Adam Gifford: SAP backs Oracle on PeopleSoft

COMMENT

German business software giant SAP has swung in behind Oracle's position that its takeover of PeopleSoft will not unduly restrict competition.

SAP spokesman Bill Wohl said the United States Department of Justice was wrong to say only a handful of software vendors could service the enterprise market - the name the Americans use for the big end of town.

The department is suing Oracle to stop the US$9.6 billion ($15 billion) offer in its tracks. It says a merger would result in less competition, less innovation and higher prices.

"We see the market just like Oracle sees the market, as much broader than a limited peer group," Wohl said.

This is what Germans call humour. The wits of Walldorf are laughing, all the way to the bank.

Yes, there are a lot of companies selling enterprise software, and yes, some of those products compete with parts of what SAP and Oracle sell.

But the list is short if you are a large company wanting an end-to-end suite of software that will run your whole business in all its branches and divisions in multiple countries, with "one throat to choke" if anything goes wrong.

In order of size, the list is SAP, PeopleSoft, Oracle.

Other vendors may get a look-in for specific industry niches, and as the size of company goes down the number of options goes up, but that's who the big end of town writes the cheques out to.

In its suit, the Justice Department quotes Oracle co-president Chuck Phillips, back in 2002 when he was an analyst at bankers Morgan Stanley, saying: "The market is down to three viable suppliers who will help reautomate the back-office business processes for global enterprises for years to come."

Phillips described the trio as an oligopoly.

Oracle now points to companies such as Lawson, Geac and Baan as competitors, and says Microsoft is becoming serious competition.

On this one, Redmond isn't backing its long-time enemy at Redwood Shores. According to Reuters, Microsoft has given the Justice Department a sworn statement that it has no plans to enter the enterprise market within the next two years - a conclusion the department had already reached.

Even New Zealand, where almost every deal would be considered small to mid-market by US standards, it is rare to hear of SAP or Oracle even being in the same bids as Microsoft-owned Great Plains, Navision or Solomon.

Geac is still struggling to recover from its post-Y2K slump, and Baan is now part of SSA's growing collection of midmarket manufacturing systems.

Both companies are doing what they can to keep their installed base up with the play, but they don't have the resources for the sort of innovation and technology leadership Phillips talked about.

Oracle head Larry Ellison is also on record as predicting the demise of best-of-breed competitors such as Ariba, Commerce One, i2 and Siebel.

So why is SAP backing Ellison on this one?

In a three-way race, if uncertainty surrounds two of the horses, where would you put your money? SAP has benefited from Oracle's manoeuvres already. When people buy this sort of software, they want to buy certainty and stability over five to 10 years.

Just putting the software in is disruptive enough to a business, without having to worry about whether it will still be supported a few years down the track.

Indeed, some commentators suspect Oracle's aim all along has been to scare traffic away from PeopleSoft. The shift from earlier versions of PeopleSoft to its web version, PeopleSoft 8, requires reimplementation rather than just a simple upgrade.

This put many sites in play, some of which switched to Oracle (and SAP).

There is another element of SAP self-interest, particularly since the regulators at the European Union also need to sign off on the merger.

If SAP v an enlarged Oracle is seen as not providing enough competition for US customers, across the Atlantic, where SAP is overwhelmingly dominant, the market looks even less competitive.

So why does it matter? A sizeable chunk of the world's economic activities is now conducted through these systems. They have led to increases in productivity, automation and new ways of understanding and using data.

Without competition, that innovation slows down. Witness how the advance in internet browsers fell off once Microsoft crushed Netscape in the "browser wars".

In New Zealand, competition regulators have too often been prepared to allow mergers or acquisitions based on a wide definition of the relevant market. Telecom is one of the main beneficiaries, allowing it to play monopoly while preaching competition.

As the Department of Justice seems to realise, the question in these situations comes down to:

"When the dust settles, will there be more competition or less?"

* Email Adam Gifford