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SAP And Oracle Battle, Customers Avoid Choosing Sides

Will it be the apps vendor's innovation or the stack vendor's one-stop shop? IT hedges its bets.

Innovation is the key theme SAP has been talking up since McDermott and Jim Hagemann Snabe became co-CEOs early last year. It's the company's label for its in-memory, mobile, and on-demand offerings. In-memory is highlighted by the Hana appliance, technology aimed at analytics today but expected to take on data warehousing and, eventually, transactional database duties.

SAP's mobile apps and infrastructure are mostly Sybase products, including the Sybase Unwired apps development and Afaria device management security platforms. SAP's on-demand offerings are led by the Business ByDesign SaaS suite but also include a Sales OnDemand app released in June, a Carbon Impact OnDemand app, and other offshoots planned for the same platform.

McDermott puts SAP in the same category with Apple and Google as "companies that are reporting strong momentum because they're following innovation strategies." That may be a bit of a stretch, but there's evidence SAP's innovation strategy is working.

The Hana appliance, for example, has a 400 million Euro ($570 million) sales pipeline, and SAP is counting on about 100 million Euros ($142 million) in completed sales this year, McDermott said. About 3,000 companies are embracing SAP and Sybase mobility apps and infrastructure, and the mobile sales pipeline is "in the same zipcode as Hana," he said, though he stops short of offering hard figures or average deal sizes.

With only 1,000 customers expected to be using Business ByDesign by year's end, SAP's on-demand revenue will scarcely register. But let's throw that in with Hana and mobility and call it 200 million Euros ($286 million) in top-line impact for 2011. That's a rounding error compared to the 12.9 billion Euros ($18.4 billion) in revenue SAP expects this year. Nonetheless, McDermott insisted that the bulk of the revenue boost has yet to come and that the innovation strategy is having an outsized impact on core application suite sales today.

"Once companies hear the in-memory and mobile story, they're confident that SAP has the best process, data, and mobility strategies of all the major software companies," he said.

Counting cloud, mobile, and analytics among the "big levers" in the IT market these days, Wang says, SAP has made "all the right bets." The BI and analytics bet (with SAP BuisnessObjects) has paid off particularly well, driving 30% to 40% of revenue, he estimates. But companies like also are placing these bets, and the question for customers is who has the most cost-effective approach? That remains to be seen, says Wang.

How Oracle Stacks Up

For the last two years, the innovation at Oracle has been all about Exadata and the integrated stack. In the wake of Charles Phillips' departure as company president, software appears to have taken a back seat. Acquisitions have been small tuck-in deals, like this week's purchase of InQuira, a self-service knowledge management systems provider that will bolster Oracle's CRM offerings.

After several years of delay, Oracle's Fusion Applications are finally available, but the company has been very quiet about their release. No doubt, there will be a big splash at Oracle Open World in early October. But will the story be about applications or the vendor's one-stop-shop, single-stack approach? If the focus is on the apps, expect to hear about the innovative blend of on-demand, on-premises, and hosted deployment options. It won't be hard to outdo SAP's conservative embrace of cloud computing.

If the emphasis is on Oracle's stack play, expect to hear about IT manageability, vendor consolidation, and the promise of reducing the cost of keeping the lights on. Wang sums up the story line as "just buy the red stack, and we'll get rid of a dozen vendors and save you money."

Even if hardware business is commoditized, that doesn't mean it's not a strategic assets for Oracle, says financial analyst Brett Korsgaard of Koa Capital Management. In this recent article, Korsgaard speculates that Oracle's strategy is to "render hardware less relevant while it recoups the profits through value-added applications and systems software." Oracle's diverse product line has made revenue predictable, shielding results when new software license revenue might suffer, he says.

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