While a high-profile legal sideshow begins today that will result in SAP paying Oracle either a lot of money or an incredible amount of money, life outside the courtroom proceeds apace for the two companies and SAP, buoyed by last week's strong quarterly results, believes it has all the pieces in place to maintain and extend its marketplace lead over Oracle in enterprise applications.
In the earnings call with analysts, SAP co-CEOs Bill McDermott and Jim Hagemann Snabe outlined a range of ideas that, when strung together, reveal a battle plan that they believe gives SAP competitive advantage over Oracle in product strategy, go-to-market execution, innovation, and in a business model that enhances customer trust.
Oracle, of course, sees the situation quite differently: Oracle believes SAP's product strategy is fractured rather than cohesive; Oracle believes SAP's underlying architecture is old and brittle rather than fresh and flexible; and Oracle believes that SAP's continued focus on standalone software, rather than on integrated and optimized systems, is yesterday's approach to tomorrow's problems.
The beauty about these archly opposed approaches is that they give CIOs unmistakably clear choices in each of those vital areas: product strategy, enterprise-architecture philosophy, vertical-market expertise, and corporate personae.
And that's exactly the kind of approach that creates healthy, vibrant, and innovative markets: aggressive and well-heeled suppliers competing openly and vigorously for the approval and buying decisions of customers and prospects.
So from the comments of SAP's co-CEOs during last week's earnings call, I've extruded a list of the Top 10 reasons SAP believes it can beat Oracle for the hearts and wallets of CIOs and CEOs around the world. I've ranked those 10 based on my perception of how McDermott and Hagemann Snabe positioned them in terms of emphasis and significance, and I'll roll them out below in ascending order, starting with #10 and moving up to and finishing with #1.
10. Oracle's Fusion applications are vulnerable. Oracle originally planned to have those apps out in the market a few years ago but now says they'll be available on a limited basis in 2011. While Larry Ellison's extremely bullish on the products themselves, SAP is looking to leverage their tardiness into enduring FUD over their ultimate value. On the earnings call, McDermott went so far as to say that he hopes Oracle gets its Fusion apps into the market sooner rather than later because they will create revenue opportunities for SAP:
"In relation to the competitor bringing a new product to market, considering it's several years late now, it still remains to be seen if it won't be another year late," McDermott said. "The fact of the matter is they don't do very well in Generation One releases, which is why I think they've watered down the messaging to sort of beta-ing and testing with some customers on quote-unquote 'the new product.'
"We look forward to the day when they may have some kind of a new product or a new release level because that will then put all their existing customers in their existing installed base, of all the roll-ups they've done on the M&A front, in a buying mode—they'll have to make a decision. They'll have to make a decision to keep the legacy and the maintenance on that, or they'll have to make a decision to switch. If they consider switching to a new platform or a new application from Oracle, you and I and everyone else on this call know that they're gonna shop it against SAP, if for no other reason than just to keep Oracle honest on price, which means we come to the table in a buying decision with the customer," McDermott said..
"When we're at that table, in 25 industries and all market segments around the world, my money's on SAP."
Next comes a strategic thrust aimed at Oracle in China:
9) Sybase is China's #1 database. McDermott and Hagemann Snabe frequently touched on the significance of SAP's ability to work with a wide range of partners as a strategic advantage, and in a parallel context described how their acquisition of Sybase earlier this year would open up significant new markets and growth opportunities for SAP.
"And the new [market opportunities] will be the extension of our ecosystem as we build new partners and new routes to market in new channels and new geographies all over the world," McDermott said. "Business ByDesign gives us a tremendous opportunity to do that. Jim talked about China—if you think about Sybase and the fact that they're the #1 database in China, there's an example. So every angle on partners is something SAP looks at from a force-multiplication point of view."
Like every IT vendor, SAP looks at China's enormous economy as a massive opportunity—and while SAP acquired Sybase primarily for its mobile strength, SAP is no doubt very eager to see if it can exploit Sybase's strong presence in the Chinese database market as way to cut into Oracle's huge database business.
8) New products and strategies have doubled the size of SAP's addressable market. Accelerating its diversification away from being solely a supplier of large and complex ERP applications to large global corporations, SAP believes its aggressive moves into SaaS products, mobility, and in-memory computing give it huge new growth opportunities with both existing and new customers.
"We have, with our product strategy, basically doubled the addressable market of SAP, and that gives us the strong opinion that we can sustain growth in double-digits in the time to come," said Hagemann Snabe. "We have opened up new markets like the on-demand market, we have opened up new markets like the mobile market, and we have opened up the fascinating new market around in-memory computing, and all of these will be elements of our growth strategy.
