Who would have thought Oracle would lead the SaaS market.

Not that I hold perfect confidence in the source of these numbers, but a report at venture capital focused SandHill.com shows Oracle at the #1 slot for companies using and considering vendors for SaaS deployments.

In fact, top-shelf companies fill the top shelves of the SaaS vendor list. Oracle, SAP, Microsoft are all players. The early-advantage entry — SalesForce.com — scores a trailing 11% compared to Oracle’s 16% and Microsoft’s 14%.

Sarah Friar — the Goldman Sachs analyst who wrote this report — tells me that the focus of the survey was at the application level. I would have automatically believed her numbers had  databases and infrastructure management tools been included. But focused on applications, Oracle’s dominance caught me by surprise.

This spells bad news for SaaSy start-ups. Mature markets are dominated by an average of three vendors. This is based on some groundbreaking research by General Electric in the 1960’s and my personal market observations. When three vendors together consume 2/3rds or more of a market, that market is definitively saturated.

Though Sarah’s report did not break-down the sources of these market share numbers, we see four competitors taking 53% of the current SaaS market (which may grow as time continues). This is far from saturation point, but the market space is dwindling and the gorillas are starting to beat their chests. This means in certain segments of SaaS, opportunities will begin to shrink — at least in the B2B SaaS space. The consumer space will remain a Wild West frontier for quite a while.

Does this mean you should abandon your SaaS start-up and stash your stock option warrants in the toilet paper dispenser? Not at all. Oracle has to buy somebody. Like Microsoft before them, Oracle is slowly slipping from the innovator caste to that of aggregator, conglomerate and Borg. This is a natural effect of the changes in the B2B technology markets and still remains your best exit strategy.