(Welcome to Part 3 of Oracle Week, in which we examine the good, the bad, and the ugly approaches Oracle is taking in its attempt to fulfill Ellison's audacious desire to become the world's dominant enterprise software provider as well as leading systems supplier.)
In outlining his company's strategy and intentions for unseating SAP as the #1 provider of enterprise applications, Oracle CEO Larry Ellison unloaded on arch-rival SAP late last week by saying its technology is ancient, its strategy is a loser, its prospects are bleak, and its feet are too big.
Larry Ellison can be a very persuasive individual, and the story line he laid out for how he intends to topple SAP all sounds good in a hypothetical sense until you realize it's all predicated on one essential proposition: that SAP will just sit back and let Oracle hammer it into submission. And that's a proposition I'm not buying.
I asked SAP for its input into how it intends to ward off Oracle's assault and ultimately extend its lead, but an SAP spokesman wasn't willing to comment. But I am so here are 10 ideas for what SAP needs to do to reclaim its perceived and real stature as one of the world's foremost business-technology companies and, in so doing, lock Oracle in place as the #1 talker but the #2 achiever in enterprise software.
(And for much more analysis and insight into SAP and Oracle, please be sure to check out our "Recommended Reading" list at the end of this column.)
The situation has a couple of parallels to Ellison's oft-stated claim that he will make Oracle into the world's leading systems company by supplanting IBM atop the industry it created 50 years ago. Where the stories align is that in each case, Ellison admitted very plainly late last week that Oracle is #2 behind IBM in high-end servers, and #2 behind SAP in enterprise apps. A further parallel is that Ellison then laid out his plans, in equally plain terms, for how he intends to drive Oracle into the #1 spot in both markets. (You can read all about that in Monday's column, Global CIO: Oracle CEO Larry Ellison Declares War On IBM And SAP.)
Where the stories diverge is in the current status of IBM and SAP. IBM is and has been an exceptionally well managed company, with high achievements in market share and financial performance and innovation that are the results of a decade of steady and consistent and forward-looking leadership from CEO Sam Palmisano.
SAP, conversely, has recently churned through a series of CEOs, has failed to sustain the financial standards it established at its peak, and in the very recent words of its own co-founder and chairman has lost the trust of its customers and employees.
So while Ellison's challenge with IBM is vastly greater than the one with SAP—and while Ellison's plan for ousting SAP is, in a vacuum, persuasive—SAP is still the leader in enterprise apps, it is still an indispensable strategic partner to many of the world's largest corporations, it still has a phenomenal set of engineers and developers, and it still has an unlimited set of options from which to choose that will allow SAP to not only fend off Oracle's assault but also extend the lead SAP currently enjoys.
Here are 10 such options, broken out into three categories: Internal, Acquisitions, and Partnerships.
1) Business ByDesign. Ellison said it's late, it doesn't run on the same technology as SAP's other products, and is aimed at an audience that can't afford to pay enough to make the product profitable. But that's just conjecture—it's SAP's product, so SAP can control the discussion if it chooses to do so. Is it late? Sure it is—but so is Oracle's Fusion and Ellison simply admitted as much: he said he'd rather be late with a great product than on-time with a crappy one. So Business ByDesign is late—big deal. The far, far bigger issue for SAP is to articulate clearly and passionately why Business ByDesign is important for customers, why it's a game-changer for businesses, why it will extend and enhance SAP's leadership position. In a business-technology world where ill-defined products die rapid deaths, SAP needs to explain, more clearly and more persuasively than it has ever done with any other product, why its customers will be better off by investing in Business ByDesign. And then SAP can begin telling the world about its vertical-market capabilities, which Ellison said are sorely lacking severely:
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:
6) Autonomy. In line with the point above about predictive analytics, Autonomy has developed a set of applications as well as management and analytical tools that help customers anticipate consumer behavior, extract meaning from what others consider to be noise, and ultimately move in lockstep with the markets they serve rather than always having to play catchup. Oracle and SAP are both in large part masters of transaction systems—the acquisition of Autonomy, combined with some of the steps above, could begin to push SAP into the more dynamic world of customer interactions rather than merely transactions.
7) Teradata and Netezza. SAP, including new co-CEO Bill McDermott, has been critical of Oracle's move into the systems business because, SAP has said, the ultimate intent is to stifle customer choice. While I don't agree with that argument, I think SAP should be more than willing to entertain evolving with the times—and particularly with customer interests and requirements—by evaluating these acquisitions to get into the specialty-systems business. This would give SAP the opportunity to pursue the integrated/optimized systems approach that IBM created and currently leads, and that Ellison has said Oracle will aggressively pursue. If McDermott believes "the stack" should stay heterogeneous, then the acquisitions of Teradata and Netezza would give SAP that latitude while also allowing the company to extend some of its unique software capabilities into complete systems that today's data-intensive processes require. Both Teradata and Netezza play at the high end and would be ideal matches for many of SAP's customers.
8) IBM. SAP and IBM have a long and close relationship, and in light of Oracle's decision to compete directly against IBM in not only databases and middleware but also high-end hardware, both SAP and IBM could have much to gain by extending and deepening their long-standing alliance. Could SAP and IBM collaborate on leveraging the massive "business value" database that chief value officer Bhoudary described above? Can IBM and SAP find a way to leverage IBM's expertise in predictive analytics with SAP's transaction-driven applications? Can SAP and IBM develop a line of integrated and optimized systems that exploit high-growth niches requiring these finely tuned and specialized machines? Can SAP and IBM's business-services and technology-services teams leverage that incredible business-value database to deliver greater business performance to customers and greater revenue and profit to IBM and SAP?
9) Microsoft. The companies have made some moves together but since Microsoft hates Oracle almost as much as SAP does, it would appear these two have only scratched the surface. Microsoft wants to be a serious cloud player—it's all in for the cloud, as Steve Ballmer has said—and SAP's cloud strategies are just beginning to unfold. Why not a Microsoft-SAP cloud alliance? And perhaps that could even be expanded into a three-player team with Hewlett-Packard: after all, HP and Microsoft have already pledged to invest $250 million over the next few years to jointly explore and create cloud solutions, and it seems like SAP could add a lot to that mix. While the companies are currently tight partners for Oracle software, HP certainly has no love for Oracle's new hardware line.
10) Wipro and Infosys. Both of these multibillion-dollar IT services companies are pushing aggressively into business services as well, and those moves parallel SAP's need to extend beyond transaction-driven applications and solutions and into foresight, business value, and greater connection with end customers. Both Wipro and Infosys have great relationships with SAP but now is the ideal time for SAP to raise not only that ante but also the betting in a way that lets Wipro and Infosys bundle their burgeoning expertise in business services and vertical markets with the vast knowledge and insights that SAP's applications generate every second of every day in industries around the globe.
Larry Ellison says SAP "has lost its way." While it's true that the company has certainly stumbled a bit and has some very serious challenges ahead of it--as no less an authority than co-founder and chairman Hasso Plattner has said--it's probably a bit of a stretch for Oracle's CEO to say that SAP "has lost its way."
And even if it is true, Ellison might very well regret reminding SAP that it needs to find its way home.
Bob Evans is senior VP and director of
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