"We still believe there's a lot of growth in the on-premise world, as well—we seek key industries like banking and retail and utilities investing heavily in standardization of software. We also see geographies like China and the BRIC countries that want to become global players and standardize on a global infrastructure, and SAP has proven to be able to do that. So it's a combination of on-premise extending the leadership, and then adding these new businesses of on-demand, mobility, and in-memory computing to really show leadership from an innovation point of view."
7) Broad distribution channels. That larger addressable market described by Hagemann Snabe won't do SAP any good unless the company is willing to forcefully change the way it offers its products to market. In response to a question about reaching customers of various sizes, McDermott said, "We have a direct-sales force model that works quite beautifully. In terms of value for customers and business outcome for customers, we think we're pretty world-class in that area," said McDermott. "Where you'll see us focus a lot more is on the indirect, and we consistently tell you how our SME business volume is improving, with things like inside sales and indirect channels and we're expanding the footprint of SAP."
Earlier, in his prepared remarks, McDermott offered this perspective: "In the U.S., we saw good balance in the mix of deal sizes. Our multi-channel go-to-market approach and well-balanced coverage model allows us to capture demand by line of business, our indirect channels, or via our traditional direct-sales model. Also, there was a nice increase in volume."
6) Innovation versus Consolidation. I think SAP's got this one half-right: its own organic innovation is an essential ingredient for its continued success and, if carried out properly, might indeed give it some key advantages over Oracle. Where I think SAP's overplaying this card, however, is in its presentation of innovation and consolidation as mutually exclusive—theoretically, we can all understand the distinctions, but in the world of the customer, there is no reason why thoughtful and high-impact acquisitions can't offer customers valuable innovation as well.
Look at SAP itself: two of the areas that it says are most-essential to its customers and to its own future growth are business analytics and mobility. SAP's products in those areas both come from acquisitions, and relatively recent ones at that: Business Objects and Sybase. Of course, SAP would argue that those deals were "strategic" whereas Oracle is merely hoovering up generic companies in order to eliminate competition, but I think that doesn't add much to SAP's argument and, in fact, weakens it: the proof is in Oracle's steady and impressive growth rates in revenue and earnings.
Again, it's not hard to understand why SAP wants to make this argument—my point is that it should focus more on what it is doing so well (innovation) and spend less energy on a premise that is much less tangible. Here's an example from Hagemann Snabe: "Let's look at the quarter from a strategic point of view. Product innovation, contrary to consolidation from some of our competitors, is a key reason that we continue to report strong growth. We continue to open up new growth opportunities for SAP and our customers through accelerated innovation in our solutions for on-premise, on-demand, and on-device.
"As Bill said, customer focus and innovation is key to differentiate SAP from its competitors, many of which insist on just piecing together legacy hardware and software solutions," Hagemann Snabe said. Is that really an accurate picture of what Oracle does: it "just" goes around, "piecing together" old stuff that nobody wants? Oracle's financial results tell a very different story, and customers know this.
5) Delivering the real-time enterprise. This has been a significant part of SAP's messaging since the co-CEOs took over in February, but while McDermott mentioned it right at the beginning of his comments in last week's earnings call, it didn't come up again throughout the discussion. Said McDermott: "The markets are moving in a positive direction, enterprises are becoming more confident in strategic buying decisions, and our strategy is validated as companies want the real-time, unwired enterprise, and want to partner with a company that has an open ecosystem, one that does not lock customers into a stack, but gives them choice." We'll get to that open versus lock-in comment in a moment, but I was surprised SAP didn't pound home the real-time message more aggressively during the call because it is certainly one of the most-vital objectives its customers around the globe are pursuing.
In today's market, if you're not operating in real time, then what are you operating in: phony time? I'm kidding (a little), but the point is clear: there's real time, and then there's everything else. And not too far in the future, companies that are in the "everything else" category won't be able to compete. This is a huge point that SAP needs to drive home aggressively, and it's not one that Oracle has been making—so, it's a nice opportunity for SAP.
Next, SAP says it's growing 50% faster than Oracle in business analytics:
4) Business analytics innovation and growth. McDermott was quite blunt on this competitive front: "Similarly, in business analytics, we saw continued double-digit growth is this segment, and strong growth in demand throughout all the regions. SAP's business analytics business in Q3 is twice the size of Oracle's equivalent business, and we are growing at least 50% faster than them, taking share from Oracle Hyperion in every geography, with 38 replacements year to date. Enterprise information management and Enterprise performance management are clearly leading the way."
3) Sybase and the promise of enterprise mobility. Both executives touched on this repeatedly throughout the call, with McDermott citing the huge potential of the real-time and "unwired" enterprise in his opening remarks. While significant in its own right for SAP, the Sybase acquisition is also important because Oracle has no counterpoint for mobile products and strategy, making this a clear differentiator for SAP.
