Rackspace CTO: Oracle and SAP are starting to panic

Software giants SAP and Oracle are "panicking" about their late entry into the cloud market, and remain too reliant on on-premise software integrations, according to John Engates, CTO of cloud provider Rackspace.

Engates said that SAP's recent acquisition of software-as-a-service (SaaS) company SuccessFactors and Oracle's acquisition of RightNow are an indication of the vendors' intentions for 2012.

"If we think about software, the bigger guys are really going to have to get their cloud stories together. Oracle and SAP, both incumbent software vendors, are almost at the point of panic," Engates told Computing.

"This is why you are starting to see these software-as-a-service acquisitions, and there are likely to be more over the next 12 months."

Engates believes that customers of SAP and Oracle are demanding a clear cloud roadmap following the success of SaaS companies, such as Salesforce.com.

"The guys at Salesforce are shouting from the rooftops about what they are doing and about why customers shouldn't be doing it the old way," explained Engates.

"If SAP and Oracle don't have a roadmap that incorporates public cloud, then their customers will tune out. They don't want the old products repackaged," he added.

"Acquisitions help this because they can highlight it as proof that they are on the right path. Software in a box just doesn't resonate with customers anymore. They want to pay by the user, the ability to scale up and access to continuous upgrades.

"It's a totally different model to on-premise."

However, it is unlikely that SAP or Oracle will be adopting an entirely cloud-focused business model anytime soon, according to Engates, as it will be too hard for them to do.

"SAP and Oracle are addicted to the old revenue model, where their sales guys are out and generating lots of money through big integration deals," he said.

"It is too difficult for them to become a SaaS company, which is why it is much easier for them to acquire. But they will keep these companies in isolation for a while and then - over time - figure out how to integrate them.

"It's going to be hard for them to bring these two very different business models together, and I don't envy the position they are in.

"These companies have a lot of cash but this doesn't allow you to transform your company over night."