A Thought on Oracle’s Price Increases and Salesforce.com’s Margins

Colin brought up some interesting points about vendor lock-in and the recent price increase by Oracle and SAP, etc. There will definitely be a lot of CIO’s forced to re-think their 2009 budgets and strategies…

But what I will be more interested in seeing is how this affects the older SaaS providers like Salesforce.com, who have built their SaaS infrastructures on the likes of Oracle databases and other proprietary components.

I mean, Salesforce.com already has razor thin margins for a software company at less than 3%. (And let’s face it, the high margins of SAP etc. are usually to offset elongated rainy days like the ones we could be seeing very soon.) So, if Oracle and other Salesforce.com suppliers raise their prices, how will this affect these already diaphanous margins?

Proprietary SaaS providers have been labeled as insulated from a recession, as it is easy to simply drop prices with little effects on operations – any businesses is good businesses, etc. But a public company, already under tight scrutiny for an inability to build strong profit lines, may be severely hampered if it continues discounting heavily and spending in the wrong areas.

Just some thoughts, but the next few quarters – and the street’s reaction – will be interesting to see…

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