2005 Review of the Year: Enterprise software

2005 Review of the Year: Enterprise software

As Oracle continued its buying spree in the enterprise software space, the vendor exchanged some carefully aimed punches with SAP.

The most visible confrontation occurred early in 2005. SAP unfolded a $496m plan in February to acquire Retek, a maker of enterprise software for retail clients.

Oracle quickly responded and in March launched a competing offer. A bidding war resulted, and in the end SAP backed down. Oracle eventually paid between $631m and $669m.

The Retek deal was the first Oracle acquisition after the purchase of PeopleSoft. The database vendor had predicted that it would continue its buying spree when it announced the completion of the $10.3bn deal.

Oracle also unfolded its plans for a software suite to allow users of JD Edwards, PeopleSoft and Oracle software to move to a single product called Project Fusion.

The forthcoming suite is scheduled for a 2008 launch and Oracle chief executive Larry Ellison said that he will continue supporting current versions until 2013.

"Some time short of 2013, at a time that is convenient for your organisation, you will upgrade to the merged product," Ellison told worried customers.

SAP saw a ripe opportunity to spread fear, uncertainty and doubt about the forthcoming suite and is focusing its competitive efforts on the future product.

"There is a fundamental problem in the notion of Project Fusion," said Shai Agassi, president of SAP's product and technology group, at a public appearance at the Churchill Club last November.

"If you believe that you can rewrite from scratch every single process for every industry, and do it in less than five years and have less than three years of stabilisation of the code, than you are obviously a banker. To rewrite it from scratch is suicidal."

Not limiting itself to a war of words, SAP unfolded a defector programme for Oracle users in North America that aims to capitalize on user fears over future upgrades.

The 'Safe Passage Programme' is primarily aimed at poaching users of the PeopleSoft and JD Edwards suites, who have the most to fear from the future Oracle plans.

"PeopleSoft and JD Edwards customers are facing the planned obsolescence of their software investment, and this is a major point of concern for companies that have already been forced to weather the takeover storm by Oracle," SAP's chief executive for North America, Bill McDermott, said in April.

Oracle responded in June with the Oracle Fusion for SAP (OFF-SAP) programme, targeting users of the previous generation R/3 version of SAP's enterprise application suite.

Industry analysts believe that the programmes are mostly a PR instrument that by themselves will cause few, if any, defections. The costs of switching are considered too high to be offset by the savings in licensing costs. Customers can, however, use the programmes as a lever to negotiate rebates.

SAP has announced several customer wins for its Safe Passage programme. Oracle claimed in September that more than 1,000 SAP users registered to receive further information under OFF-SAP, but has not named any customer wins.

In the mean time Oracle continued its buying binge. Most notably, the company unveiled a $5.85bn agreement in September to purchase Siebel Systems. The acquisition was a personal victory for Oracle chief Larry Ellison over Siebel founder Tom Siebel, who is a former Oracle employee.

Siebel had once pioneered the CRM software space, a niche category within the enterprise software arena. But after a brief bubble, Siebel landed on a downward slope as Salesforce.com stole its thunder.

"Siebel has needed to be picked up for some time," Clive Longbottom, service director at analyst firm Quocirca, said in September.

"There are other suitors that would probably have made better sense, but it seems that Oracle is going for the number one slot no matter what the cost and aiming to become the only kid on the CRM block except for SAP."

Oracle's slew of acquisitions raises questions about the reasoning behind this strategy.

Agassi claimed in November that the two companies have fundamentally different strategic visions. SAP likes to see itself as an innovator that will bring a new wave of innovations to the world of enterprise software.

Oracle, on the other hand, treats the enterprise software market as a matured business where scale is more important than innovation, Agassi claimed.

Oracle typically refrains from directly commenting on SAP's business. But it has justified its acquisition strategy differently from the picture that Agassi painted.

While chief executive Larry Ellison has acknowledged the consolidation trend, he testified in court in July 2004 that the arrival of large new competitors including Microsoft was the driving force behind its acquisition strategy.

SAP meanwhile has been more conservative in its acquisition strategy. The firm has limited its buys to a few strategic areas in niche markets rather than buying large established firms.

Technology acquisitions have mostly focused on niche markets that are considered greenfield opportunities such as retail. Such purchases allow vendors to quickly ramp up their product offerings and claim their territory.

"[Retail] is a battleground vertical," Paul Hamerman, vice president in the enterprise applications research group at Forrester Research, said in November. "These vendors want to go head to head here, but there are other verticals where they might not compete so much."

The future will no doubt see new battles between SAP and Oracle. As Oracle gets closer to the 2008 launch date for Project Fusion, SAP is expected to diligently seek and point out any flaws and holes in the offering.

Oracle's many acquisitions, meanwhile, have made the database vendor a force to be reckoned with.

And if the firm succeeds in making true on its promise of the single, Java-based Project Fusion suite that will allow users to easily upgrade, it might just be able to shed the image that enterprise software implementations as a rule are delivered late and over budget.

Then SAP really has something to worry about.