[researchpaper] thibaut quignon - 2010

Author: Director: Thibaut QUIGNON Patricia LEVANTI

Graduation: M2IRT-2010Major M2: IBE Mobility – Seinäjoki (Finland)

Research Paper M2

Topic: Comparative analysis of software solutions designers’ international strategy (Microsoft, Oracle, SAP).

Core Issue: What are the different strategies implemented by each market player (Microsoft, Oracle and SAP) in order to gain global market leadership?

Research Paper - Quignon Thibaut / 2009-2010

Abstract (in English)

Over the past two decades, the computer market and especially that of business applications has met an unprecedented revolution. Information systems, considered a luxury gadget even ten years ago have managed to transform themselves and now occupy a bright place in the heart of businesses of any size.

Just as production tools, enterprise applications are nowadays seen as engines of growth, added-value creators and participate in strategic decision making.

This major change in the light of the professional software tool has contributed to the explosion of the industry where three companies are now fighting for market leadership.

In this research paper, we will focus on the strategies implemented by Oracle Corporation, SAP AG and Microsoft Corporation to increase their market shares and, to impose their solutions in the long run to most businesses.

To address this key issue, we will go through a five-step process, starting with the industry current situation, through the analysis of market components and strategies implemented by the three main actors; we will then make recommendations on possible improvements and conclude on the strategic outlook of the market change on a long term perspective.

From a methodological perspective, this research paper will also seek the implementation of strategic analysis and market models such as:

- The Porter’s five forces model: and therefore study the level of competition in the industry and how it is expressed.

- The SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats): in aim to confront the three firms.

- The GE / McKinsey matrix: to analyse the Strategic Business Units’ business portfolio of each player.

Keywords

Oracle Corporation, SAP AG, Microsoft Corporation, Porter’s Five Forces, SWOT Analysis, GE / McKinsey Matrix, Enterprise Resource Planning, Business Intelligence, Customer Relationship Management, Middleware, Enterprise Business Applications

Research Paper / Comparative Strategy Analysis of 101


Résumé (in French)

Au cours des deux dernières décennies, le marché de l’informatique et plus particulièrement celui des applications d’entreprise a connu une révolution sans précédent. Les systèmes d’information, considérés comme un gadget de luxe il y a encore dix ans ont su se transformer pour occuper aujourd’hui une place prépondérante au cœur des entreprises de toute taille.

Au même titre que les outils de production, les applications d’entreprise sont considérées aujourd’hui comme moteurs de croissance, créateurs de valeur ajoutée et participent à la prise de décisions stratégiques.

Ce changement majeur du regard des professionnels sur l’outil informatique a contribué à l’explosion de l’industrie où trois entreprises se disputent aujourd’hui le leadership du marché.

Au cours de ce mémoire, nous allons nous pencher sur les stratégies mises en œuvre par Oracle Corporation, SAP AG et Microsoft Corporation dans le but d’augmenter leurs pars de marché et sur du plus long terme, d’imposer leurs solutions auprès du plus grand nombre.

Afin de répondre à cette problématique, nous suivrons un raisonnement en cinq étapes en commençant par l’analyse de l’existant de l’industrie, en passant par l’étude du marché et des stratégies mises en œuvre par les trois acteurs principaux, nous effectuerons des recommandations sur d’éventuelles améliorations stratégiques et terminerons sur les perspectives de l’évolution du marché à plus ou moins long terme.

D’un point de vue méthodologique, ce mémoire de recherche a également pour objectif la mise en œuvre de modèles d’analyse stratégique et de marché tels que :

- Le modèle des cinq forces de Porter : et ainsi étudier le niveau de compétition de l’industrie et de quelle manière elle s’exprime.

- L’analyse de SWOT (Forces, Faiblesses, Opportunités et Menaces) : dans le but de confronter les trois entreprises.

- La matrice de GE / McKinsey : afin d’analyser les portefeuilles d'activités des Domaines d’Activité Stratégique (DAS) de chacune.

Mots clés

Oracle Corporation, SAP AG, Microsoft Corporation, Cinq Forces de Porter, Analyse SWOT, Matrice GE / McKinsey, Enterprise Resource Planning, Business Intelligence, Customer Relationship Management, Middleware, Applications d’Entreprises



Thanks

This research paper is dedicated to my family, for their support both moral and financial. Without them it would have been impossible to follow the ITIN Master’s Degree and complete this piece of work. This piece of work is also to my friends, who have been a tremendous help and encouragement throughout the writing of the strategic analysis. Thank you for your patience, advice and care.

