SAP's Jeff Nolan says his mission is to disrupt Oracle

Summary:[Part 2 of my meeting with Jeff Nolan, one of SAP's key strategists. He runs the Apollo Group, a strategy and communications organization within SAP that is sometimes referred to as the "Attack Oracle" group.

[Part 2 of my meeting with Jeff Nolan, one of SAP's key strategists. He runs the Apollo Group, a strategy and communications organization within SAP that is sometimes referred to as the "Attack Oracle" group.]

Part One is here...it discusses Oracle open source acquisitions...

Creating a stack

Will Oracle's open source plans cause open-source communities to fork-off? "I don't know," he says. "Oracle has good reputation in the developer community and I'm not sure that it is that easy to for a community to fork off if they don't like the way Oracle is running things."

Mr Nolan's view is that Oracle is probably assembling a middleware stack and wants to use open-source components so that it can offer a subscription based pricing structure. This is exactly the direction that Sun Microsystems, Computer Associates and other IT vendors are moving towards.

He is right, we are coming to the end of the licensing model for enterprise IT software, and in Sun's case, John Loiacono, Sun's Software chief, told me late last year there would be a time when Sun would even throw in the server hardware for "free" as part of the monthly subscription price per user.

And SAP is riding that trend but so are others. IBM is very strong in middleware but Mr Nolan points out "this whole middleware stack is becoming commoditized very quickly." SAP's strategic strength is in its dominant position in enterprise applications and business process; and with a very broad customer base of more than 32,000 companies.

It also has a large number of vertical applications which puts it in a good position to grab for more of the coveted small and medium enterprise (SME) market--the fastest growing IT sector.

 SAP's strategy is different from that of Oracle, IBM, and Microsoft because it believes that the value is in the processing of the data. Its software is reconfigurable which gives it a lot of flexibility because it doesn't have to create new code--and it owns its own vertical applications.

Oracle's strategy

Oracle's strategy is based on the belief that owning the database is the key to owning the glass house of the IT organization. And its database is used by most of the Global 2000 enterprises, which is a trusted role.

It can try to commoditize the middleware through the use of open source components, and use the open-source platform to integrate its PeopleSoft and Siebel enterprise applications--which would create a powerful alternative to SAP.

IBM is app-less

Oracle could hurt IBM because IBM does not have any enterprise applications. (BTW, Ray Lane, former president of Oracle and now a leading VC, at Kleiner-Perkins has advised IBM that it should acquire SAP. Otherwise its lack of apps will hurt its software business.)

IBM also has a large database business and a strong middleware business but the commoditization of middleware by Oracle and Sun mean that Steve Mills, IBM's Software chief, has to scramble higher up the stack. And for IBM that means automating business processes, and a creating a closer partnership with its top business consultants from its acquisition of PricewaterhouseCoopers.

In the past, Mr Mills has told me that the PWC business consultants were not as knowledgeable about IBM's middleware stack as he would have liked--but I'm sure many have completed his boot camp since last we spoke--Mr Mills is a determined, hard-driving executive running IBM's most profitable business.

IBM focus on the business process is seen in its recent announcemrnt of a new facility in India that would produce business process modules based on its IT consulting work. Such modules would integrate applications with its middleware, third-party applications--and could also be sold with an IBM hardware component.

Its SME strategy is to partner with companies that already operate in vertical markets and want to port their apps to IBM middleware and hardware platforms.

Microsoft's strategy

Microsoft is hoping to move into the enterprise IT market by way of the SME market. It hopes to parlay its dominance in desktop and workgroup platforms into ever larger enterprise deals.

It has plans for SME web services and large, mission-critical IT enterprise applications. To that end it has been acquiring companies and is making huge investments in web services versions of its desktop applications such as Microsoft Office.

Is the value in apps or data?

I mentioned to Mr Nolan that owning the database within an organization seems to be a sweet spot because companies are so very protective of their data. It is a potentially good choke point for Oracle--once it integrates its acquisitions it can offer a one page bill every month.

"I'm not sure that the value is in the data. I could argue that the data is of little value--and you could store much of it in flat files--the value is in the processing of the data and in the business process," he says.

It is true that data is just data until it is processed to become information and then it is analyzed to produce knowledge about your particular business process. But companies could choose to process their data by a different application and that is a lower risk than changing databases. (That's also the strategic positioning of Network Appliance, as explained in this interview with CEO Dan Warmenhoven and co-founder Dave Hitz.)

SAP could become squeezed at the top by IBM's business process push--and Oracle pushing  from its database customer base--into enterprise applications. Then there is the roll-your-own software brigade, or what I call skinny apps, custom crafted IT applications created by departments using powerful application development platforms. Jotspot and SocialText are examples of this type of technology, which will only improve over time.

Then there are the numerous web services applications companies using AJAX-type technologies that will allow organizations to create mashup suites of IT applications. Mr Nolan acknowledges the many challenges SAP faces and even named a couple more that I hadn't considered--such as streaming data processing.

However, he knows SAP has momentum and a commanding lead in markets--and that web services apps and other potentially disruptive innovations take time to build, especially among very conservative IT departments. (BTW Mr Nolan agrees with me that innovation has to be disruptive,  please see my discussion with Geoffrey Moore...).

Part 3 is coming in a couple of hours...

Topics: Oracle

About

In May 2004, Tom Foremski became the first journalist to leave a major newspaper, the Financial Times, to make a living as a full-time journalist blogger. He writes the popular news blog Silicon Valley Watcher--reporting on the business of Silicon Valley.Tom arrived in San Francisco in 1984, and has covered US technology markets for leadi... Full Bio

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