One of the biggest moments of the recent Oracle-Department of Justice trial, surrounding the database giant’s proposed hostile bid for PeopleSoft, was the revelation that all even bigger merger in the world of enterprise software had been–albeit briefly–on the cards: that of Microsoft and SAP. The news that the two companies had been in talks was used to indicate the consolidatory trend in the ERP sector and to argue that only very large groups would have a chance of long term competitiveness–hence a justification for Oracle’s bid. However, it also threw into the limelight the market leader, the German company that had, until then, remained relatively quiet on the whole Oracle-PeopleSoft saga, but looked set to be the main short term beneficiary, whichever way the courts and shareholders decided.
Assuming that uncertainty over the future of their product and supplier would deter current or would-be PeopleSoft customers from making major commitments, SAP–as well as Microsoft–worked away in the background to stress its own stability and to lure users away from the warring US rivals. But the news of the Microsoft talks suggested that the company was not as complacent in its leadership as it often appeared. The ERP sector, consisting of core enterprise software products from customer relationship management to manufacturing management to accounting, had enjoyed two major booms–in the mid-1990s when SAP’s ‘big bang’ approach of huge, integrated, corporate-wide projects came into vogue, and again before the recent IT depression, when newer, more agile disciplines such as salesforce automation were all the rage.
Now, the IT downturn and general disappointment with the results of many high cost ERP projects have cast a shadow over the whole sector and the trends are towards consolidation–Oracle indicated that, should its bid for PeopleSoft fail, it has a list of reserve candidates including Siebel–and towards offering enterprise customers more flexible, cost-effective options as well as targeting clients further down the food chain. Thus the ERP giants are wrestling with developments such as hosted applications, where customers ‘rent’ software according to usage–pioneered by start-ups like salesforce.com, but proving a hard business model for the traditional players. And they are trying to cut down their huge offerings to be more appropriate for small and medium enterprises (SMEs) without cannibalizing enterprise pricing.
This, of course, is where the Microsoft deal could have been alluring for SAP, since the Windows giant has made its main impact in ERP on the SME space. Even without Microsoft, though, SAP has made huge strides in moving beyond its habitual bluechip base with its more flexible MySAP platform. And it is emerging as the company most likely to win from the uncertainty created by the Oracle-PeopleSoft saga, and to emerge from the current turbulent times still safe in its market lead.
SAP has exploited the Oracle situation to the hilt, mounting a string of programs to make migration to MySAP an attractive option for concerned PeopleSoft users and wasting no opportunity to remind the market of the potential downside of that situation. Over a year ago, when Oracle first increased its bid for its rival, then SAP chief Hasso Plattner stirred the waters, telling his own customer conference: “I think the PeopleSoft community will be strong and tell the organization (Oracle)–there’s no way you can slaughter the company. It won’t work. They are offering a replacement with a weaker product. PeopleSoft’s products are better.” He added, only half jokingly, that Oracle would do well to replace Oracle 11i with PeopleSoft products.
Oracle has tried hard both to reassure PeopleSoft users–though without promising to enhance the products for very long–and to convince the market that it has put significant work into raising the standards of its own applications, which have struggled with a reputation for being weaker than software from competitors such as PeopleSoft and JD Edwards (now part of PeopleSoft itself). But the fact remains that further development of PeopleSoft products would cease upon completion of the proposed transaction, and telling those users that they will understand the value of moving to Oracle’s applications does not inspire confidence.
“Oracle is good in some application areas, but PeopleSoft stands out in areas like health care, for example,” said Albert Pang, director of enterprise applications at research firm IDC. “If a healthcare company is going to move to Oracle, it’s going to be a stretch. Success will depend on the industry and operating environment.”
The big bonus for SAP is that the fears that may be affecting PeopleSoft users will also be lurking in the minds of sites with investment in products from other ERP vendors, such as Siebel, that could fall prey to Oracle should its ongoing bid fail. SAP, along with Microsoft, is one of the very few whose customer bases can feel fairly safe that they will not become part of the database giant’s fold.
All this plays well for SAP, which is refreshing its range just as
two of its rivals are forced to take a cautious approach until their futures are decided.
“The timing couldn’t be better. We come out with new versions, and they are struggling,” SAP chief Henning Kagermann said.
Shortly after Oracle’s initial bid last year, SAP rolled out a new marketing and field campaign, offering customers of its beleaguered competitors a “word of comfort–offering customers who feel uncertain a safe harbor”.
Yankee Group analyst Kosin Huang said at the time: “I think SAP sees this as a prime opportunity that Oracle has tossed their way.”
Of course, it takes a lot more than an advertising campaign or even a nervous CIO to put the PeopleSoft base back quickly into play. Short term, SAP is thought to be succeeding in luring customers who were considering a new deployment and might have picked PeopleSoft if it were not for the Oracle fight. But ERP applications require heavy customization to fit the needs of a customer, and so an existing investment is not hastily thrown away–nor a new one decided on without extensive investigation.
But SAP does have some real perception advantages over Oracle in terms of customer satisfaction–though not necessarily over PeopleSoft. In a survey of European CIOs conducted in late 2003 by Rethink Research, it was clear that Oracle’s bid to catch SAP’s lead in ERP would be hampered somewhat by perceptions among customers. PeopleSoft commanded the highest level of loyalty among its customers, followed by SAP, while JD Edwards, despite its high satisfaction ratings in certain performance areas, could not be sure of holding on to any of its users because, pre-PeopleSoft, it was seen as a second tier player with, therefore, an uncertain future. This indicates how the larger names will increase their hold as customers look for a safe option–but good products and service will be important too. Despite its undoubted staying power, in the Oracle base 85% of our sample would pick a different supplier if they had their time again.
