The Season of Disruption: Oracle vs. SAP, NetSuite's IPO, and the Future of Enterprise Software

The Season of Disruption: Oracle vs. SAP, NetSuite's IPO, and the Future of Enterprise Software

Summary: A response from SAP in the Oracle vs. SAP lawsuit and NetSuite files for an IPO.

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A response from SAP in the Oracle vs. SAP lawsuit and NetSuite files for an IPO. Two seemingly disconnected events trickled down through the technosphere during 4th of July week, and, having been blissfully disconnected myself for much of the week, I came back with a mission to try to make sense of what’s been happening in the market. From the perspective of a little hindsight, these two events are marvelously, and – for many – dangerously intertwined.

SAP vs. Oracle is really about Oracle trying to shut down a line of business that its chief rival, SAP, is running very successfully. The success of SAP’s TomorrowNow unit is a simple matter: the relationship between what many Oracle customers are getting for their maintenance dollars and what the customers are paying is so skewed that it is a simple no-brainer for TomorrowNow to poach maintenance customers from Oracle at 50 cents to the dollar. That’s why I’ve said in the past that this suit will never actually go very far: the discovery process would reveal too much of the ugly truth about what software contracts really look like and what maintenance is really worth to customers.

Which means that the fact that SAP admitted that TomorrowNow employees did actually steal some data from Oracle – while reasserting that in no way did that information make it over the wall to SAP, or that the deeds were in any way sanctioned by management, key allegations in Oracle’s suit – is almost immaterial. Oracle doesn’t dare let this suit get much further.

While discovery would initially show Oracle’s contracting mess for the mess that it truly is, the impact on SAP wouldn’t necessarily be positive either. Maintenance is a funny game, played by all vendors, and TomorrowNow’s success isn’t a one-off that cannot be replicated for other vendor products. This renders SAP, in the long run, quite vulnerable to a similar TomorrowNow play.

Because, while many early TomorrowNow customers signed on because they hated Oracle and the way the initial PeopleSoft/JDE acquisition was handled, more and more the customers are signing up because the hate hard-to-justify 22 percent maintenance costs. That’s a pretty-vendor neutral hatred, and one that could skip over to SAP relatively easily, given the right set of circumstances.

And don’t think it can’t or won’t happen. Indeed, if a credible TomorrowNow-like company were to pop up doing third-party maintenance for SAP customers, I for one would give it about two New York minutes before Oracle had bought it and was attacking SAP with its own Safe Passage program.

Meanwhile, as disruption is looming in the maintenance side of enterprise software, NetSuite is heading to market with an on-demand ERP offering that tries to disrupt the key delivery model of enterprise software. Of course, NetSuite is just the latest in a list of disruptors, starting with Salesforce.com and SuccessFactors, and I have always felt that NetSuite is missing a lot of what would make it a truly competitive offering vis-à-vis the suite applications that it competes against.

But with the smart money pegging this as a potential billion-dollar IPO, the “on-demand ERP for the mid-market” disruptors are firing all over the market. And no where more strongly, and disruptively, than at SAP itself.

I refer, of course, to SAP’s much-vaunted A1S – the iPhone of enterprise software. This on-demand ERP system, which deploys in a fully-model driven way, is, in my opinion, a real NetSuite killer, once it hits the market. The demo I saw of A1S was truly impressive, and I believe that it will meet expectations when it hits the market later this year or early next.

And with a billion dollar IPO fueling interest in A1S, don’t think SAP won’t be tempted to run as fast as it can to get the product to market: they’d be crazy not to try to disrupt NetSuite’s IPO dreams with a little competitive FUD.

But what is disruptive to NetSuite could be even more disruptive to SAP. On demand ERP – one that meets the bar that R/3 and MySAP have set for functionality and that can be configured on the fly – disrupts SAP’s traditional software deployment model. Customers whom SAP would rather keep in the big license, on-premise model are clamoring for A1S, complicating the politics of bringing the product to market. Once A1S hits the market it’s going to be hard to stop a customer from doing with it whatever they want – including trying to run a global enterprise with software intended for the mid-market. This, of course, is exactly what happened with SAP R/3 when it hit the U.S. market in 1992, and the rest, as they say, is history.

So, disruption on the maintenance and contracting front, disruption on the deployment and licensing front – it could hardly get more complicated for SAP, Oracle, and anyone else. And that’s before Microsoft weighs in with it has in store for the on-demand market at its partner conference next week in Denver.

These recent events point the way towards how things are going to be significantly different in enterprise software in the next year or so. The success of TomorrowNow – as defined by Oracle’s lawsuit – and the interest in NetSuite’s IPO, despite what I believe is a largely non-competitive offering – are really about how the market is shifting, dramatically, away from its foundations. And the shift, as 2007 leads in 2008, will only grow more disruptive for all.

Topics: Legal, Enterprise Software, Oracle, SAP

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