SAP Still King of the Hill

With the fate of some of the biggest players in the enterprise resource
planning (ERP) application market in doubt in recent days, the only certain bet is that
Germany’s SAP is likely to remain king of the hill,
analysts say.

A consolidation hornet’s nest in the market for applications that manage
accounting, manufacturing and human resources has been roused since
third-place player PeopleSoft launched its June 2, $1.7
billion bid for J.D. Edwards , leading second-place
Oracle to ante up with its own $5.1
billion hostile play
for PeopleSoft. The imbroglio has resulted in J.D.
Edwards blasting Oracle with a $1.7
billion lawsuit

Meanwhile, SAP prefers to stay quiet about the dealings, Herbert Heitmann,
senior vice president for global communications at SAP, told But that hasn’t prevented it from rolling out a
new marketing and field campaign, offering customers of its beleaguered
competitors a “word of comfort.”

“Their customers are highly irritated and nervous about their future,”
Heitmann said. However, he pointed out that the effort is not about
stealing customers. “It’s about offering customers who feel uncertain a safe
harbor,” he said.

Forrester Research analyst Paul Hamerman saw the move as less altruistic.
“SAP benefits from this,” Hamerman told
“They just came out with their own marketing campaign to lure customers
from PeopleSoft and J.D. Edwards, where they’re saying, ‘we’re the

The strategy may work, according to AMR Research. In a research note, AMR
analysts noted that Oracle CEO Larry Ellison said in a conference call on
June 6 that Oracle would support PeopleSoft customers but kill the product.

“So the strategy is to upgrade PeopleSoft customers to the next release of
Oracle, a task that isn’t nearly as easy or painless as Oracle is trying to
make it sound,” the analysts said. “If I’m SAP, I love this because it puts
every PeopleSoft customer back in play.”

Yankee Group analyst Kosin Huang added, “I think SAP sees this as a prime opportunity that Oracle has tossed their way.”

But Albert Pang, research manager for ERP Applications at research firm
IDC, said it will take more than an advertising campaign to win those
customers. “It’s a very opportunistic move and probably time will tell
whether they are going to succeed or not,” he said. “If they can lure some
people who are sitting on the sidelines, sure, that will help them.”
However, he noted that ERP applications require heavy customization to fit
the needs of a customer, and purchasers will put prospective solutions
through thorough investigation by their IT departments, HR departments and
finance departments.

“You’re not really just going to pick someone because of an advertising
campaign,” Pang said.

However you slice the ERP market, SAP maintains a healthy lead in share,
though it is less dominant in the North American market.

Unlike many other research firms, when IDC analyzes the ERP application
market it looks at firms with horizontal offerings and firms with vertical
offerings together. According to Pang, the firm looks at it this way because of the heavy
customization needed to implement ERP applications; firms that ostensibly
have a horizontal approach — like SAP, Oracle and PeopleSoft —
essentially have multiple vertical markets.

“It’s a somewhat bigger universe than many people think,” said Henry
Morris, group vice president of IDC’s Enterprise Applications unit.

The bigger players are those which have deep vertical functionality in
multiple industries, and here SAP, which got its start providing solutions
for the chemical industry, is unmatched, Morris said.

“They’re very good at specializing in one industry and then grabbing
another industry, and another industry and another one…” he said. “SAP
has very deep vertical functionality in over 20 industries.”

Under IDC’s definition, SAP leads the pack with 18.1 percent of the ERP
applications market worldwide in 2002. Oracle and PeopleSoft each had about
5.4 percent of the market in 2002. Pang said “J.D. Edwards is really way
behind with about 2 percent of the market.”

If PeopleSoft can pull off its
acquisition of J.D. Edwards, it will catapult into second-place ahead of
Oracle and would also take first place in North America, with 11.7 percent
of the market, Morris said. But if Oracle is successful in its bid to
acquire PeopleSoft, it will strengthen its second place position.

“SAP would still be almost double that combined entity,” Morris said.

Yankee Group focuses more closely on the so-called horizontal players. Huang said that Yankee gives SAP about 36 percent of the overall $16 billion ERP market — which includes estimated license revenue and maintenance revenue. Oracle follows in second place with 17 percent of the market, Huang said. PeopleSoft follows with 15 percent and J.D. Edwards comes in a distant fourth with 5 percent.

Any way the consolidation shakes out, the new company that emerges will
hope to use its acquisition to take the game to SAP.

“Competing with SAP. This is the primary motivation for Oracle buying
PeopleSoft,” Huang said. “Oracle has been in
talks with PeopleSoft for the past year and has been looking for ways to
propel itself to the top spot and beat out SAP. The ERP market is
consolidating and one way for Oracle to dominate the enterprise
applications market is by combining its business with PeopleSoft.”

Meanwhile, AMR Research’s Jim Shepherd suggested PeopleSoft’s deal with
J.D. Edwards pursued much the same logic. “The deal also clearly places the
combined company as the second largest enterprise application company in
the world, second only to Germany’s SAP; Oracle, which PeopleSoft has vied
for second place with for years, slips to a solid third,” Shepherd said.
“J.D. Edwards had held the fourth slot. And this is one of the main reasons
for the combination. Both companies were finding it increasingly hard to
compete globally and domestically against mammoth SAP in such a depressed
technology economy.”

He added that while both companies have seen declines in past quarters, a
merger will put them on solid footing against SAP.

“The combined forces should give the new company strength, particularly in
Europe, Asia-Pacific, and other overseas markets,” Shepherd said. “Neither
company had enough people on the ground to be effective in many of these
global offices; now they will have twice as many people and gain a lot of
credibility in the regions. The combination should give PeopleSoft a
particular boost in Europe, where it has had a problem convincing Europeans
it was anything but an HR company. Not having a viable manufacturing
product in Europe hurt it a lot, but J.D. Edwards has a pretty strong
European presence, giving PeopleSoft the credibility it needed.”

Huang agreed, noting that whether Oracle picks up PeopleSoft or PeopleSoft picks up J.D. Edwards (or both, as Huang suggested was a real possibility), the resulting firm will be well positioned to take SAP on in the mid-market. Mid-market manufacturing is J.D. Edwards’ strong suit, but SAP, which is especially strong in tier-one manufacturing firms, has also been making a push for the mid-market, Huang said.

“PeopleSoft is known to have the best HR and finance capabilities,” Huang said, noting that it is strongest in government and service industries. She added, “And Oracle, most people think they’re basically a database company.” But either one can take the battle to SAP in the mid-market after a consolidation, she said.

Regardless of how the current situation resolves, consolidation is sure to continue, she added.

“It’s because of ERP market saturation,” she said. “The growth for ERP is really declining now, and all of these vendors are looking for a way to continue to sell. We think demand is really shifting from core operational applications to what we call edge of the enterprise, or customer- and supplier-facing applications that help you enable your business processes with those partners. Portals; applications that enable collaborative demand planning. These kinds of solutions, they don’t cost millions of dollars. Maybe they’re add-ons that come in at around $100K, depending on the add-on. This is the reality that all of these vendors have to deal with. They’re looking for additional sets of customers to sell these things to.”

In the end, she said, she agrees with the prediction of Oracle CEO Larry Ellison: there will only be a few survivors. Those survivors are SAP and Oracle, as well as two other companies that it is always a good idea to keep an eye on: IBM and Microsoft.

News Around the Web