But the SME space remains far more Open–and vital to SAP. It is all very well playing politics and public relations games to boost market share in the enterprise, but this is a sector that is almost saturated in terms of first generation deployments, and highly cautious about second or third generations. The SME space has far greater growth potential, but there are no easy tactics to deter users from considering Microsoft.
Also, the relationship between IBM and SAP is complex. They can work closely together in implementing SAP software, and so rarely take public shots at each other, preferring a ‘co-opetition approach. This is far more dangerous to other rivals than out and out hostility, especially as SAP products, even in their most simplified form, are still in a different class, and appealing to different departments and deployment types, compared to Microsoft’s packages.
The problem for competitors like Oracle is that SAP has this two-handed relationship with most of the most influential technology providers. It goes head to head with straight ERP applications houses, of course, but is in a strong position against them in many sectors. But its ambitions are far broader than churning out software packages. Like IBM, Oracle and Microsoft, it aims to make its platform the basis of the whole enterprise software structure, providing the essential cement that ties together hundreds of applications, data sources, development tools and business processes to create a coherent whole. SAP NetWeaver, IBM WebSphere, Microsoft .Net and other broad brush, web services-based platforms are seeking to take this fundamental position in large sites and so achieve growth well beyond the potential of conventional apps–and all SAP’s history and strengths make this a natural strategy (far more natural than the moves into hosted, modularized or web-based versions of MySAP, which have been tolled out over the years to extend the reach of the core product, with mixed results). SAP has always been about big bang and platforms that tie a whole organization together–and into SAP.
In such a world, the software house has to work with partners as well as compete with other software suppliers. SAP is one of those rare beasts–a serious threat to even larger rivals but relatively safe from acquisition, and capable of staying aloof from any but the most attractive marketing relationships or alliances. This enables it to form complex webs of alliances, but also provokes large competitors into aggressive actions. For instance, analysts argued that IBM’s recent acquisition of Trigo Technologies was designed as a direct blow against one of the most important new offerings in the SAP portfolio, Master Data Management, or MDM. Trigo had been an SAP partner in SAP’s NetWeaver initiative, in which MDM is a key component, and IBM’s purchase was seen as a way to impede MDM’s progress as well as strengthen Big Blue’s own offering.
MDM provides long awaited functionality, aiming to solve the problem of unsynchronized, disparate data across the enterprise by supporting a single view of key data assets like the customer record, the parts master, the bill of materials, and so on. It has proved the biggest attraction point for SAP’s NetWeaver initiative. Now, with Trigo, which has evolved from software to manage retail catalogs, IBM has its hands on similar gold dust technology–though far less evolved, since Trigo is focused on vertical rather than horizontal applications so far, with business in retail, consumer goods and electronics catalogs.
But both SAP and IBM know they have a potential gold mine here, even if this market is in the early stages–early MDM customers are concentrating on data cleansing and synchronizing data between applications, not in letting MDM own the ‘single version of the truth’.
But interest in going the next step is strong and the key will lie in SAP, IBM (and others that may enter this space) being able to do a significant amount of prepackaging for their clients, using master data models. Predefining and pre-populating a solution with a master data model specific to a given company or sector makes the achievement of the single view economically justifiable for users, even in smaller companies–otherwise the customization effort is massive.
With MDM as part of NetWeaver, and IBM incorporating Trigo into WebSphere, both giants have a promise of a corporate data repository that integrates with all the enterprise’s legacy applications and data sources, using techniques like web services and service oriented architectures, to provide a single data view. Such facilities are what will put them in the lead–begging the question for the companies that just want a good ERP system rather than an enterprise-wide software strategy: will all this ambitious roadmap be at the expense of detailed functionality and usability in the core products?
Few would argue that, whatever PeopleSoft’s fate this time around, in the medium term the ERP market will consist of SAP, Oracle, Microsoft and, more tangentially through WebSphere projects and partnerships, IBM–everyone else will have disappeared, been acquired, shifted to a new focus or be operating in a niche. The big four will need more than just good applications and a reach that is expanding into the SME space. They need a far more flexible approach to their product sets.
Yankee Group says: “The growth for ERP is really declining now, and all of these vendors are looking for a way to continue to sell. We think demand is really shifting from core operational applications to what we call edge of the enterprise, or customer and supplier-facing applications that help you enable your business processes with those partners. Portals; applications that enable collaborative demand planning. These kinds of solutions, they don’t cost millions of dollars. Maybe they’re add-ons that come in at around $100,000, depending on the add-on. This is the reality that all of these vendors have to deal with. They’re looking for additional sets of customers to sell these things to.”
SAP is looking towards this type of flexibility with MySAP, but NetWeaver and a broader software architecture are the real key to growth. In order to counter the price depression threatened by new software models such as on-demand, hosted apps and open source, the big names will need to make their customers utterly dependent by going a level deeper in the enterprise, to the whole software architecture that binds data, business processes and functions together. Only these four are really capable of delivering such an ambitious roadmap, and it will shift the goalposts for the ERP market yet again.
SAP has the toughest hill to climb in many ways, needing to gain credibility in a range of areas where it has no traditional strength while continuing to enhance its core applications. But it is probably the one with the smallest burden of customer and industry suspicion and the least obvious political agenda. Long after PeopleSoft and Siebel have ceased to be household names, SAP stands a good chance of being the one ERP specialist that not only survives with its brand intact, but manages to take for itself a more critical role in enterprise computing.