SAP gaining on Oracle?

Although Oracle has completed its integration of PeopleSoft, rivals continue to poach software partners and customers of the database giant's former prey, according to industry observers and competitors.

Worried about how Oracle will handle PeopleSoft products, some service providers that formerly offered PeopleSoft's business software are striking deals to offer human resources, financial management and other applications made by Germany's SAP or other companies.

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Indeed, while generally less outspoken than Oracle CEO Larry Ellison, SAP executives are crowing about gains they've made against the Redwood Shores, Calif.-based company.

"We sold in the United States alone as much application software as Oracle did globally," Leo Apotheker, executive board member, said last week at a conference hosted by the German technology giant. "We are therefore extending our lead in the United States."

Oracle spokesman Bob Wynne declined to discuss contentions that SAP is gaining market share at Oracle's expense, noting simply that the company is "effectively meeting the needs of our customers."

SAP's advance was fueled in part by its acquisition earlier this year of TomorrowNow, a third-party provider of software support services for PeopleSoft products. SAP's bid to lure former PeopleSoft and Oracle customers coincided with an initiative dubbed "Safepassage" that offers discounted support to former PeopleSoft clients, as well as a bridge to eventually switch to SAP.

"The pipeline since we announced it has basically doubled every 30 days," said SAP America CEO Bill McDermott.

Although the company would not say how many newly converted customers it has gained, analysts agreed SAP had made progress.

"The market shift to SAP from other vendors will likely continue through 2005 and beyond," wrote analysts John Segrich and Kunal Dasgupta of J.P. Morgan Securities in a recent research report. "The gap between SAP and Oracle continues to widen, perhaps even at an increasing pace, as now SAP has 43 percent share of the top U.S. vendors and is tracking to reach 50 percent by year-end."

"There was, and still is, a percentage of PeopleSoft customers that are unhappy," added Peter Coleman, an analyst with ThinkEquity Partners. "There has been an incremental move in SAP's favor."

SAP is also taking aim at the customer base of Siebel Systems amid ongoing speculation that the San Mateo, Calif.-based vendor of customer relations management software would be acquired, perhaps by Oracle.

SAP's message is clear, Coleman said. "Do you really want to buy Siebel when it might be owned by Oracle next week?" he said. "If Oracle gets it all integrated correctly, it could be formidable competition for SAP, but in the interim it's a challenge."

It's a classic case of rivals trying to take advantage of merger-related disruptions, added Murray M. Beach, president of Boston Corporate Finance, an investment firm in Westwood, Mass.

"With customers so distracted by news of the takeover, SAP and Microsoft have made tremendous inroads during the last two years," he said of the 18-month takeover fight that ended in early January, when PeopleSoft succumbed to Oracle.

The aftermath of that transaction also has sparked a flurry of activity among IT service providers, in particular those whose businesses depend on PeopleSoft's product lines. "Another strategy for PeopleSoft vendors is to strengthen away from Oracle and PeopleSoft and go toward SAP and Microsoft," Beach said. "If you were an SAP service provider, then you were doing pretty well."

Despite the industry upheaval prompted by Oracle's purchase of PeopleSoft, some argue that Ellison and company have little choice but to quickly make their next move. Oracle chairman Jeff Henley has acknowledged as much, saying at a company conference recently that the company is prepared to make another sizable acquisition.

Indeed, Oracle must make acquisitions to build scale if it wants to compete against SAP in the applications business, Coleman said.

"If SAP is taking clients from you because things are confusing, don't bleed it out over the next few years--get it over with," he said. "The door is open; go through it."

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