Two thoughts on that: first, Hagemann Snabe said that SAP's Business ByDemand SaaS platform now has a couple of mobile apps on Apple iTunes marketplace. While that's not world-shaking, it does indicate how far SAP has come in its willingness to embrace the realities of the marketplace instead of, as it used to do, adhering rigidly to and never straying from its traditions.
Second and more important, he offered a sweeping view of how and why mobility is so essential to not just SAP's strategy but also to that of its customers: "Moving on to on-device, the Sybase acquisition puts SAP into an immediate leadership position in mobility. This acquisition is about innovation and growth for SAP and Sybase, and delivering exceptional value for customers.
"We are continuing to build the pipeline for the Sybase unwired platform for SAP mobile CRM, mobile workflow for SAP Business Suite, and custom applications, and we gained 24 new Sybase Unwired Platform partners this year. By the time of Sapphire next year, we will be well on our way to delivering a single enterprise mobile platform, and creating a software development kit that, in combination with our platform, will enable SAP, our customers, and our partners the powerful combination of business applications and a leading mobile platform to build new, exciting, mobile applications, like the new CRM on the BlackBerry and the iPhone that we have already delivered to the market. Yesterday, the co-CEO and founder of RIM demonstrated live SAP running on the new BlackBerry Playbook," he said.
"In closing, SAP is the only business-application company that delivers a consistent portfolio of business applications and next-generation business intelligence on any device and in any deployment option."
2) On-premise, on-demand, and on-device: the three pillars. While Hagemann Snabe offered a detailed overview of each of those approaches, McDermott captured SAP's overall three-pillar strategy in his opening comments: "We remain the market leader in the enterprise software industry—our customer-focused strategy to provide solutions to customers on-premise, on-demand, and on-device is finding broad market acceptance.
"We are pleased to say that Gartner shares our view of the future in their recent release of 'The Top 10 Technologies For 2011,' with cloud, mobile, and next-generation analytics taking the first three spots. Our three-pillar strategy and our Sybase acquisition, and our continued innovation and growth in business analytics is motivating customers, employees, and partners all over the world."
Before McDermott and Hagemman Snabe were named co-CEOs early this year, SAP had no such coherent and sweeping strategy. Can it fulfill that vision? It looks like it's well on its way to doing so. Will Oracle have an answer or an alternative? At least for right now, it doesn't appear to—or, at least it hasn't framed its position in such straightforward and customer-centric terms.
1) Open versus lock-in; ecosystem versus The Stack. I'm not sure that customers are still buying into these traditional notions as vigorously as SAP is presenting them, but I do get the impression that this is the primary point on which SAP wants to distinguish itself from Oracle. It comes up—quickly and frequently—in every conversation with SAP executives, and it certainly was there in strength during last week's earnings call.
McDermott said customers "want to partner with a company that has an open ecosystem, one that does not lock customers into a stack, but gives them choice," and he leaned hard on current events to articulate SAP's value proposition with this comment: "As the industry is transforming, our partnerships are getting even stronger because we recognize the importance of the deep relationships we have with our partners to deliver value and business outcome for our partners. And unlike others, we work closely with our partners—we do not alienate them."
That reference is clearly aimed at an element of this week's Oracle-SAP trial in which Larry Ellison has made it unmistakably clear that he intends to compel former SAP CEO and newly named HP CEO Leo Apotheker to answer what will surely be some aggressive questions from Oracle attorneys.
That mission of Ellison's has been quite public and quite personal, but it also calls into serious question the viability of the long-standing partnership and alliance between Oracle and HP: can those two companies continue to collaborate at the deepest levels when their CEOs are locked in such a bitter and public battle?
But back on the primary point: are CIOs today willing to give Oracle's new philosophy a try—that expensive and unproductive IT complexity can be eliminated by going with an all-Oracle stack—or do CIOs continue to believe, as SAP does, that a broad and heterogeneous stack, in spite of its inherent problems, is the right way to go? Here's how Hagemann Snabe framed it:
"You basically see two trends: there are some companies who are consolidating, and they want to own the whole stack, and that's their strategy. And then you have innovators, who say I'll stay focused on my part but then I run faster and innovate faster. And we believe that's a superior strategy—and for that to work, you need strong partnerships so you still get the end-to-end stack to the customer," he said.
"We think that combined stack of focused companies with innovation as their strategic imperative is a better combination for the customer, and it gives them choice—and, that's what we hear from the customers as well." RECOMMENDED READING:
Bob Evans is senior VP and director of
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