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SAP vs. Oracle: The new battlegrounds

IT industry experts predict where the coming battles between Oracle and SAP will be fought and rate the success of Oracle's acquisition spree thus far.

The SAP vs. Oracle battle is getting hot, as business applications giants Oracle Corp. and SAP AG are gearing up to battle for customers in "hot" markets like healthcare, insurance and financial services, IT industry experts say.

Ray Wang, a business applications analyst with Cambridge, Mass.-based Forrester Research, says the longtime archrivals want to expand their customer bases to include more clients in high-growth industries that focus on providing services. Wang predicts that Oracle and SAP will also concentrate on besting each other in the insurance, telecommunications, retail and public sectors.

"These are big areas of growth, and that's really where the new battlegrounds are for Oracle and SAP," Wang said. "They're trying to expand out of their traditional manufacturing [customer] bases."

For Oracle to even be in the applications game they had to do the acquisition spree, and it makes a lot of sense.
Ray Wang,
business applications analystForrester Research Inc.

Oracle, which has been on a three-year, 23-company-and-counting acquisition spree, is seeking to enter into new markets by purchasing customer bases of established software firms. Meanwhile, SAP, which has traditionally sought to grow primarily by organic means, is reacting to Oracle's plan by sending signals that it may embark on a new acquisition strategy of its own.

Gene Phifer, lead Oracle analyst with Stamford, Conn.-based Gartner Inc., predicted in a recent interview that the rivals will also race to offer the most robust set of service-oriented architecture (SOA) capabilities. Companies that can provide Oracle and SAP with cutting-edge development, compositing or orchestration capabilities may be ripe for acquisition, he said.

Phifer added that he thinks Oracle will seek to get into the world of Web 2.0.

"They may be looking at some technology acquisitions to fast-forward their entry into that [market]," he said. "That could include acquiring capabilities around AJAX, around building mash-up types of applications -- everything from blogs, to wikis, to social networks, you name it."

Oracle on the move

Oracle has already made several moves in high-growth services markets. One example is the August purchase of business intelligence software vendor Sigma Dynamics Inc. Oracle plans to offer Sigma's real-time and predictive analytics software as a standalone product or as part of its Fusion middleware platform.

Sigma software provides action frameworks that make it easier for vendors to up-sell and cross-sell and give customers analytics capabilities. Such functionality is becoming increasingly important to the retail, financial services and telecommunications sectors, according to Wang.

Oracle made known its interest in the telecommunications market in April with the purchase of Portal Software Inc., a revenue management software vendor that focuses on helping telecoms, cable companies and media markets build out billing infrastructures.

"Oracle has not had a strong billing solution since the beginning," Wang said, "and so having Portal in play allows them to serve more utilities, and it allows them to serve telecom customers."

Oracle and SAP's bitter bidding war for retail technology vendor Retek Inc. was yet another example of both firms' designs on the retail market. Oracle eventually won the fight with a successful $670 million offer for Retek in March of last year.

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High marks for Oracle's acquisition strategy

Oracle's acquisition spree is one big gamble that appears to be paying off. Wang said that proof of this lies in Oracle's recent quarterly earnings report and in his own research, which shows Oracle gaining some ground on SAP in the business applications market.

"I think it was the right move, in retrospect, pulling together a large base of applications customers, because if they hadn't done so, SAP would have a big lead," Wang said. "For Oracle to even be in the applications game they had to do the acquisition spree, and it makes a lot of sense."

Oracle's level of customer relationship management (CRM) sophistication jumped dramatically with its high-profile purchases of CRM giants PeopleSoft Corp. and Siebel Systems Inc., Wang said. Before those acquisitions, Oracle's CRM offering was smaller and heavily driven by its financials package. Today, Oracle is the leader in CRM, he said.

Before the PeopleSoft and Siebel acquisitions, "Oracle CRM had some traction, but for the most part the database group had subsidized all the R&D investment in the applications group," Wang recalled. "I would be hard pressed to say that the applications team was profitable."

While Siebel's CRM products will probably become the centerpiece of Oracle's Fusion offering, Wang believes that the PeopleSoft purchase in particular represents a major culture shift for Oracle, both in terms of technology and how it deals with customers. Prior to the takeover, he said, the PeopleSoft customer was one who decided not to go with Oracle and not to go with SAP, and that choice usually came down to two factors: usability and customer relationships.

"I think there are some fundamental changes that Oracle has made as a result of acquiring PeopleSoft," Wang said. "They've taken a lot of the PeopleSoft programs like usability, like the customer support model, and they've applied that to kind of change how Oracle operates."

Technologically, Oracle is embracing PeopleSoft's approach to usability. Wang said that PeopleSoft's Effective Dating and SetID features are sure to be a boon to Oracle on the user-friendliness front.

"What these really allow you to do is look at different ways to group people within the organization," Wang said. "Those are things that weren't inherently within the Oracle CRM product."

And Wang gives Oracle president Charles Phillips some of the credit for a marked improvement in the way the company interacts with – or sells to – its customers and potential customers.

"They've had more contact and interaction with customers than they have had in the past," he said. "Partially, it's because of the merger and partially it's because Chuck Phillips has really changed their operating behavior."

SAP suggests change in strategy

Michael Fauscette, vice president of the applications program at Framingham, Mass.-based International Data Corp., agrees that Oracle's acquisition strategy is so far proving to be successful. News that SAP is reacting by considering a more aggressive acquisition plan of its own validates Oracle's strategy, he said.

"I actually believe that [Oracle] has been successful to maybe very successful, and I think that maybe the jury is still out on the very successful part," Fauscette said in a recent interview. "But all the signs point to a very strong strategy that has played out very well for them."

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