Competition Heats Up in ERP Market: Oracle Merger, and SAP and Microsoft Reacts

Competitive Response -- SAP

When the definitive merger agreement between PeopleSoft and Oracle, the respective number two and three business applications providers in the market, was signed in December, the enterprise market shifted, if not rumbled. Customers in particular were somewhat bemused, not to mention mildly concerned about what this meant for them. To appease its newly acquired and existing customer base, Oracle affirmed its commitments, although its product roadmap did not include active marketing of PeopleSoft and J.D. Edwards product lines. The vendor will, however, continue to market them to the installed base, and will attend user conferences, run campaigns, and conduct public and analyst relations. Because these products are being seen, by some, as dead ends (at least in the long run), many competitors have been scrambling to offer all sorts of incentives to entice disconcerted, existing PeopleSoft and Oracle customers to switch. In this regard, at least, Oracle can feel vindicated that its claim, made during the antitrust trial, that the merger would increase competition has proven true.

Part Two of the While Oracle and PeopleSoft Are to Fuse, Competitors Ruse—Leaving Customers (Somewhat) Bemused series.

Notably, only a day after Oracle's event outlining the company's roadmap, SAP announced a comprehensive offering for SAP customers running solutions from PeopleSoft and J.D. Edwards—one that included SAP applications, technology, and maintenance services. SAP claims the offering provides companies a safe passage away from any uncertainties surrounding the brands acquired by Oracle while offering a clearer roadmap to assist companies in evolving to the next generation of business software.

In making the announcement, SAP also revealed that it had acquired TomorrowNow, the Bryan, Texas-based (US), experienced, third-party support provider of enterprise maintenance and support for PeopleSoft and J.D. Edwards product. The company has been quite PeopleSoft-focused since its creation by former PeopleSoft managers, and has received considerable attention in the last several months by offering lower-cost support contracts to PeopleSoft customers—support at about half the price PeopleSoft would charge and with a 24x7, 30-minute guaranteed response value proposition. Terms of the deal were not disclosed. However, the SAP offering includes maintenance and software support for PeopleSoft and J.D. Edwards solutions through TomorrowNow. It was initially directed at companies that are already joint SAP customers, but was recently extended to all PeopleSoft and J.D. Edwards customers. The offer should provide these customers with the comfort and flexibility to plan their maintenance and software migration strategies at their own pace.

SAP's approach seems to be two pronged. Namely, on the one hand, it provides PeopleSoft and J.D. Edwards's users with an alternative source of support for their existing legacy applications. On the other hand, it is about offering extensions through the SAP NetWeaver integration platform, and migration services to mySAP ERP, SAP's enterprise resource planning (ERP) solution. Under a program dubbed "Safe Passage," the focus will be initially on a few thousand corporate users currently running in hybrid SAP, PeopleSoft, or J.D. Edwards environments. While the SAP Safe Passage offering includes support for PeopleSoft and J.D. Edwards products, TomorrowNow will also continue to market and offer its standard TomorrowNow Support Services, offering up to 50 percent savings to any PeopleSoft or J.D. Edwards customer wanting to extend the life of their current products. Thus SAP is actively working on two fronts to remove customers from the Oracle tent. One is via Safe Passage to move to SAP products, and the other by moving PeopleSoft and J.D. Edwards licensees to TomorrowNow Support Services and off Oracle's maintenance and support "gravy train", reducing Oracle's revenue. This moves disconcerted licensees to more of a "vendor agnostic" position, and saves money and resources, while giving customers room to decide in what direction they want to move in the future.

SAP NetWeaver lies at the core of SAP's overall enterprise services architecture (ESA) strategy, and the new service oriented architecture (SOA) version of mySAP Business Suite will not function without it. The launch of SAP NetWeaver in 2003 sent ripples throughout the software infrastructure business, and the product currently consists of a portal builder, an application server, a master data manager (MDM), some business intelligence (BI), data warehousing and analytics tools, an integration suite and various other tools (for more information, see SAP Bolsters NetWeaver's MDM Capabilities). Because of its breadth, SAP NetWeaver appears to compete with many commercially available application servers, and integration and portal products, signaling SAP's intention to move out from its traditional enterprise application territory to also become an infrastructure supplier.

Further, SAP believes that there might be two main profiles of customers that will find the Safe Passage program attractive. The first group will likely have PeopleSoft's human resource and payroll applications in place, but are using SAP's applications for financials or supply chain management (SCM) among many other functions. The other group tends to be large manufacturing corporations that have SAP at headquarters, but are still using J.D. Edwards manufacturing savvy applications in many plants and divisions. In most cases, SAP was selected long after the PeopleSoft or J.D. Edwards products were put in place, and there might already be an action plan to eventually standardize on SAP corporate-wide.

These companies may find the vendor standardization opportunity and license trade-in credit attractive, even if they are in no rush to migrate now. To that end, they would have to trade in their PeopleSoft or J.D. Edwards licenses for equivalent SAP licenses (mySAP ERP or any other solution in mySAP Business Suite). They would receive a credit equal to 75 percent of the license price that they had paid, but they will have to pay the difference between that price and the current SAP license fee. They will also be charged a maintenance fee based on 17 percent of the total SAP software license value. This, however, will cover the support of their PeopleSoft or J.D. Edwards products. The customer will then be free to continue to use their current applications, begin migration immediately, or use the SAP NetWeaver platform to build integration or extensions for the combined products.

