Special Report: Where the truth lies...

There's nothing like a good healthy debate between mature vendors to encourage end users to place their faith in their respective product lines... and this is NOTHING like a good healthy debate!

The always simmering tension between Oracle and SAP broke out into open warfare and tit-for-tat name calling this week on the back of claims made - inevitably! - by the outspoken Oracle CEO Larry Ellison which caused SAP to issue some stern rebuttals.

The spat was triggered by the release of Oracle's first quarter numbers, a pretty damn impressive set of numbers in their own right, but vamped up all the more by the ebullient Ellison's predeliction for hyperbole.

"This is our strongest Q1 licensed growth in more than five years and there is no doubt that we are gaining share across all product lines," said Oracle co-president Safra Katz, a rare voice of calm before the subsequent storm. "New software licence revenue, including i-flex, was strong with revenues of $804 million, up 28 per cent year over year, exceeding our guidance range of 18 per cent to 25 per cent.

"Technology licence revenues were outstanding across all major geographies, up 15 per cent year over year. We grew 19 per cent in the Americas, 12 per cent in EMEA, and 12 per cent in Asia Pacific. Database revenue was up 10 per cent year over year. Middleware license revenues were up 56 per cent.

"Applications were exceptionally strong as well, with licence revenue of $228 million, up 80 per cent year over year. This is actually the third consecutive quarter in which we have had applications license growth greater than 75 per cent. Applications licence revenue growth was strong around the world - 69 per cent in the Americas, 83 per cent in EMEA, and 126 per cent in Asia Pacific."

And for anyone who dared to suggest that such high growth levels were hardly a surprise if you go around buying up marketshare and gobbling up your competition, Katz countered: "The majority of our application licence revenue growth rate was organic, with licence revenue, excluding i-flex, Siebel, and Portal, reaching $186 million, up 47 per cent year over year. Recent acquisitions also contributed to our strong applications numbers with Siebel contributing $31 million and i-flex contributing $8.7 million."

So far, so good. Up next came Katz's fellow co-president, the highly respected Charles Phillips, who provided more insight on the applications business. "We have counted head-to-head wins over SAP that we can validate of 88 in the quarter," he said, citing Walt Disney World, Zales, Lockheed Martin, Electrolux, and U.S. Steel as examples.

He added the industry specific applications were increasingly important. "If you look at all deals signed in the quarter, the industry applications approached about 20 per cent of the deals in the quarter," he said. "The retail pipeline is quite large. The attach rate of other Oracle applications and technology products to that pipeline is increasing as we get better about cross-selling across the entire organisation."

This is delivering positive benefits, he argued. "In retail, for instance, we have not done much business with Wal-Mart in the last decade. We had a strategic win this quarter as they saw the innovation we brought in retail," he said. "With Zales, for instance, we lost to SAP a year ago at sales. They made some promises we knew they could not deliver on. The project sale, they now have a new CIO. They are replacing the SAP product with Oracle retail products, so we are getting win-back’s, and there are more of those on the way."

So far, still so good. But now it's Ellison's turn - and his stated intention from the start is to do a compare and contrast between Oracle and SAP in the applications market. You suspect that this is going to be bloody even before he opens his mouth...

He doesn't disappoint!

Strike 1: Proprietary evil. "We think Oracle’s current strategy is helping us overtake SAP and win market share," he claims. "Historically, successful application companies have always built their own proprietary middleware and tools. SAP built ABAP proprietary. Oracle built Forms proprietary. PeopleSoft had People Tools, Siebel had Siebel Tools, et cetera. Historically, application companies were more than just application companies. They were applications, middleware and tools companies.

"In contrast to this history, we believe that next generation SOA applications, or service oriented architecture applications, will be built upon open standards-based middleware and tools. Now, Oracle has spent a long time in the middleware business. Oracle’s fusion middleware is based on Java and other open standards. J-Developer is Oracle’s standards-based Java development tool.

"This stands in stark contrast to SAP’s NetWeaver middleware, which is based on ABAP, SAP’s proprietary language. In other words, SAP is sticking with a proprietary approach to middleware while Oracle has adopted a completely standards-based approach from middleware and our next generation of fusion applications. As the market more deeply embraces service oriented architecture, SAP’s non-standard ABAP approach to middleware is hurting their sales and helping us win share."

Strike 2: Technology laggardness. "Second, next generation SOA applications, or SOA applications, require a complete suite of middleware and tools. In other words, the middleware not only has to be standards-based, we also have to have all of the tools. It has to be complete. It has to include not only a language like Java but also BPEL, business intelligence, identity management, et cetera.

"Now, Oracle has had a large, $1 billion mature middleware business for some time. SAP’s NetWeaver product is relatively new and still incomplete. They don’t really the have - they have partial BPEL. They can integrate with BPEL, but you can’t really orchestrate their applications with BPEL. They have very limited BI. They have virtually no identity management and security management.

"It took Oracle two years to enhance our middleware for service oriented architecture fusion applications. We started well ahead of where SAP is now in middleware. We believe it will take SAP years to build the middleware necessary for their next generation of service oriented architecture applications, and ABAP must still be replaced with a modern standards-based language like Java.

"SAP is approximately two years behind Oracle’s scheduling -- with SAP’s announcement of their next generation of applications due to be delivered in 2010, they are a full two years behind Oracle’s announced delivery date for our fusion-based applications in 2008."

