Oracle looks towards SAP eclipse

True to its corporate character, when Oracle released its financial results back in September 2006, its executives decided it was time to launch a bold and controversial claim. SAP, the leader of the enterprise resource planning (ERP) software market for over a decade, they claimed, was losing the war in the leadership battle for such core business applications. It was only a matter of time before Oracle claimed its rightful place on the ERP throne.

It came as no surprise then to hear Oracle’s president Charles ‘Chuck’ Phillips taunting SAP at the announcement of its latest numbers with ‘news’ that Oracle continued “to gain market share from SAP”. But SAP claims to be doing the same to Oracle.

Chuck Phillips, Oracle

With both companies reporting their figures in different ways, those claims are difficult to substantiate.

For the three months ending 30 November 2006, Oracle’s applications division banked $1,068 million ($340 million in new licence revenues and $728 million in updates and support), while for the three months ending 30 October, SAP reported $1,575 million ($691 million in software sales and $884 million in maintenance).

SAP’s growth, at 20% at constant currency, does seem to trail Oracle’s 25% comparable rise in new licence revenue, but the fact that SAP is starting from a bigger base and Oracle is adding in acquired revenue clouds the picture.

What is undisputed is that Oracle’s three-year, $20 billion acquisition strategy, in which it has bought its way onto the Mount Olympus of applications,has been successful – at least for the company. Some customers are not so enthusiastic about the outcome of the spending spree.

The large number of acquisitions that has given it PeopleSoft, JD Edwards, Siebel and Retek (among others), has left many users in doubt over the future support of their applications. According to the results of a recent survey at the UK Oracle User Group (OUG), confidence among PeopleSoft and JD Edwards customers has waned since last year. This is not surprising given the company’s decision to concentrate only on newer versions of the acquired products and to try to bring the functionality of these together via Fusion, a Java-based application suite integrating the best features from all of Oracle's various product sets.

Oracle disputes any dwindling of confidence: its own surveys, it says, show that satisfaction among companies relying on JD Edwards, PeopleSoft, Siebel and its own Oracle E-Business suite is on the rise, driven by a programme to provide continued enhancements to current applications beyond the delivery of Fusion in 2008. And it is a confidence that Oracle needs to build on.

While its database division still contributes two-thirds of Oracle’s software revenue, it is not looking at all strong. In the most recent quarter, revenue growth in new licences from databases and middleware was just 5% (when currency fluctuations are eliminated) – the lowest level since the summer of 2005. That reinforces the message that application software is now the key driver for the company’s growth.

Some analysts are expressing qualified praise for the way it is executing that strategy. “If you look at Oracle's application portfolio from a 'vanilla' point of view, then the combination of Oracle's business applications with those of PeopleSoft, JD Edwards and Siebel, and with the upcoming Fusion applications, looks very messy,” says Ovum analyst David Bradshaw.

“But looked at from a vertical perspective, it makes a great deal more sense. Oracle continues to buy vertical specialists [such as retail technology company Retek] to fill out its portfolio, seeing this as the way that it will eclipse SAP,” says Bradshaw.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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