Oracle Corp. CEO Larry Ellison knows all about battles with old friends.
After all, Oracle just pulled off high-profile takeovers of PeopleSoft Inc. and Siebel Systems Inc.--a pair of rival software makers run by former subordinates who turned against him.
Now, Ellison is straddling another set of fractured friendships in a drama unfolding around Salesforce.com Inc. and NetSuite Inc.
The pioneering upstarts--conceived by a younger generation of Ellison's corporate progeny--have been helping steer the business software industry in a new direction with applications that are accessed directly over the Internet.
Once considered a crazy idea, the concept of online, or "on-demand," software has turned into a hot market as thousands of companies decide they would rather lease applications monthly than pay an upfront licensing fee and then deal with the costs--and headaches--of installation, maintenance, and the inevitable software upgrades.
Earlier this year, the research firm IDC estimated spending on "software as a service"--another euphemism for over-the-Internet corporate computing--will double during the next five years, totaling $10.7 billion in 2009.
The rise of on-demand software already contributed to Siebel's downfall, driving the distressed company into Oracle's arms in a $5.85 billion sale expected to be completed early next year. Siebel boasted a $50 billion market value in early 2001 before its deep sales slide.
Ellison knows the on-demand market well. He invested early in Salesforce.com and NetSuite in a show of faith in Marc Benioff and Evan Goldberg, former proteges who started their own companies during the dot-com boom of the late 1990s.
Benioff, 41, is the extroverted chairman and chief executive officer of San Francisco-based Salesforce. The more-reserved Goldberg, 39, is the chairman of San Mateo, Calif.-based NetSuite, leaving the CEO duties to Zach Nelson, yet another Oracle alumnus.
The corporate competition already has strained relations between Benioff and Goldberg, who first hit it off working together at Oracle 17 years ago. They eventually became so close that Benioff ministered Goldberg's 1998 wedding.
Benioff and Goldberg remain cordial enough to swap e-mails about a favorite television comedy (HBO's "Curb Your Enthusiasm") but they have spent more time recently feuding over customers and bickering about whose company has carved the best market position.
"We ride the line between friendship and wanting to kill each other," Goldberg said.
The connections binding Oracle, Salesforce, and NetSuite add another intriguing twist to a looming showdown likely to include other industry heavyweights, SAP AG and Microsoft Corp.
Worried that on-demand software could threaten its dominant Office software and Windows operating system, Redmond, Wash.-based Microsoft recently reshuffled its management to delve deeper in Internet-based applications.
Microsoft Chairman Bill Gates and Ray Ozzie, the executive newly charged with leading the online efforts, are expected to provide more details about the company's strategy in San Francisco on Tuesday.
Several lesser known on-demand vendors also figure to enter the fray. The most notable is RightNow Technologies Inc.--a Bozeman, Mont. company that has enjoyed 31 consecutive quarters of revenue growth.
"I'm the only guy in this (on-demand) space that's not part of this dysfunctional family from Oracle," said RightNow CEO Greg Gianforte.
Benioff has been on-demand's chief evangelist, demonstrating a flair for showmanship that he picked up from the colorful Ellison.
Although Benioff's flamboyance irritates many people, it's helped build Saleforce.com into the largest and best-known of the on-demand vendors.
With 308,000 subscribers and counting, Salesforce.com is expected to generate more than $300 million in revenue in its fiscal year ending in January 2006. The company's stock more than doubled from its June 2004 initial public offering price of $11, leaving it with a market value of about $2.6 billion.
That's just one reason Benioff seems unfazed by the backlash aimed at him and his company.
"We believe in the art of war," said Benioff, whose stake in Salesforce.com is worth about $650 million. "We are trying to get our competition to attack us with angry, virulent energy, so we can transform that into larger market share."
Ellison has nice things to say about both Salesforce.com and NetSuite, hailing them as "serious players" in the industry during a meeting last month.
But there's little doubt Ellison favors NetSuite over Salesforce.com, perhaps because he maintains majority control over NetSuite while owning less than 4 percent of Salesforce.com.
Benioff had a falling out with Ellison in 2000 when he forced his former boss to resign from Salesforce.com's board. The ouster came after Benioff concluded Ellison was stealing Salesforce.com's ideas and passing them along to Oracle.
Ellison wants Oracle to slow Salesforce.com's growth, assuring reporters last month that he wouldn't mind if his investment in the company becomes worthless. Oracle President Charles Phillips also skewered Salesforce.com, proclaiming the company's intention to "crush" its much smaller rival.
Benioff brushes off Oracle's threats, insisting the company has little going for it besides the deep pockets that enabled it to buy PeopleSoft and Siebel.
"They have created a culture of acquisition instead of innovation," Benioff said. "It's a lot easier just to write big checks than it is to innovate."
The big question facing Salesforce.com now is whether it's a one-trick pony. The company's bread and butter has been "customer relationship management" software--applications that make sales representatives more productive.
That's the same niche that made Siebel Systems a roaring success before demand for its product dried up.
Benioff is trying to diversify by tweaking Salesforce.com into a platform that hosts a smorgasbord of online applications developed by smaller vendors. He's betting that the platform will persuade even more businesses to sign up for Salesforce.com's services.
NetSuite's Nelson doubts the new approach will work. "I don't think Salesforce can avoid becoming the Siebel of on-demand. It's in their karma."
Although smaller than Salesforce.com, NetSuite is starting to attract more attention. Unlike its rival, NetSuite has always tried to be a one-stop shop for online applications, aiming for growing businesses with fewer than 500 employees.
The approach appears to be catching on. With 2004 revenue of $41 million, NetSuite ranked as the nation's second-fastest growing technology company during the past five years, according to recent study by Deloitte. NetSuite expects to book about $70 million in revenue this year, putting it on track for a 2006 IPO.
That IPO ultimately might decide which company prevails in the eyes of Ellison--one of the world's wealthiest men with an estimated fortune of $17 billion.
Ellison's initial $2 million investment in Salesforce.com has grown into a stake currently worth about $100 million.
"We are helping Larry make up for all the money he has been losing on NetSuite," Benioff said.
Goldberg doubts Benioff will be laughing after NetSuite's IPO.
"Larry is going to end up making way more money off us than Salesforce. That's a lock."