopple article) are application vendors; SAP, Oracle and Microsoft. Why? Well, because the only purpose of a computer is to run applications and for most organizations the valuable apps are the business apps.

Of the three companies, Microsoft is primarily an OS and Office Apps vendor with line of business applications (ERP, CRM, etc.) representing only a fraction of its actual revenues (estimates suggest revenues of roughly $900m – 1bn). Oracle was originally a database company and now divides its attention between software development and business apps, but is gradually building an infrastructure software portfolio. SAP has always been an applications vendor and is rightly regarded as the “incumbent” in this market.

1. Oracle is overtaking SAP and will continue to do so in 2008.

The difference in market cap alone indicates that Oracle is doing better than SAP right now (Oracle market cap at $119bn, Sap at $62bn as at Dec 28th). Reliable market share figures are difficult to come by. SAP leads in ERP, Oracle in CRM, but it seems that in license revenue terms the companies are roughly equal. Anyway, in this market, being “big enough and ugly enough” matters more than a few point of market share. No-one is going to feel vulnerable buying from either vendor.

In my view, the reason why Oracle is prospering is that it has a much superior strategic roadmap (which, by the way, it does not publish) and it is executing well to plan. The strategy could be summed up with the words “the stack, the whole stack and nothing but the stack”. Oracle has always had excellent development software, it is strong in BI, strong in ID management, strong in infrastructure management and it has its broad portfolio of applications. It also has a very successful SaaS operation, which gets less publicity than it should. Oracle is well oriented to the future.

2. The rise of Saleforce.com will continue.

The upstart in the applications market is Salesforce.com. The simple truth is that it is just a lot less expensive to implement a reliable SaaS offering than it is to run the software yourself. The difference is not minor either. According to Timothy Chou (author of The End of Software, former President of Oracle’s Online Services Group, and an old friend) traditional software such as SAP ERP costs in the region of $100/user/month to run, while SaaS (like Salesforce.com) costs around $10/user/month.

The disparity here is far too large not to have an impact. It explains why Salesforce.com has a market cap of over $7bn, while its revenues for the last financial year were only $497.10. Salesforce.com grew its revenues at over 60% last year and can be expected to continue to grow at this rate for the next few years. The business model is proven and now it only needs to focus.

Note: There are 7 forecast postings for 2008. The others are:
Forecasts for 2008: #1 Chips & Virtualization
Forecasts for 2008: #2 The Server
Forecasts for 2008: #3 The PC Market
Forecasts for 2008: #4 Google and the Cloud
Forecasts for 2008: #5 Communications Convergence
Forecasts for 2008: #7 Security