28 November 2003 Database giant Oracle is to give away free enterprise resource planning (ERP) software modules to small and medium-sized enterprises in an apparent attempt to combat Microsoft’s challenge.
Oracle announced yesterday that it will offer manufacturing, sales and service management components at no extra charge to new customers investing in its e-business suite of applications.
The move is being interpreted as an attempt by Oracle to secure a major share of spending on ERP applications prior to the release of Microsoft’s Longhorn product, expected around 2005.
Despite evidence that the ERP market has matured, there is still much at stake for suppliers, particularly in the mid-market. Research company AMR recently predicted that spending on ERP will increase to more than one-quarter of companies’ software budgets in 2004.
Giving software away is not an entirely new move for IT suppliers looking to break into mature markets, say analysts. Earlier this month, Hewlett-Packard said it was planning to give its application server away for free, in an apparent bid to erode the market share of the dominant suppliers, BEA Systems and IBM.
Oracle’s move is raising the possibility of a fresh price war among the big enterprise application vendors.
Already, one of its main challengers, Germany’s SAP, has warned that customers will expect prices to stay low and this could damage the industry.
SAP’s CEO, Henning Kagermann, said last month that price competition from rival Oracle had intensified in recent months – with pricing accounting for a higher proportion than ever of the company’s ‘lost’ deals. “Forty percent of the deals we lose are now on pricing – that’s an all-time high,” he said. “If this happens, prices will never come back.”
Kagermann speculated that Oracle was driving its prices lower in response to uncertainty wrought by its hostile takeover bid for PeopleSoft and the need to continue driving sales as a result. But at the time, Oracle dismissed suggestions that it had a particularly aggressive pricing policy in place.