The companies have signed a worldwide licensing agreement that now allows SAP to resell the SQL Server 7.0 database directly to SAP customers.
The move marks another step in Microsoft's mission to be the plumbing of choice behind Enterprise Resource Planning vendors' largest business software implementations.
For the past two years, Microsoft has heavily promoted its BackOffice products consisting of Windows server software, the SQL Server database, and the company's component architecture as the best way for companies to get the most out of their lucrative ERP systems.
Analysts said SQL Server 7.0 provides application vendors with their first real alternative to database software from market leader Oracle. Over the next several months, German software giant SAP's rivals PeopleSoft and Baan are expected to also announce availability of their products on SQL 7.0.
"Oracle has been without a serious challenger for the past two or three years since Sybase and Informix self-destructed and left Oracle out there by itself," said Jim Shepherd, an analyst at AMR Research in Boston, Massachusetts. "SQL Server has the potential to be a real challenger."
With limited database choice for their largest, most lucrative, and most demanding customers, SAP and others often had no choice but to do business with Oracle. If SQL Server is successful and lives up to scalability promises with SAP customers, Microsoft could now provide the alternative.
"Performance and reliability will be the key," Shepherd said. "That's the advantage that Oracle has had and the way they've managed to dismiss Microsoft until now."
SAP was the first application vendor to put its software on Microsoft's database. To date, more than 100 SAP customers have started to deploy SQL Server 7.0.
To make sure SQL 7.0 was ready to handle SAP's largest customers, SAP developers worked on-site for the past two years with Microsoft's development team. Developers ran extensive tests using R/3 customer data with "very positive results," the companies said.
About half of all new SAP customers pick Windows NT, with more than 1,300 customer installations running Microsoft SQL Server with R/3. The added capabilities to SQL 7.0, including better scalability, reliability, and stability, as well as support for more transactions, have "legitimized the database," for SAP's largest customers, Shepherd said.
But expect No. 1 Oracle and Microsoft to start bickering soon over database performance as Microsoft encroaches further into Oracle territory.
"What I would anticipate seeing is lots of benchmark wars over how many transactions [they can support] and how many users [they have]," Shepherd said. But the real test will come with results of everyday performance reported by SAP's corporate customers running R/3 on SQL 7.0, he said.