SaaS is all the rage these days. Cloud computing and SaaS are new paradigms and are one of the fastest growing segments on the web operations side. However, Larry Ellison, the founder and CEO of Oracle has said that his company hasn’t participated in the software-as-a-service trend because there’s no money to be made there.

What Ellison is saying, essentially, is that SaaS stinks because customers would pay so much less to Oracle. There’s less consulting fees, integration fees, and no big up-front license fees. Ellison called subscription-based software “very interesting, but so far no one has figured out how to make any money at it.” Oracle’s plan is to keep selling to big companies, pitching them on vertical applications once they’ve filled up on databases, middleware, and general ERP. It offers Siebel CRM On Demand, and has said it’s willing to host software for customers, but Oracle, by far, is primarily an on-premise software company, according to Information Week.

SalesForce.com is extending the SaaS marketplace with partnerships with other vendors such as Google and a host of companies most people have never heard of. Even SAP is entering SaaS with its Business ByDesign offering, as way to get SMBs (companies with 100 to 500 employees).

“If there is a risk in the SaaS market it is Google who could conceivably give away software in every category just for the fun of it”, said TMC President, Rich Tehrani. Google is constantly putting out better and better software which it doesn’t charge for and eventually we will see this eat into the revenue models of other SaaS companies.

An example is Google’s software program SketchUp which allows free 3D modeling. The product is already being hailed as easy to use and powerful. And as this trend continues, it won’t matter if software companies are hosted or on-demand… They will have to make software much better than Google to get people to shell out real money for it”, said Tehrani.