SAP believes that under this Safe Passage Program, organizations running PeopleSoft and J.D. Edwards will be able to fairly quickly extend their IT infrastructure with the SAP NetWeaver platform, which also includes connectors for these solutions. As a result, these organizations might benefit from integrating their entire IT landscape with one open platform that enables flexible business processes across the entire company. SAP indicated that there are approximately 2,000 companies globally running SAP solutions who also have headquarters, plant facilities, subsidiaries and satellite operations running PeopleSoft and J.D. Edwards solutions. Likewise, this new offer might be particularly attractive to existing SAP-leaning clients who are now forced to deal with the challenges of figuring out what to do about the PeopleSoft and J.D. Edwards solutions running somewhere in their extended enterprise.

This is Part Two of an eight-part note.

Part One detailed the event.

Part Three will discuss how competition involves infrastructure.

Part Four is a reality check.

Part Five will look at What Oracle Gains.

Part Six will cover Oracle's acquisition history.

Part Seven is the SAP Factor.

Part Eight will discuss challenges and make recommendations.

Competitive Response—Microsoft

A similar move, but one that will hardly make heads turn, took place on January 10, when Microsoft announced it would offer a migration program designed to satisfy the needs of businesses that use PeopleSoft World (formerly from J.D. Edwards), PeopleSoft EnterpriseOne (formerly from J.D. Edwards), and PeopleSoft Enterprise. This migration program was also developed to help PeopleSoft customers and partners respond to challenges from Oracle's acquisition. Microsoft hopes some customers will not like Oracle's new direction, and especially hopes those reevaluating their ERP life cycle will be looking at the competition.

The migration program provides migration technology, price discounts on Microsoft Business Solutions (MBS) software and services, and strategic guidance to help companies efficiently and affordably migrate to an appropriate MBS business management application. While the program is available for all four MBS applications, Microsoft recommends that PeopleSoft World and PeopleSoft EnterpriseOne customers consider MBSAxapta. Along similar lines, it encourages PeopleSoft Enterprise customers in the US and Canada consider MBSGreat Plains, although businesses interested in MBSNavision and MBSSolomon too could take advantage of the new migration program, which is also designed to serve business partners that specialize in PeopleSoft technology.

The new program provides a potentially, attractive financial package for PeopleSoft customers, including a 25 percent license discount as well as a 25 percent discount for the first year of participation in MBS support and enhancement programs, but not its resellers consulting and implementation services. These financial incentives are available to customers that license an MBS application no later than June 22, 2005.

The program offers migration planning guides to help customers evaluate applications and platforms, as well as data migration tools to shorten the total implementation time. Microsoft will also provide guidance from experienced systems integrators who specialize in PeopleSoft migration, and from technical specialists skilled in PeopleSoft application conversion who can cross-train companies' sales personnel. The migration program is available now through Microsoft partners worldwide, although MBS software availability and specific program offerings may vary by country.

Incidentally, some claim that the trigger of the recent effervescent spate of acquisitions could in fact be traced back to Microsoft's acquisition of former Great Plains and Navision (see Microsoft 'The Great' Poised To Conquer Mid-Market, Once and Again) in its unveiled quest to create a $10 billion (USD) application business empire by 2010. Given that its current applications revenue is "only" about $700 million (USD) or so, plus the modest to dismal prospects of organic growth in a still docile economy, it is logical to deduce remaining $9 billion in revenues will be supplemented through acquisitions. This is especially probable given Microsoft's almost infinite buying power to entertain its (also almost infinite) aspirations. This feeling remains, despite MBS executives' recent attempts to depict this lofty target as a mere misunderstanding of the market. One that was taken out of the context from Jeff Raikes' 2000 interview after the Navision acquisition, that reflected his wish to take 25 percent of the market share from the $40 billion (USD) enterprise applications market.

Therefore, however shocking it may have been for the market to find out about the secret merger talks between SAP and Microsoft—a byproduct finding of the Oracle vs. Department of Justice trial—the talks did not happen without a good reason. That is to say, through the merger, Microsoft would expeditiously reach the magic $10 billion (USD) mark, and would have assembled a full-fledged application product to compete with the likes of Oracle and IBM. While the merger talk has been cancelled (or postponed indefinitely, likely due to the antitrust scrutiny on both sides of the Atlantic), the two strange bedfellows continue to both compete and partner.

This concludes Part Two of an eight-part note.

Part One detailed the event.

Part Three will discuss how competition involves infrastructure.

Part Four is a reality check.

Part Five will look at what Oracle gains.

Part Six will cover Oracle's acquisition history.

Part Seven is the SAP factor.

Part Eight will discuss challenges and make recommendations.

About the Authors

Olin Thompson is a principal of Process ERP Partners. He has over twenty-five years experience as an executive in the software industry. Thompson has been called "the Father of Process ERP." He is a frequent author and an award-winning speaker on topics of gaining value from ERP, SCP, e-commerce, and the impact of technology on industry.

He can be reached at

Predrag Jakovljevic is a research director with (TEC), with a focus on the enterprise applications market. He has nearly twenty years of manufacturing industry experience, including several years as a power user of IT/ERP, as well as being a consultant/implementer and market analyst. He holds a bachelor's degree in mechanical engineering from the University of Belgrade, Yugoslavia, and he has also been certified in production and inventory management (CPIM) and in integrated resources management (CIRM) by APICS.

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