Strike 3: Lack of knowledge. "SAP has good industry knowledge and products in some industries, like oil and gas, but they lack industry-specific knowledge and products in most other industries," claims Ellison, adding with kind of bare-faced cheek that only he is capable a criticism of SAP for trying to buy Retek to boost its retail presence. Seemingly this 'buy your way to growth' approach is only appropriate for some companies...

Still Ellison is unabashed. "Oracle’s acquisition strategy has moved us ahead of SAP in several industries -- banking, telecommunications, retail, and so on," he boasts. "Oracle will continue to acquire industry knowledge and products. We believe that SAP must do the same, or SAP will become progressively less competitive in several industries and continue to experience slowing organic growth. SAP’s CEO, Henning Kagermann, is now publicly talking about 'a more aggressive acquisition strategy as a solution to SAP’s slowing organic growth'."

So in conclusion? "It is our belief that SAP will have to abandon ABAP and go to a standards-based middleware. Eventually, SAP will have to abandon their minimalist approach to acquiring industry-specific knowledge and products. But until they do, we will continue to gain application market share quarter after quarter and year after year.

"SAP’s growth in their most recent quarter was 8 per cent and our growth in our last two quarters was over 80 per cnet, so I cannot imagine that our rate of gain will accelerate, but I think our rate of gain against SAP will stay very, very high. I think it includes gains in ERP, gains in CRM, and gains in industry-specific applications.

"Oracle middleware is more prominent in SAP shops than NetWeaver is, so we are already ahead of NetWeaver, not only overall, but we’re ahead of NetWeaver in SAP shops, and we think we will continue to gain share even in SAP shops against their outgrown middleware.

"We think in light of that, they are going to have to alter their strategy. We have leap-frogged them in backing via acquisitions, we have leap-frogged them in retail. We have leap-frogged them in telecommunications. We are very, very strong in government and we will continue to target other industries. I cannot imagine them holding on to their existing strategy in the face of market share losses and what is turning out to be a rather slow organic growth for them.

"As our Fusion applications come out in 2008, we think that is another chance to get way ahead of SAP. SAP has said they are going to have no other, no new release of their applications until 2010. Now, they still have to make a 2010 date.

"That means we are going to be out there in the marketplace for two years with modern, standards-based SOA applications while they are presumably rewriting their applications, so I think it is a tremendous opportunity for us to get way ahead of them in ERP, and again, we will continue to acquire industry-specific applications and industry-specific knowledge with our ongoing acquisition strategy. If SAP holds to their current strategy, I cannot see our share gains slowing very much at all, maybe even accelerating."

Of course that's not how they see it over in Walldorf! "Larry Ellison's statements in today's Oracle earnings press release about SAP's product and acquisition strategy are a complete misrepresentation," said a SAP spokesman.

"Since January of 2003, SAP has consistently articulated and delivered on its vision for enterprise SOA following a course of organic growth combined with strategic acquisitions. SAP offers customers market-leading, enterprise SOA applications today while Oracle's next-generation applications exist only in PowerPoint and won't be delivered until 2008 or beyond.

"mySAP ERP 2005 gives customers and partners a world-class ERP platform with planned, regular functionality enhancements without the need for major upgrades through 2010, and has been shipping to customers since June of 2006.

"By contrast, Oracle's statements about SAP and their own Fusion progress continue to be inconsistent and misleading. In January, Oracle claimed they were halfway to Fusion and two weeks ago they said they were not even halfway done. Oracle needs to adopt one version of the truth, and be honest with the market on its actual progress."

So who's telling the truth? And who's... well, not! The answer unfortunately is probably that they both are. In both cases. To misquote a famous maxim, it's all about lies, damned lies and financial results from technology vendors.

Even Wall Street is confused. Citigroup's Oracle watcher Brent Thrill told his clients: "From a competitive landscape perspective, we believe Oracle is taking share against SAP. We have seen Oracle's applications business come back alive over the past two quarters."

But if Thrill wanders over to have a word with his colleague Marc Geall who covers SAP he'll get a different view of the world, one that finds precious little proof that Oracle is winning away SAP clients.

Ovum's David Mitchell was impressed by Oracle's numbers, highlighting the 49 per cent year-on-year growth of the On Demand business unit, a factor that went unmentioned on the conference call. "Although likely to be due to integration of the Siebel On Demand business, it is an area where we think future growth will be driven," suggests Mitchell. "Oracle generates strong margins through its support business, and the On Demand unit is where potential exists for a next phase of growth. We will be watching the performance of that business unit intently, to see whether this growth potential can be achieved.

"The business application market has always been competitive, but the past year has seen the competition intensify and the beginning of a period of structural change," he observes. "SAP was able to make progress in the applications market while Oracle was focused on acquiring and then integrating PeopleSoft/JD Edwards, Siebel and others. However, the acquisition indigestion seems to have well and truly passed, with Oracle now able to compete effectively in the application market."

Any sign of any form of detente in the months ahead? Not a chance, reckons Mitchell, but adds that this is no bad thing. "Intensified competition can only be a good thing for customers," he concludes. "We see no lessening of the Oracle-SAP competition in the quarters ahead."

By Stuart Lauchlan
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