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SAP-Oracle battle to reach a fervid pitch, analyst says

Forrester Research analyst Ray Wang sizes up the past, present and future of Oracle and SAP's ongoing fight for business applications dominance.

The battle for business applications supremacy is raging on -- who will come out on top, Oracle Corp. or SAP AG?

The SAP strategy is really focused on having the partners build a lot of the product out.
Ray Wang,
analystForrester Research Inc.

According to Forrester Research Inc. analyst R. "Ray" Wang, it's nearly impossible to pick an outright winner right now. But what is clear, he says, is that the fight will continue for a long time to come.

What's also clear, Wang says, is that a new and major front in the war will be opening up in the next couple of years, when SAP releases its next-generation enterprise resource planning (ERP) offering and Oracle unveils its first Fusion-based ERP applications.

Wang, who focuses on ERP, customer relationship management (CRM) and other business applications software markets for Forrester, has previously worked for PeopleSoft Corp., Oracle and a start-up doing IT market intelligence. He's also worked as a consultant helping companies with SAP implementations.

In this interview, Wang sizes up the past, present and future of the Oracle-SAP fight.

Oracle and SAP have been battling for business applications supremacy for a long time now. Who do you think is currently winning that war?

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Ray Wang: If you look at it from the beginning, SAP had almost a 9-to-1 lead in terms of overall application license sales. This is before Oracle bought PeopleSoft, before they bought Siebel and before they inherited J.D. Edwards. By doing that, Oracle pretty much said, "We're serious about applications, we can't give SAP that much of a lead and we need to consolidate a customer base so that we can at least play ball with SAP." Oracle [is now] a little bit over $5 billion in [annual] applications revenue and SAP has about $10 billion. So they've narrowed the gap there.

At the end of the day, Oracle was a technology database company trying to invest in applications and building on an applications road map over the last 10 years. SAP on the other hand is an applications company that can't depend on Oracle or Microsoft to build that technology layer, so they've had to go out and build NetWeaver.

What do you see happening in the Oracle-SAP battle a few years from now?

Ray Wang: The interesting thing is that a lot of the "A" customers purchased their ERP systems pre-Y2K and around Y2K. The last big boom in ERP was I'd say 1998 through about 2001. Most people hold their software from seven to 10 years. So the next big boom is starting around 2007 or 2008. That is just when SAP has their next-generation products coming out, as well as Oracle with Fusion apps in 2008. That is where the next battle is going to be. Either SAP will dominate the market like an Intel-AMD relationship where they own 80% of the market, or Oracle has the opportunity to catch up. Right now it's very unclear as to who is winning because everybody says that they're succeeding in selling middleware. But as they start to sell more of these middleware components, as they start to go deeper into the stack, that means that customers will actually be betting ultimately on Oracle or SAP in their apps strategy. This is why Fusion middleware and SAP NetWeaver sales are going to be a great predictor of future activity on the applications side.

Oracle has clearly decided to expand mainly through acquisition, while SAP's approach seems to focus more on internal development. Can you talk a little bit about plusses and minuses of Oracle's strategy?

Wang: Oracle has to acquire to compete right now. They have to acquire customer bases and they have to acquire areas of industries where they see future growth and where they're not [competing] head on with SAP. For instance, when you look at areas like healthcare, telecommunications, financial services, education and government -- those are wide open areas. Oracle needs to acquire customer bases and they need to acquire industries. Instead of building it on their own and developing it organically, they have made the strategic calculations that if the maintenance revenue is good enough, it can sustain them into that development phase.

How big a challenge does Oracle face in integrating all of the technology from its various acquisitions?

Wang: There are a number of acquisition strategies that are all counting on service-oriented architecture (SOA) and Web services and open standards to get them to that next place. Oracle is doing the same thing using their Fusion middleware. How hard is it? It's not easy. You have to first identify and redefine the business processes, figure out the traits that customers like and carry them into the next iteration, and then there is the whole issue in terms of the data migration. There is some data that you rewrite and there is some that you put a wrapper around. But it's a lot easier then it was five or ten years ago. SOA and Web services make this more possible.

What challenges does SAP face with its NetWeaver?

Wang: What SAP has been successful at doing is putting together a lot of high-profile partnerships around the NetWeaver ecosystem. The SAP strategy is really focused on having the partners build a lot of the product out. SAP's job is to provide the right infrastructure platform through ESA or PPP and NetWeaver to give partners what they need to build out verticals, whether it's industrial verticals or whether it is specific sets of technologies. They're trying to create a platform -- an ecosystem -- and at the end of the day if they sell the infrastructure piece and if that helps sell more applications that is really the goal.

How do Oracle and SAP's competing software offerings stack up against each other?

Wang: In ERP, SAP has a clear advantage from a customer base. But from a functionality perspective they're fairly close. On the business intelligence side, I feel that Oracle's [Daily Business Intelligence] product is a lot stronger than SAP's Business Information Warehouse. I think Oracle is ahead in the CRM game, even if you look at E-Business Suite alone, and of course with the Siebel purchase. The Siebel CRM team is going to be in charge of defining Oracle's CRM strategy.

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