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Making sense of SAP-Microsoft talks

Mike Ricciuti CNET News

Published: 07 Jul 2004 13:05 BST

Just this month, Oracle said its applications business declined by 6 percent during the past year, even though analysts had projected growth of 10 percent. Only PeopleSoft racked up a sizable software licence gain, mostly on the strength of its recently acquired J.D. Edwards unit and sales to midsize companies.

Further indications of a slowing enterprise market have come from recent moves to consolidate. Last year, Oracle launched a hostile takeover bid for PeopleSoft, which had announced just days earlier that it would acquire J.D. Edwards. Testimony in the antitrust trial involving the PeopleSoft takeover attempt revealed that Oracle had considered its own bid for J.D. Edwards, as well as Lawson Software and other companies. And in addition to discussions with SAP, Microsoft had considered an investment in PeopleSoft.

SAP, Oracle and PeopleSoft have all struggled to find new enterprise software buyers at the top end of the market: the bread-and-butter Fortune 1000 customers. Few entirely new sales of big-ticket enterprise products are made to these large companies anymore -- and there are even fewer of the multimillion-dollar blockbuster deals that typified the gold rush mentality of the late 1990s.

Unlike desktop applications or operating systems, sale cycles for enterprise resource technologies are notoriously long, with customers taking 15 months or more to make buying decisions. Companies only replace systems every 15 to 20 years, according to AMR, which means that major deals are few and far between.

As Shepherd put it, "It's not a decision you are going to make in a weekend."