SAP is building up arsenal in its ongoing battle with Oracle for the enterprise, and sees Microsoft as a strong ally.

SAP announced on Tuesday it was teaming with Microsoft to simplify and accelerate adoption of SQL Server 2005 and optimize it for SAP's E-business suite. The companies are setting up a joint lab in Walldorf, Germany, to better integrate the database with SAP's enterprise applications.

Clearly, SAP is looking to assure customers and would-be customers that Oracle doesn't have a particular advantage by owning both a database and enterprise application, since SAP can deliver an integrated solution with its ally Microsoft. SAP says in a press release that it will work with Microsoft to "help companies consolidate their databases and applications" and lower their total cost of ownership for these things.

That agreement is just the latest in what's becoming a more cozy relationship between the two companies in recent weeks. It came at SAP's Sapphire international user conference in Vienna this week; three weeks ago at the U.S. Sapphire in Atlanta, Microsoft corporate VP Lewis Levin and SAP executive VP Doug Merritt were all smiles about an agreement to continue the Duet software partnership for at least several years and include more and better features, given a successful first year. Duet lets desktop users use Microsoft Office as a front end to access information in their companies' SAP enterprise applications.

SAP also announced on Tuesday that Dansk Supermarked A/S, Denmark's largest retailer, chose SAP ERP financials "over Oracle and other vendors" to manage financial operations of its six supermarket chains.

While SAP leads the enterprise software market, Oracle has been looking to close the gap through acquisitions of large software companies. At Sapphire Atlanta, SAP CEO Henning Kagermann told InformationWeek the company was looking for small acquisitions in the area of business intelligence. That came to fruition with its plan announced last week to acquire OutlookSoft, a provider of performance-management software with 250 employees and 700 customers. It's a small acquisition compared to Oracle's March acquisition of Hyperion, for $3.3 billion, but shows how both companies are looking to expand their presence within the offices of company CFOs.

This week, SAP announced its acquiring MaXware, a provider of identity management software with 300 customers, and Wicom Communications, which has 200 customers of its IP-based contact center and communications software, consistent with its strategy to acquire primarily small companies.