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1/19/2005
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SAP Makes Bid For PeopleSoft Customers With TomorrowNow Deal

SAP acquires TomorrowNow, a supplier of PeopleSoft support services, in a bid to counter Oracle's PeopleSoft integration plans.

One day after Oracle outlined its plans for integrating PeopleSoft's applications with its own, rival SAP said it has acquired TomorrowNow Inc., a supplier of software maintenance and support services for PeopleSoft applications.

SAP, apparently anticipating that current PeopleSoft application owners will seek maintenance and support alternatives to Oracle, on Wednesday outlined a package of maintenance and support services for owners of PeopleSoft and J.D. Edwards applications. The acquisition of TomorrowNow, a third-party services company founded by former PeopleSoft executives, is a critical element of SAP's new offerings.

Terms of the TomorrowNow acquisition were not disclosed.

Under what it calls its "safe passage program," SAP is offering technology and services to PeopleSoft customers to allow them to maintain their PeopleSoft and J.D. Edwards applications as legacy software or migrate to SAP's own applications. SAP says its NetWeaver development, deployment, and integration platform, which has connectors for PeopleSoft and J.D. Edwards applications, can help companies extend those applications as part of a migration strategy.

SAP says its efforts will initially be directed at companies and organizations that already run SAP software in conjunction with PeopleSoft and J.D. Edwards applications. There are approximately 4,000 companies that own SAP software and also run PeopleSoft and/or J.D. Edwards applications in their headquarters or in plant facilities, subsidiaries, and satellite operations, SAP says.

"Those customers don't want to be bought," says Bill McDermott, SAP's president and CEO for North America. "They're going to look at all their options."

SAP's move is expected to put pressure on Oracle's software maintenance profit margins. SAP has told its customer base, which includes many users of PeopleSoft human-resources management applications and J.D. Edwards manufacturing software, that it will support those applications for an annual fee of 17% of the purchase price indefinitely through TomorrowNow.

The maintenance issue is a sensitive one, since Oracle needs to retain customers and obtain annual maintenance revenues from them, typically 22% of the purchase price for Oracle applications, for the takeover to be considered a success, Oracle CEO Larry Ellison said Tuesday.

PeopleSoft customers have typically paid 20% of their purchase price for maintenance, a combination of technical support, bug fixes, and application upgrades. That 20% level will be maintained as PeopleSoft is integrated into Oracle, Ellison said Tuesday.

To further encourage PeopleSoft/J.D. Edwards customers to migrate to SAP products, SAP will offer PeopleSoft and J.D. Edwards customers a 75% credit of their purchase price toward SAP applications. It will then charge 17% maintenance fees on the reduced price resulting from the credit, McDermott says.

McDermott disputes Ellison's claims that Oracle now holds the No. 1 position in enterprise-resource-planning applications in North America. Ellison was using market-share numbers from 2003 and that SAP surpassed the combined market shares of Oracle, PeopleSoft, and J.D. Edwards in the ERP market last year, McDermott says.

TomorrowNow was founded in 1998 and has competed vigorously with PeopleSoft, building up a list of 100 customers by cutting PeopleSoft maintenance costs in half to 10%. Purchasers of TomorrowNow maintenance were, in effect, just treating their applications as static and foregoing major upgrades. TomorrowNow provides bug fixes, software updates to comply with changes in laws and regulations, and technical support. Customers include Coors, Lockheed Martin, NBC Universal, EDS, and Safeway.

As part of SAP, the 37-employee company will continue to compete for business on that basis. McDermott promises, "We will put a lot of additional resources into TomorrowNow."

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