If you want more proof that software as a service and ad-supported business models are shaking things up, check out Practice Fusion. This week the small company announced the availability of its free, on-demand suite for physician practices.
Practice Fusion CEO Ryan Howard touts the software suite as Google Apps for physicians. It's a radical departure from the established and costly software packages used by physicians to manage their offices and patients records.
Practice Fusion includes practice management, scheduling, patient management (electronic medical records) and e-mail applications. The Web interface takes advantage of Flex 3, Adobe's rich Internet application platform.
Howard is betting that he can make money on free software by connecting advertisers with doctors while they are working via ads. So far Practice Fusion has about 1,000 physicians signed up for the service and about 20 advertisers, including Johnson & Johnson, AstraZeneca LP and Ortho-McNeil-Janssen Pharmaceuticals, Inc.
"The campaigns range between a $50 and $150 CPM, and we are starting to do a significant amount of lead generation, where there is typically an ongoing revenue sharing component," Howard said. Given how difficult it is for a drug salesperson to get a doctor's attention, Howard may have tapped into a rich vein.
This weekend I attended a book party in San Francisco for Jonathan Zittrain. His book, The Future of the Internet--And How to Stop It, was recently published and received good reviews. I will be interviewing him at the Berkman Center for Internet & Society 10th anniversary conference on the future of the Internet this week.
At the party, I talked for a few minutes with Oracle Chairman and CEO Larry Ellison. The book party was hosted by Ellison's novelist wife, Melanie, and HuffPo's Arianna Huffington. It turns out that Zittrain and Melanie Ellison met in junior high school.
I asked Ellison about the growing market for on-demand software and about SAP's problems getting its on-demand enterprise application suite, Business ByDesign, to market. Ellison said that SAP's problems indicate how difficult it is to develop on-demand software.
Oracle CEO Larry Ellison
(Credit: Dan Farber)Ellison invested early on in two of the current on-demand software leaders, NetSuite and Salesforce.com. He is the majority stakeholder in NetSuite and owns a few percent of salesforce.com, both of which are public companies.
Ellison doesn't appear to be in a hurry to cash out or bring them into Oracle's orbit. It's been 10 years since NetSuite and Salesforce.com were founded, and there isn't a standalone billion-dollar on-demand software company, he told me. He noted that Oracle revenues are around $26 billion and said that Oracle has built the biggest on-demand software business.
The Oracle Web site claims 3.6 million users of hosted applications, middleware and database. However, if on-demand is more narrowly defined as multitenant, shared environments, Salesforce.com takes the enterprise software crown.
While the two companies are growing, and taking advantage of the heightened interest in on-demand software, neither company is the kind of profit engine that excites Ellison.
NetSuite lost $23.9 million on $108.5 million for 2007 (revenue did climb 62 percent), and Salesforce.com reported $748.7 million (a 51 percent increase from the previous year) in revenue and $18 million in net income for fiscal year 2008, which ended January 31. Salesforce.com is projecting that it will break the $1 billion revenue barrier for its current fiscal year.
Despite the large year-over-year revenue growth of his two investments, Ellison said that on-demand enterprise software is growing slowly, comparing it to how open-source software has evolved. It all depends on your point of view. Most people would agree that on-demand and open-source are gaining market share at the expense of the incumbents, especially among smaller businesses.
But Ellison is playing in a different league. He looks at MySQL, which Sun acquired, and doesn't see it eating his lunch. He looks at Salesforce.com and NetSuite with his parental, velociraptor eyes and doesn't see them as worth pursuing at this time. That may change down the road. Oracle has consumed most of its worthy competition from the old world, and it will get hungry again, especially if it wants to expand its market downstream from the large enterprises.
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