Many thanks to Patricia Levanti, my research paper director, for her understanding, her sympathy and for the invaluable advice she gave me all along the realisation of this document.

Thanks to my company, 3M France, especially all the members of the Front Office department who had to undergo the pressure of this work on my shoulders and gave me all possible advice and support that I needed.

Finally, I am grateful to Patrice Carlin, director of 3M SAP deployment in Europe, for the advice and recommendations he gave me about my work.



Table of content

Abstract (in English)................................................................................................................................2

Résumé (in French).................................................................................................................................3

Thanks....................................................................................................................................................4

1 Topic Definition..............................................................................................................................8

1.1 Definition................................................................................................................................8

1.2 Key issue.................................................................................................................................9

1.3 Context...................................................................................................................................9

1.4 Research methods used........................................................................................................10

2 Background Analysis.....................................................................................................................12

2.1 Evolution of each firm over the last 40 years.......................................................................12

2.1.1 Historical background...................................................................................................12

2.1.2 Companies’ development timeline...............................................................................14

2.1.3 Expansion, acquisitions and internationalization..........................................................21

2.1.4 Financial performance..................................................................................................32

2.1.5 Application portfolio.....................................................................................................33

2.2 Key challenges to be faced according to the present market situation................................36

3 Strategies analysis........................................................................................................................40

3.1 Area of competitiveness and market shares.........................................................................40

3.1.1 Business applications market overview........................................................................40

3.1.2 Business applications market forecast..........................................................................41

3.1.3 Applications license, maintenance and subscription revenue evolution......................42

3.1.4 ERP current market.......................................................................................................42

3.1.5 CRM current market.....................................................................................................43

3.1.6 BI current market..........................................................................................................44

3.1.7 Middleware current market.........................................................................................44

3.1.8 Database solutions........................................................................................................44

3.2 Current Strategy Axes...........................................................................................................45

3.2.1 Companies’ visions.......................................................................................................45

3.3 SWOT Analysis......................................................................................................................46

3.3.1 Oracle Corporation.......................................................................................................46

3.3.2 SAP AG..........................................................................................................................48

3.3.3 Microsoft Corporation..................................................................................................50

3.3.4 Vendors’ SWOT confrontation......................................................................................52

3.4 Porter’s five forces................................................................................................................54

3.4.1 Competitive Rivalry.......................................................................................................55

3.4.2 Threat of new entries...................................................................................................56



3.4.3 Threat of substitution...................................................................................................58

3.4.4 Buyers’ power...............................................................................................................59

3.4.5 Suppliers’ power...........................................................................................................60

3.4.6 Porter’s Five Forces Conclusion....................................................................................61

3.5 Business Strategy Matrix......................................................................................................61

3.5.1 Methodology................................................................................................................62

3.5.2 Industry attractiveness per sector................................................................................64

3.5.3 Strategic Business Units Strengths per company..........................................................66

3.5.4 Final GE / McKinsey Business Matrix............................................................................70

3.5.5 Strategic Business Units Confrontation.........................................................................75

4 Future prospects..........................................................................................................................78

4.1 Business model evolution.....................................................................................................78


4.1.2 SAP AG..........................................................................................................................79


4.2 Future strategic evolution....................................................................................................81


4.2.2 SAP AG..........................................................................................................................82


5 Recommendations........................................................................................................................84

5.1 Oracle Corporation...............................................................................................................84

5.2 SAP AG..................................................................................................................................85

5.3 Microsoft Corporation..........................................................................................................85

6 Result synthesis............................................................................................................................87

7 Work benefits...............................................................................................................................88

8 General conclusion.......................................................................................................................89

8.1 Short-term development of the global market.....................................................................89

8.2 Long-term development of the global market......................................................................89

9 Glossary........................................................................................................................................91

10 Illustrations Table.....................................................................................................................92

11 Tables.......................................................................................................................................93

12 Bibliography..............................................................................................................................94

12.1 Printed sources.....................................................................................................................94

12.2 Online sources......................................................................................................................94

12.2.1 Online books and publications......................................................................................94

12.2.2 Online articles...............................................................................................................95

12.2.3 Other online sources.....................................................................................................95

13 Appendices...............................................................................................................................96



13.1 APPENDIX A: Interview – Philippe Leclerq (SOA People)......................................................96

13.2 APPENDIX B: Interview – Timo Elliot (Business Objects).......................................................97

13.3 APPENDIX C: Open-Letter to SAP’s former CEO Hasso Plattner............................................98



1 Topic Definition

1.1 Definition

SAP business started back to the 1970’s with the vision of five former IBM employees, willing to develop standard application software for real-time business processes. The Enterprise Resource Planning (ERP)1 concept was born when SAP released the first version of the software (known as R/1) with the first financial accounting software standing as the basis of other software components addition.

