Oracle CEO Mark Hurd says that consolidation is coming as 'underfunded' cloud-software companies get bought up: 'Many of the companies will go away' (ORCL)

mark hurd

Oracle CEO Mark Hurd said smaller "underfunded" players in the software-as-a-service (SaaS) market will "go away" amid a trend of consolidation in the industry.
Some analysts agreed with Hurd's view, saying the SaaS market will go through a period of consolidation.
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Oracle CEO Mark Hurd on Wednesday said the tech giant has a "long list of underfunded competitors" in the software-as-a-service market that he predicted "will go away" in a couple of years.

It's a striking statement from a tech behemoth that had been seen as taking a hit from the rise of software applications offered to businesses via the cloud, doing away with the high cost of setting up and maintaining applications on their own servers and data centers.

But in a meeting via telephone with media at Oracle headquarters in Redwood City, California, Hurd touted Oracle's gains in the software-as-a-service industry, or SaaS, which he said will eventually be dominated by the big players.

"The SaaS market will consolidate," he said. "It will be a long tail, but many of the companies will go away."

Rise of software-as-a-service

SaaS makes it possible for businesses to pay for their software via a subscription, usually based on the number of users to whom they want to grant access. This allows companies to cut the costs associated with huge licensing fees for software that gets installed on their own servers, while also granting more flexibility.

Oracle emerged as a dominant tech behemoth based on that original business model. But the Silicon Valley database giant has pivoted to focus more heavily on SaaS in the past few years — a bright spot in its overall cloud business, which is otherwise widely seen as lagging behind the market-leading Amazon Web Services.

Oracle is now considered a major player in the software-as-a-service industry, although it is still lagging Microsoft and Salesforce in the SaaS and cloud-software market. That market totaled $107.5 billion in 2017, according to the analyst firm IDC. In that same year, Microsoft led the SaaS pack with 9.3% market share, followed by Salesforce with 8.7% and Oracle with 4.1%. SAP was in fourth with 3.6%, followed by Google with 3.5%.

But Hurd's prediction about "underfunded competitors" was affirmed by a couple of tech-industry analysts.

Analysts see SaaS consolidation

"Hurd's analysis is correct," Tim Bajarin, an analyst with Creative Strategies, told Business Insider.

"Smaller SaaS companies are underfunded and will have trouble competing with the big players in this market. If they have unique technology they could become M&A targets. It is expensive to market and serve the SaaS markets and being under-capitalized will hurt their chances to compete for the same businesses big SaaS companies go after today," he said.

Ray Wang, the president of Constellation Research, agreed, saying: "We are still in a market of consolidation."

"Buyers want to reduce the number of vendors they work with and the costs of having a large footprint," he told Business Insider. " There is also a lot of innovation at the edges that is happening so it's important to build ecosystems."

The SaaS and cloud-software market is also expected to grow dramatically in the next few years. IDC is forecasting the market to grow to $259.1 billion in 2022 with a compound annual growth rate of 19.2%, Mike Shirer, a spokesman at the firm, said.

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