Who Will Win The SAP, Oracle Battle?

When it comes to the business of selling technology, two immutable facts emerge: Past is prologue; and it’s always personal.

Just ask Larry Ellison and Henning Kagermann, the stars of the latest and, some might say, most vicious revival of an age-old tale that’s been told and re-told throughout the history of American commerce.

This time it’s SAP and Oracle.

Before that it was Microsoft and Yahoo for search. And quite some time ago, it was Apple and IBM for PCs. The names change but the storyline remains largely the same: No. 1 and No. 2 channel all their rage and resources toward destroying each other, oblivious or indifferent to an emerging competitor that’s soon to kill them both.

And while SAP and Oracle continue to slug it out for the lion’s share of the estimated $30 billion-plus that companies spend for business applications and services each year, Salesforce.com’s software-as-a-service (SaaS)  model is propelling the company to record sales and earnings.

Worse for SAP and Oracle, the on-demand applications provider is not just winning in the small- to mid-sized market, but it’s also winning contracts for large installations in head-to-head battles with both rivals and, in some cases, landing subscription deals with some of their largest and most lucrative clients.

“The competition continues to struggle with how to build, sell and deploy multi-tenant shared solutions,” Salesforce.com CEO Marc Benioff said during an Aug. 15 conference call announcing the company’s second-quarter results. “The appeal to customers is undeniable. But for entrenched legacy vendors like SAP, Oracle and Microsoft, to truly adopt this model is unthinkable.”

Benioff, who might be even better at needling competitors than his former boss, Ellison, said Siemens, SAP’s largest European customer, chose to go with his company for its customer relationship management (CRM)  software in the second quarter and added “of course, we already have their largest global customer, Dupont. That’s amazing.”

He said Salesforce.com landed the largest customer account in its history — a yet undisclosed international financial services firm with more than 35,000 subscribers — at the expense of Oracle. It also doubled its subscriber deployment at Cisco Systems , a legacy Siebel account, and beat out Oracle for a “large opportunity” at American Express .

An Oracle spokeswoman declined to comment on Salesforce.com’s customer wins in the second quarter. In an e-mail to internetnews.com, SAP spokeswoman Lindsey Held wrote “we are focused on our customers, not competitive claims.”

The strong second quarter and impressive customer wins aside, Salesforce.com still casts a relatively small shadow over SAP and Oracle. In the quarter, it earned $3.7 million on sales of $176.5 million. It’s now projecting sales of between $727 million and $732 million for the fiscal year. Meanwhile, SAP pocketed $2.5 billion on sales of more than $12.4 billion in its most recent fiscal year while Oracle earned $4.3 billion on sales of $18 billion.

While neither SAP nor Oracle is saying much about Salesforce.com or its rapidly expanding subscriber base, both companies say they recognize the importance of the SaaS market. SAP plans to unveil A1S, its twice-delayed SaaS offering geared for the SMB market later this year. Meanwhile, Oracle’s Siebel CRM OnDemand service lags far behind Salesforce.com.

“Salesforce is leaps and bounds ahead of Oracle right now,” Gartner analyst Sharon Mertz told internetnews.com. “Salesforce has somewhere between $400 million and $500 million in on-demand sales compared to between $50 million and $100 million for Siebel OnDemand.”

Next page: Is Microsoft playing?

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Mertz said Microsoft  looms as a potential threat to Salesforce.com down the road. It will be releasing the latest version of its Dynamics CRM Live service in the first quarter of 2008. She said Microsoft is already bringing in between $175 million and $200 million from its CRM Live offering.

“I don’t believe Salesforce’s success is necessarily due to the fixation Oracle and SAP have with each other,” she said. “They have a good alternative to on-premise solutions for a wide range of company sizes. Now they’re making more headway into the larger companies, selling into SAP and Oracle strongholds.”

Analysts say the growing popularity of SaaS with companies large and small represents a significant growth opportunity for vendors who can branch out from traditional SaaS applications for CRM and human resources to more business-critical applications such as procurement and compliance management.

In March, Gartner reported worldwide SaaS sales surged to more than $6.3 billion in 2006 and predicts the market will blossom to more than $19.3 billion by 2011.

While Salesforce.com keeps adding subscribers, Oracle and SAP continue to trade punches.

In March, Oracle filed a lawsuit alleging SAP engaged in “corporate theft on a grand scale” by engaging “systematic, illegal access to — and taking from — Oracle’s computerized customer support systems.”

Last month, Kagermann conceded that its subsidiary, TomorrowNow, engaged in “inappropriate” downloads of Oracle support materials but said SAP did not access any of Oracle’s intellectual property.

SAP claims the “majority” of the 150-plus complaints in the Oracle lawsuit are “unfounded” and Kagermann said he was “surprised and disappointed” that Oracle did not personally contact him when it discovered the downloads. He also acknowledged the U.S. Department of Justice (DoJ) has requested some of SAP’s internal documents for its investigation.

Oracle contends TomorrowNow employees downloaded thousands of mission-critical items from Oracle’s knowledge bases used to service its customers.

Both CEOs have shown an affinity for mocking one another and their companies in the press, particularly in the months leading up to and immediately following Oracle’s hostile takeover of PeopleSoft in January 2004.

Kagermann, in a July 2004 interview with Business 2.0, said he wasn’t too concerned about Oracle’s $10.3 billion purchase.

“Larry claims that he will overtake SAP,” he said. “But just look at the facts. Who’s gaining market share? It’s all bullsh**.”

Ellison enjoys mocking his chief competitor by calling it “sap” and damn SAP with faint praise with quotes such as “[SAP] has good industry knowledge and products in some industries, like oil and gas, but they lack industry-specific knowledge and products in most other industries.”

Denis Pombriant, an analyst at Stoughton, Mass.-based Beagle Research Group, said the ongoing war between SAP and Oracle is playing a role in distracting both companies from the threat Salesforce.com presents.

“Salesforce started as an insurgent in a corner of the market that Oracle and SAP didn’t want to play in,” he said. “They’re both making half-hearted efforts to develop an on-demand strategy. But they’re more focused on attracting customers with on-demand and then switching them to on-premise solutions with bigger price tags and profits.”

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