SAP vs. Oracle battle gets bloodier
The long-building rivalry between the two software sellers heats up in a brutal fight for software-maintenance dollars.
By Owen Thomas, Business 2.0 online editor


SAN FRANCISCO (Business 2.0) - Buying software often isn't nearly as expensive as maintaining it. And that reality is making a long-building rivalry in the tech world ever bloodier.

SAP and Oracle are the two largest sellers of so-called enterprise resource planning (ERP) software, the complex applications large businesses use to run their operations. If you're a Fortune 500 company, you can't run your payroll or report earnings without it.

Buying this software can cost millions of dollars. But in addition to the initial license fee, Oracle (Research) and SAP (Research) charge customers additional money every year for technical support, bug fixes, and software upgrades. These maintenance fees can cost more than a fifth of the initial software license. (SAP's maintenance fees are a bit lower than Oracle's, on average.)

Since companies typically keep these applications for five years or more, a company can easily spend more on maintenance than it did on buying the software in the first place. And this year, according to Forrester Research, maintenance fees will account for more than 40% of total ERP spending, making them a vital part of SAP and Oracle's business.

Now, Oracle and SAP are aggressively going after each other's customers -- and they're both trying to use maintenance fees as a wedge.

It's rare that customers switch wholesale from one ERP vendor to another. Installation is a wrenching experience, requiring armies of consultants. But Oracle's recent acquisitions of PeopleSoft and Siebel have left many corporate customers with a mix of software. SAP and Oracle will pitch those customers on the cost savings of standardizing on one software platform, says Forrester Research analyst Paul Hamerman.

To woo those customers, Oracle and SAP have begun to essentially give away their software, forgoing upfront licensing fees in the hopes of winning maintenance dollars down the road -- and depriving their rival of those same dollars.

SAP has concocted an especially clever plan to do so called "Safe Passage." Just weeks after Oracle wrapped up its $10 billion purchase of PeopleSoft last January, SAP paid an undisclosed amount for TomorrowNow, a Bryan, Texas-based startup that offers support contracts at as little as half the cost of Oracle's plans. While TomorrowNow doesn't offer upgrades to the new versions of software Oracle has in the works, TomorrowNow CEO Andrew Nelson says many PeopleSoft customers don't plan to upgrade and can save money by only paying for the technical support they need.

Oracle has countered with "OFF SAP," or Oracle Fusion for SAP, a program under which users of some SAP software will get discounts on Oracle software. As part of its marketing of OFF SAP, Oracle points out that SAP's maintenance fees don't cover upgrades from R/3, an older product family, to MySAP, its newest product line.

Despite that, SAP may have the upper hand right now, as Oracle grapples with the technical complexity of merging its own software products with those it acquired from PeopleSoft and Siebel. It hasn't hurt that SAP has a new product line out now, while Oracle's full, integrated Fusion line is not expected until 2008.

The game may change in a couple of years, but SAP seems the likely winner of the next few rounds of this contest. For one thing it has the integrated products, while Oracle has just the promise of them. And SAP can play on the reluctance of customers to go through the pains of switching software. Since PeopleSoft customers are contemplating a wrenching shift to Oracle, SAP salespeople can argue that customers ought to consider switching to SAP instead -- and they can offer the carrot of cheaper support while they make up their mind.

SAP says that 73 customers have signed on to Safe Passage to date, including the likes of Samsonite and Waste Management. While that's a small percentage of Oracle's client base, every former PeopleSoft customer Oracle loses slices away at the financial assumptions behind Oracle's $10 billion megadeal. An unkind cut, indeed.

----------------------------------------------

Get the latest tech news. Click hereTop of page

YOUR E-MAIL ALERTS
Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.

Or, visit Popular Alerts for suggestions.
Manage alerts | What is this?

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.