Global CIO: Larry Ellison's Nightmare: 10 Ways SAP Can Beat Oracle - InformationWeek

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3/30/2010
08:36 PM
Bob Evans
Bob Evans
Commentary
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Global CIO: Larry Ellison's Nightmare: 10 Ways SAP Can Beat Oracle

Ellison bluntly predicted Oracle will blow past SAP in enterprise apps, but here are 10 steps SAP should take to reassert its preeminence.

2) Vertical-Market Expertise. SAP declined to comment, but did note it has vertical-market expertise "in 27 industries like utilities, consumer products, oil + gas, etc." Ellison's point was about granularity of functionality, not merely having a presence in an industry—and I believe SAP has extraordinary capabilities in many key industries. Just a few weeks ago, in a major analysis of a massive IT transformation at BP led by CIO Dana Deasy, we wrote in detail about the energy giant's reliance on SAP in not only running but enhancing its business processes and improving corporate performance in Global CIO: BP's Extraordinary Transformation Led By CIO Dana Deasy. SAP has begun to talk about its strategic involvement with companies like McDonald's and Apple (please note: Steve Jobs is Larry Ellison's best friend but prefers some SAP apps over Oracle's) and has unmatched penetration in major industries. So push that, promote that, extend that, and beat relentlessly on the issue of how that expertise creates business value for customers. That's the issue here in mid-2010, particularly with Ellison saying he's going to come into your kitchen and take your lunch.

3) Unmatched Customer Insights. Among its 90,000 customers, some are no doubt grousing about maintenance or missed deadlines or inconsistent policies, and those issues need to be dealt with. But many more are using SAP products to drive quantifiable increases in business value, and part of that could be coming through a specialized service within SAP that no other company I've come across can match (and I say "could be" because SAP declined to offer any additional comment). As I wrote in October, ". . . an executive with the unprecedented title of Chief Value Officer made some sweeping promises about how SAP is prepared to arm customers with intense new insights into best practices, benchmarks, customer insights, process optimization, and 'creating value along the entire IT investment lifecycle'. . . . No, the real impact—the real import—of SAP's new vision is not what it might mean to Oracle but rather what it means for CIOs charged with raising performance while lowering costs, with rebuilding their enterprise architecture on the fly while also becoming revenue generators, and with squeezing latency out of every facet of the company's operations while also making everything more flexible." Indeed, Chief Value Officer Chakib Bhoudary said SAP can offer unprecedented insight from a database he and his team have compiled of 4,000 SAP customers' processes, best practices, and benchmarks. Sounds to me like SAP's sitting on a gold mine—why not stop sitting on it and start showcasing it to the world?

4) Lower Support & Maintenance Fees. This one can be huge because no matter how Larry Ellison tries to spin it, 17% or 18% or 20% is and always will be lower than 22%. Oracle's business model—and SAP's business model—are predicated on the large and incredibly profitable revenue streams the companies get from annual support fees. As we wrote about on Tuesday, Oracle's operating income for the quarter from its "software license updates and support" was $3.016 billion, stemming from an operating margin of 91.5%. Oracle would have the world believe that customers love these annual fees, and SAP has made similar types of comments as well—but on the part of both companies, that's a lot of nonsense. Some customers feel they're getting equivalent value in return for the annual fees they pay, but many and perhaps most do not. SAP has shown at least some willingness to provide customers with at least a couple of options, and early this year—in a very wise move—decided not to impose an across-the-board hike in support fees to 22%. SAP should never, ever let CIOs forget that while Oracle charges 22% with zero options, SAP's fees are a bit less with some level of choice involved. For details on why Oracle has never given any sign of lowering its annual fee or offering tiered pricing, have a look at yesterday's column: Global CIO: Oracle's Dazzling Profit Machine Threatened By Rimini Suit.

5) Business & Predictive Analytics. Spurred by IBM's numerous acquisitions in business analytics and predictive analytics, and by IBM's high-level designation of it as a top strategic objective for IBM in 2010 and beyond, this category's become one of the hottest in the business-technology world because it allows company to gain foresight into what is happening and what is likely to be happening. SAP, with its phenomenal installed base in transaction systems, vertical expertise, and business-value database, should be able to become a major player in this category that will be essential to every company in every industry. Oracle does not have a strong presence here so SAP's got a big opportunity to leverage its vast resources and extend the value proposition it can offer customers by helping them understand what's coming, why it's coming, and what those SAP customers should be doing to exploit that foresight.

Next up is acquisitions, and we've got three nice suggestions for SAP's shopping cart:

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