Oracle Chief Executive Larry Ellison is famous for outrageous cracks and aggressive taunts. So he was true to form on Sept. 19, when he used the occasion of Oracle's stellar first-quarter results to take potshots at archrival SAP. Faced with such outbursts, the German software giant used to take the high road, but not anymore. For much of the past year, SAP has been honing the art of biting back.
At the earnings event, Ellison declared that Oracle's (ORCL) banner results proved it was stealing market share from SAP (SAP) in the lucrative business of big corporate software suites. What's more, he said, Oracle's gains were forcing SAP to rethink its strategy, defer product launches, and step up acquisitions.
SAP's reply: The comments were a "complete misrepresentation." In a statement, the Walldorf (Germany)-based company said that Oracle was being disingenuous about the timing of its own upcoming products, especially the highly anticipated Fusion suite that will combine the pieces of Oracle's $20 billion acquisition spree into a single software offering. The product isn't anticipated before 2008, and some analysts have predicted it could slip later.
So who's telling the truth? No question, Oracle has reason to crow right now (see BusinessWeek.com, 9/20/06, "Oracle Divines a Bright Future"). It has turned in back-to-back strong quarters and seems to have allayed concerns that its buying binge would cause chaos and widespread customer defections. Oracle's revenues from new licenses soared 45% in the quarter organically, and an eye-popping 80% if you factor in acquisitions. SAP showed just 10% license growth in its most recent quarter.
It's true that SAP continues to hold about 43% market share in business-management software, vs. about 19% for its California-based rival, according to estimates from AMR Research in Boston. Ellison "wants to paint SAP as if it's on the ropes, but it's not," says Joshua Greenbaum, principal at Enterprise Applications Consulting in Berkeley, Calif. "Oracle's success in two quarters doesn't mean it has won the war."
What of Oracle's claim that SAP is undergoing a "major change in direction"? Poppycock, says SAP spokesman Frank Hartmann. "We have a strategy in place and that will not change."
TWO DIFFERENT BETS.
Both companies are currently moving toward what is called a service-oriented architecture (SOA), which gives customers the flexibility to deploy, and reconfigure, the best pieces of software to meet their needs. That migration, among other things, is at the heart of the latest spat.
In its statement, Oracle alleged that SAP had announced a delay in its next version of SOA applications until 2010—two years behind Oracle's planned delivery. SAP countered that it has a product on the market right now, which it's steadily enhancing, and that it doesn't need to offer upgrades until 2010. If anything, says SAP, it's Oracle that has fallen behind schedule on Fusion.
But lurking behind all the talk about SOA are two fundamentally different approaches to software going forward. Oracle has cast its lot with the movement toward open standards and programming languages, such as Sun Microsystems' (SUNW) Java. SAP also knows how to talk the open-standards talk, but realistically, the company depends much more heavily on proprietary products.
"UPS THE PRESSURE."
While Oracle clearly has its work cut out drawing its far-flung acquisitions together in Fusion, SAP may face the tougher challenge. The company has an enormous installed base of complex software programs that typically take years for corporate clients to fully incorporate and utilize. It must persuade these clients of the merit of shifting over to its newer software products.
A month from now, all eyes will be on SAP, when it reports third-quarter earnings. Last quarter was a disappointment. And while SAP hasn't cut its forecast for annual revenue increases of 13% to 15%, the latest Oracle announcement "ups the pressure to deliver," said John Segrich, a software analyst at JPMorgan (JPM) in London.