Oracle: Squaring up to SAP
Published: 04 Apr 2005 16:35 BST
One of the riveting things about Oracle boss Larry Ellison is his flair for verbally skewering his foes in public.
For instance, Ellison likes pairing the name Bill Gates with the phrase "convicted monopolist" whenever possible. More recently, Ellison made a point of referring to German software rival SAP as "sap" rather than reciting each letter, as the company prefers.
But Ellison's attack on SAP goes far deeper than words, as Oracle's recent acquisitions show. First, Oracle launched a full assault on joint rival PeopleSoft, which ended in a $10bn hostile takeover of the company and one of the largest mergers ever in the software industry. Oracle quickly followed that up by arm wrestling SAP for ownership of Retek, paying more than $600m for the company — about twice its market value before the bids started rolling in.
Oracle's buying spree is uncharacteristic and an about-face for Ellison, who once declared that the sure sign of a struggling software company is that it starts writing checks instead of software. The strategy is also aimed squarely at SAP, which Oracle has long sought to overtake in the market for enterprise applications software, programs that help companies organise accounting, staffing, sales and logistical tasks.
After years of faltering in that $47bn market, Oracle is charting a bold new course, analysts said. But it's risky, too. Big software acquisitions are rarely blazing successes.
If Ellison can pull it off, the strategy has the potential to not only reshape his company but the entire industry, one analyst said. Specifically, it could legitimise mergers in a culture that tends to shun all things "not invented here," or "NIH" in Silicon Valley parlance.
"It's important for Oracle and how the financial community looks at Oracle and how prospective [software] buyers look at Oracle," said AMR Research analyst Jim Shepherd. "It's also important for the industry, which is asking, 'Is Larry right? Is this the way the industry is going to develop in the future?'"
But as things stand, it's all a very big if. The road to knocking SAP off its pedestal via acquisition is littered with numerous wrecks. The most spectacular example is Baan. The Dutch company was a formidable foe in the mid-1990s, with a strong following among big manufacturing companies. A string of acquisitions punctuated by an accounting scandal permanently sidelined the company in the space of just a few years.
Of course, Oracle is no Baan. It's one of the most profitable and respected companies in software, with enormous resources and a globally recognised brand.
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