Oct. 18 (Bloomberg) -- Not since SAP AG founder Hasso Plattner dropped his pants in front of Larry Ellison's support vessel in a 1996 yacht race have tensions between the rival software makers been so high.

Plattner showed his backside after the boat for Oracle Corp. Chief Executive Officer Ellison refused to aid an injured crewmate on Plattner's crippled yacht, Plattner said in a March 2003 issue of Sailing World magazine. ``Until then I tried to have a normal relationship'' with Ellison, Plattner said.

A normal relationship between SAP and Redwood City, California-based Oracle these days includes dueling press releases amid claims that stretch reality, SAP and analysts said. During Oracle's first-quarter conference call Sept. 19, Ellison said SAP was delaying its next major product until 2010 while abandoning its strategy of internal growth helped by small acquisitions.

Ellison's comments were ``a complete misrepresentation'' of SAP's products and strategy, Walldorf, Germany-based SAP said the same day. Only once before, in 2000 when Oracle said it was first in sales of business-management software, had SAP issued a statement responding to Oracle claims.

``Both times the distortion of facts about SAP were so significant we had to clear the record,'' SAP spokesman William Wohl said in an interview. SAP said no senior-level executive would talk about the company's current jousting with Oracle.

Oracle spokeswoman Deborah Hellinger didn't return e-mails seeking comment.

``Art of War''

The tactics are classic Ellison, famous for his admiration of ``The Art of War,'' the treatise on battle tactics written by the sixth-century BC Chinese general Sun Tzu.

Ellison, 62, is a master of applying Sun Tzu's precepts to the modern-day warfare of business competition, say those who know him. One basic tenet notes a smaller force can beat a larger one by causing its rival to respond before thinking.

``Larry consistently executes `The Art of War' better than any CEO,'' Salesforce.com CEO Marc Benioff, who has described Ellison as a mentor, said in an interview. ``SAP never should have reacted to Oracle's statements because it makes customers and investors view Oracle as a peer to SAP, when they aren't.''

According to Boston-based AMR Research, SAP had 20.6 percent of the applications software market in 2005, up from 19.5 percent in 2004. Thanks to $20 billion of acquisitions in two years, Oracle's market share almost doubled in 2005 to 10.1 percent from 5.2 percent.

``They are trying to set the boundaries of the discussion,'' Daniel Sholler, lead SAP analyst at Gartner Inc., a Stamford, Connecticut-based research firm, said in an interview. ``It has no effect on customers except to make it clear that Oracle should be compared to SAP.''

Validate Oracle

Ellison's tactics are meant to validate Oracle's place next to SAP, Sholler said. Ellison's efforts were aided by SAP in July, when SAP CEO Henning Kagermann said his company lost market share in the $25 billion industry for business-management software to Oracle and Microsoft Corp. Whether that's a trend will be known Oct. 19, when SAP reports third-quarter results.

Strain between the competitors has risen since Ellison began buying companies that write software to automate functions such as billing, customer management and human resources.

The $10.6 billion PeopleSoft acquisition in January 2005 and the $5.85 billion purchase of Siebel a year later made Oracle the second-biggest maker of business-management software, behind SAP. Last month, Ellison said the purchases allowed Oracle to ``leapfrog'' over SAP in several industries, including retail, banking and telecommunications.

SAP's Kagermann ``is now publicly talking about a more aggressive acquisitions strategy as a solution to SAP's slowing organic growth,'' Ellison said on the September conference call. Until SAP makes large acquisitions, ``Oracle will gain application market share year after year, quarter after quarter,'' he said.

Wrong Assertions

SAP and analysts say that Oracle is distorting reality with these assertions. The statements called into question include SAP's alleged product delay, news that SAP customer Zale Corp. switched to Oracle because of unkept promises and Oracle's 47 percent growth in applications.

Consider SAP's product release timetable. Like the rest of the software industry, SAP and Oracle are in the middle of overhauling their software toward a so-called service-oriented architecture, or SOA, which allows customers to upgrade and change management software more easily.

SAP said all of its products will be able to run on the new platform by next year, and will only offer enhancements to that platform until 2010.

Oracle's ``suggestion that SAP has delayed the introduction of their next-generation product is absolutely misleading,'' Jim Shepherd, an analyst with Boston-based AMR Research Inc., said in an interview. Oracle ``is being deliberately provocative.''

Growth Questions

A few analysts now question another statement Oracle made in its most recent earnings call about the internal growth of Oracle's application business.

Oracle reported application license sales grew 80 percent in the first quarter. Stripping out sales from Siebel and other recent acquisitions, application license sales gained 47 percent, Oracle said.

Charles Di Bona, an analyst with Sanford C. Bernstein, disagrees with Oracle's math. Factoring in Siebel Systems' third quarter sales, before its acquisition, Di Bona estimates Oracle's organic growth for the quarter at 2.2 percent.

Oracle ``will be able at best to maintain market share against SAP in applications,'' Di Bona wrote in his Sept. 21 investors note, and said Oracle ``likely lost share in the most recent quarter.''

Share Prices

Marc Geall, an analyst at Citigroup in London, reached a similar conclusion in his Sept. 21 note to investors. According to Geall's calculations, Oracle had 3 percent internal growth in application license sales compared with pro forma license revenue of both Oracle and Siebel Systems from a year ago.

SAP shares fell 2.02 euros to 163.58 euros yesterday in Frankfurt, while Oracle shares declined 36 cents to $18.63 in Nasdaq Stock Market composite trading. SAP has advanced 6.8 percent this year, compared with a 53 percent increase in Oracle's stock.

Ellison has also employed Sun Tzu's statement, ``all warfare is based on deception'' in asserting that Zale, which SAP announced as a new customer about a year ago, will switch to Oracle because, the CEO said, the German rival ``made some promises we knew they couldn't deliver.''

Zale

Not so, according to Wohl. Zale was a customer of Retek Inc., which Oracle bought in April 2005. Concerned about Oracle's commitment to Retek customers, Zale switched to SAP.

In the meantime, Zale lost nearly every senior executive on its management team, ``and the new team unwound every management decision the old team made,'' said Wohl. ``We didn't lose this sale to Oracle. We lost it because of new management, and that's not a conversion.''

Zale declined to comment, said David Sternblitz, a spokesman for the Irving, Texas-based company.

Oracle's enthusiasm for bad-mouthing the competition sometimes puts its own customers in the cross-hairs. That's how William Hughes, a spokesman for CA Inc., said he felt when he saw Oracle's full-page advertisement that mimicked SAP's ad campaign. The Oracle ad said: ``Computer Associates (CA) Runs SAP.''

The implication was that CA's well-publicized troubles, including a $2.2 billion accounting fraud, were connected to the SAP software it uses. CA has applications from both rivals.

``These kinds of guerrilla marketing tactics, combined with puffed up rhetoric and one-off carpet bombings are tedious distractions,'' Hughes said in an e-mail. ``It doesn't help the industry.''

To contact the reporter on this story: Rochelle Garner in San Francisco at rgarner4@bloomberg.net.

Last Updated: October 17, 2006 19:18 EDT