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SAP takes on Oracle

SAP reports on its Web site that its customers running solutions from PeopleSoft and J.D. Edwards "now have a safe passage away from the uncertainties arising out of the acquisition of those software brands by Oracle. To provide companies with a clear road map to the next generation of business software, SAP has announced a comprehensive offering that includes SAP applications, technology and maintenance service."

Full marks to SAP for getting out a spoiler to Oracle's "Fusion" announcement so quickly, but is this such an attractive offer? We think SAP's first broadside falls short--perhaps it's just measuring the range.

For a start, 17% maintenance looks like a good deal if you are paying 22% to Oracle, but you may already be paying less if you've negotiated hard. PeopleSoft's maintenance fees were often based on other factors like company turnover.

Also, the 17% won't include the product upgrades. We believe Oracle will follow its standard upgrade practice with PeopleSoft products; you also get whole version upgrades (e.g. from 9.x to 10.x) without extra cost. It has also said that anyone who wants to migrate from PeopleSoft to the Oracle equivalent can do so at no extra cost--a 100% credit.

And the 17% price looks high compared to the 10% rate that TomorrowNow (tomorrownow.com), acquired by SAP in January, already offers on PeopleSoft/J.D. Edwards applications. We think the real offer is the 10% maintenance fee, and that is the shot most likely to hit the target. With SAP's weight behind it, the TomorrowNow business could expand considerably. SAP has clearly listened to Oracle CEO's Larry Ellison (or read the figures) on how maintenance is his most profitable and predictable business.

The main target for the offer are companies that run SAP globally and that also run PeopleSoft or J.D. Edwards in their organization. SAP says there are approximately 2,000 of them.

We think that SAP stands a good chance of getting defections from many of those 2,000 joint customers--particularly so in Europe--although not immediately. While PeopleSoft's client base in Europe was relatively small, the chances are higher than in the United States that a PeopleSoft joint customer would standardize on SAP. Using TomorrowNow is potentially a smart way to ease the path. Ten out of 10 for chutzpah, but needs more work.

Philip Carnelley is research director at Ovum, e-mail pxc@ovum.com.

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