Will Oracle's Suit Hurt SAP's Image?

Industry insiders weigh in on the lawsuit, its merit, and its possible effects on the software maker's image and reputation

German corporate software giant SAP has always portrayed itself as more credible and trustworthy than its archrival, Oracle. That's why the charges leveled in a lawsuit filed by Oracle on Mar. 22 against SAP are especially shocking.

In the 43-page suit, Oracle (ORCL) alleges that SAP (SAP) committed "corporate theft on a grand scale" by downloading thousands of copyrighted software patches and other confidential support materials from Oracle servers (see BusinessWeek.com, 3/23/07, "Oracle Files Suit Against SAP").

According to the filing, employees of SAP's TomorrowNow unit, posing as Oracle customers, logged into the Oracle support network and copied intellectual property so that SAP could compete more aggressively against Oracle. TomorrowNow provides after-sales support for older software packages from providers PeopleSoft, J.D. Edwards, and Siebel, all of which have been acquired by Oracle and whose applications are being phased out.

SAP won't discuss the case, but vows to fight. In a published statement, the company said, "[We] will not comment other than to make it clear to our customers, prospects, investors, employees, and partners that SAP will aggressively defend against the claims made by Oracle in the lawsuit. SAP will remain focused on delivering products and services—including those from TomorrowNow—that ensure success for our customers."

The question now is whether, even if the charges are disproved and Oracle loses in court, SAP's image and reputation already have been damaged. One London financial analyst who requested anonymity said he sees the case as a "spot of tarnish" on the German giant. But, he adds, "This won't change how customers make their buying decisions. At the end of the day, they buy the product for the product."

Still, SAP faces a challenge in communicating with its stakeholders—customers, employees, shareholders, and the community of analysts and market researchers who follow the company. BusinessWeek.com investigated what this suit could mean for SAP's reputation with a variety of experts. Here are excerpted comments from three we spoke to:

David Mitchell

Software Practice Leader, Ovum consultancy, London

What's your analysis of this lawsuit?

My initial take is that SAP has always had very strong integrity. I don't see the case as anything rotten in the DNA—more as an individual allegedly acting inappropriately. Even though substantial evidence has been put on the table, it's an innocent-until-proven-guilty situation. If it happened, it was an individual or small group of individuals who did it.

Heads could roll if there proves to be a traceback. If anyone is proved to have sanctioned the measures, either implicitly or explicitly, I'd expect SAP to hold them to account.

Could this affect customer purchases?

The fundamental question is whether customers take ethical questions into account when making purchasing decisions and the answer is "yes." This will undoubtedly cause uncertainty, but it is entirely down to how SAP plays the game from now on. If they handle it appropriately, we can all get back to business as normal.

I've already had inquiries from three customers of mine today, who are also SAP customers, asking if the case will have implications for them if SAP delivered data collected through inappropriate means. My initial response is that it doesn't have risks or implications for the end customer. I would encourage Oracle to issue a statement that it's not going to pursue end users, because that would ease uncertainty.

Do you think SAP will sell its TomorrowNow subsidiary?

That could be one of the responses, but strategically TN is a very useful asset and this case doesn't change that. SAP bought it because support and maintenance is a good business on its own. It also gives opportunities to cross-sell and upsell to existing Oracle accounts and possibly replace them eventually. If the issue is as localized as I hope and expect, why would they dispose of it?

How should SAP handle the public relations?

If the case is well-founded and goes through, the lasting impact will depend on the messaging. An analogy can be drawn with the HP (HPQ) situation. [Chief Executive Officer] Mark Hurd made a public apology, went through the steps that were being taken to correct the situation, and so forth. That was an example of someone at the top saying, "That's not something we want to happen at our company and this is what we're doing to correct it."

That stopped a lot of tarnish to HP's reputation and helped the public say "that's out of character with HP and let's move on." Similarly, SAP could embrace it, figure out what went wrong—was it a lone wolf, a process issue, etc. And if they find themselves in the same position as HP, say what they're doing to ensure it's not going to happen again. How they respond is a fundamental test of whether it leaves a stain or not.

Rita Clifton

Chairman, Interbrand, London

How should companies deal with situations like this?

In crisis or reputation recovery, you need to first acknowledge the issue. The problem with HP, for example, is that it took ages for them to come out. Management needs to come out and acknowledge that people are concerned, whether they think it's their fault or not. Second, you need to go way beyond what you think is strictly necessary to correct the problem. Third: Communicate, communicate, communicate. The top person in the company needs to go out there saying what the company is doing. The worst thing a company can do is hide behind PR or—worse still—lawyers. In the media spotlight, putting lawyers forward says "We have something to hide."

And how do you think this will affect SAP's image?

With any situation like this the impact on a company's reputation depends on how strong the brand is in the first place, how big the screw-up is, and whether the incident attacks the foundation of why the reputation is strong to begin with.

As far as SAP is concerned, they have a very strong brand, a very strong heritage, and a reputation for trust and reliability. If they can isolate the incident, they can use the situation to highlight what high standards they have and show how they are going above and beyond this. They can use this as a platform not just for recovery but reputation enhancement.

Adam Shepherd

Research Analyst, Dresdner Kleinwort, London

What financial impact could this case have on SAP?

We do not expect SAP's prospects to be materially diminished or for this to have a material impact on customer spending and vendor selection decisions. Our research consistently does not infer any inflection points in terms of customer shift [from SAP to Oracle].

What could this mean for the TomorrowNow subsidiary and SAP's "Safe Passage" program, which attempts to lure Oracle customers over to SAP software?

We think Safe Passage is a peripheral, and not causal, factor in any customer decision to migrate from Oracle to SAP. We understand the majority of customers of Safe Passage are pre-existing SAP clients looking to smooth the transition from peripheral Oracle implementations to SAP. We think TomorrowNow's and Safe Passage's importance in influencing customers' vendor selection process will come under increasing scrutiny.

Do you think there's any merit to the allegations?

SAP is very unlikely to have benefited its own applications through SAP TomorrowNow's downloads from Oracle's support site.