Oracle announced strong first-quarter 2007 earnings after the close of the market Sept. 19.
Total software revenues were up 29 percent to $2.7 billion, with database and middleware license revenues up 15 percent and applications new license revenues up 80 percent.
Larry Ellison, CEO of Redwood City, Calif.-based Oracle, attributed most of Oracles success in the quarter to stealing business away from its biggest applications rival SAP AG.
Two years ago Ellison led Oracle on a multibillion-dollar spending spree, buying more than 20 companies with the end goal of gaining market share from SAP, the worlds largest business applications developer.
Ellisons strategy seems to be paying off.
This is the second consecutive quarter that Oracles new license sales for its applications has grown 80 percent or more.
In contrast, SAPs second quarter 2006 new license sales, reported July 20, grew only 8 percent.
SAP said the earnings miss (it reported earlier in the month that it would not meet guidance) was attributed to bad performance in some geographies, the inability to close some big deals in the quarter, and the fact that Oracle gained market share over SAP.
“Some deals will be recognized over a couple of years, and indeed, some transactions we hoped to close by the end of June will now close the second half of the year,” said Leo Apotheker, president of Global Field Operations at SAP and an executive board member, during SAPs July 20 earnings call.
“The good news is we lost none. We have continued a very good win rate against our competitor [Oracle]—a very high win rate—and we have every intention of keeping it that way.”
SAPs earnings didnt slip by Ellison.
“It would be hard for our share gains to accelerate over SAPs,” said Ellison during an uncharacteristically short Q&A portion of the Sept. 19 earnings call.
“SAPs growth was 8 percent, and our growth was 80 percent. Weve leapfrogged in acquisitions in industries. I cant imagine them holding on to an existing strategy in the face of market share losses in what is turning out to be rather slow organic growth.”
SAP has vowed, in the wake of an Oracle splurge on business, to limit acquisitions to key strategic buys that fill technology holes rather than add to its customer base.
Ellison suggested that SAP is, in fact, changing its release and acquisition strategy to ward off mounting competition from Oracle.
“Theyve just announced that they are delaying the next version of SAP applications until 2010,” said Ellison.
“And now [CEO Henning] Kagarmann is talking about an acquisition strategy to augment slowing organic growth. These are major changes in direction for SAP.”
In a Sept. 12 interview with an Australian news outlet, Kagarmann said that the company might make an acquisition to expand its business applications portfolio beyond its current offerings (business intelligence or content management are the two top guesses)—after it completes its product overhaul in two years.
Then at its annual TechEd event in Las Vegas from Sept. 12-15, SAP essentially revamped its release strategy.
The company vowed to hold its core mySAP ERP 2005 platform, released in June, steady for the next five years as the bulk of its user base transitions to the newer suite.
The caveat is that new functionality would be released in enhancement packages that customers can choose to implement or not.
Whos Winning Now
Whos Winning Now?
Charles Phillips, Oracle co-president with CFO Safra Catz, said during the Sept. 19 earnings call that hes counted 88 “head-to-head” wins over SAP in the first quarter, including Walt Disney, Lockheed Martin, Electrolux and US Steel.
“These were some strategic wins,” said Phillips, who also said that Zales, another first quarter win, is replacing its SAP implementation—and its CIO—with Oracle products.
Ellison outlined Oracles strategy for competing with SAP: An underlying standards-based middleware platform for Fusion Applications and industry specific knowledge going beyond “just SAP ERP.”
“We think Oracles strategy is helping us overtake SAP and win market share,” said Ellison.
What Oracle and SAP are battling is over their respective SOA strategies that include their applications suites (Fusion and mySAP ERP) and underlying middleware platforms (Fusion Middleware and NetWeaver).
The goal is to not only retain existing customers—in Oracles case particularly, given the massive user base its acquired—but to add new customers that use their next generation suites and platforms.
Both vendors will also look to lure ISVs to standardize on their platform moving forward.
The irony is that both companies are on a similar time frame—thats yet to be realized in either case.
SAP still has a massive percentage of its customers that need to upgrade from R/3 to mySAP ERP.
With current commitments, SAP executives estimate the bulk of its 30,000-plus customers will move within the next five years.
At the same time, the company expects to complete its Enterprise Services Architecture roadmap, which includes the service enablement of its applications, around 2007.
Oracle, at the same time, is in the process of creating its next generation application suite thats expected for delivery around 2008.
The catch here is that Fusion Applications, while based on Oracle E-Business Suite, still has the daunting task of bringing in functionality from three major acquisitions: PeopleSoft, J.D. Edwards and Siebel.
Meanwhile, both companies have to keep their existing customer base happy.
Despite Oracles previous reputation as a company that would acquire customers only to abandon them after implementation, its done well in retaining customers over the past two years.
SAP, at the same time, seems to be bending over backward to attract an ecosystem around NetWeaver and mySAP ERP (Oracle has yet to establish a strong ecosystem around Fusion Applications).
Ellison said he thinks Oracle will have the last word in this competition.
“We think we are unique in the industry with a database, middleware and applications that all play in concert,” said Ellison.
“And as our applications come out we have a better chance to get way ahead of SAP. And well continue to acquire industry specific applications. If they hold their current strategy I cant see our gains slowing, or maybe even accelerating.”
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