The 80’s were following a rapid growth in the company internationalization and profits. More and more improvements were brought by the German manufacturer to its product to end up with SAP R/3, the solution that transformed SAP from an efficient player to the top of the Business Management Application Software on the market.

On its side, Oracle was following a different but nevertheless successful strategy. Indeed, Oracle started its business with Database Management System in the early 1980’s to become now the leader on the database market thanks to state of the art technology, reliability and cost efficiency of its solutions.

In 2004, Larry Ellison (Oracle’s CEO) decided to radically change the strategy of its firm by extending its application portfolio from database management system to vertical solution (PeopleSoft acquisition) in order to better fulfil Oracle consumers’ expectations. To do so, the board of directors decided to start acquiring strategic companies to be able to provide an end-to-end solution to its customers.

As regards Microsoft, analysts all agree in defining the firm of Redmond as a new entrant in the Business Application market. Despite its relative low recognition in this area, Microsoft relies on the leadership of its operating system and office solutions all over the world. This competitive advantage makes Microsoft a serious rival to Oracle and SAP with the full integration potential of its offer.

This graduation work will focus on analyzing and comparing the strategies of the three market leaders in the competition towards global leadership. How will SAP deal with its market shares losses? Will Oracle manage to perfectly integrate in a single and understandable offer its acquired solutions? How Microsoft will manage to build a vertical solution from its operating system and office solution?

In addition to these questions, the following issues will be addressed:

In order to be effectively implemented in firms, business applications are based on standards. The current situation is much disorganized with all the manufacturers trying to impose their own standards and there is a substantial need of standardization. Will common standards be used in a close future? Which company will impose its own vision?

From a long-term point of view, we should consider a total reorganization of the market because of the high competition. Will alliances or cooperation be made? What will be the outcomes of an inefficient strategy for one of the leader? How many players will be left of the market?

1 Enterprise Resource Planning (ERP): a business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing.



1.2 Key issue

What are the different strategies implemented by each market player (Microsoft, Oracle and SAP) in order to gain market leadership?

At the dawn of the global economy’s revival, mastodons of the IT industry as Microsoft, Oracle or SAP have seriously suffered from the financial crisis consequences. While trying to minimize their profits losses by adapting themselves to the conditions of a world paralyzed by the lack of liquidity, tenors of IT have worked very hard to prepare the economic upturn.

Microsoft with the launching of its new operating system Windows 7, in October 2009, meant to live down the Windows Vista fiasco, has opted for the renewal of its commercial offer as primary course of action.

In the meantime, the firm of Redmond for the last few years has made tremendous efforts to develop its professional offer by providing an integrated end-to-end software suite from Office 2007 (2010 soon) to SQL Server 2008 through SharePoint 2007 and BizTalk Server 2009.

As for the strategy of Oracle and its CEO Larry Ellison, seems to remain unchanged. Indeed, the latest move of the historic database software manufacturer was to choose to maintain its acquisition frenzy, whose latest (Sun Microsystems, not finalized yet due to European Commission reserves) may shattered the current hierarchy; where IBM was reigning supreme over the integrated vertical solutions market from now.

The future acquisitions of Oracle are not clearly defined at this time and neither is their strategy: will they keep on purchasing companies to complete their offer, or will they now focus their activities on software integration to provide the best vertical solutions to their customers?

On its side, SAP, the historic leader on the ERP market is increasingly losing market shares due to an intense competition and an aging and inadequate offer. The financial crisis has frozen the budgets of multinational firms’ IT departments, thus this situation has led to heavy losses for the German company.

During the last few years, according to its most devoted customers, SAP was putting more efforts into preventing Oracle to gain its market share than providing real innovations to its existing products range. This strategy has conducted SAP to a huge loss of goodwill from its consumers. SAP Headquarters in Germany promised during the last SAP TechEd event in October 2009 that the company will release significant products innovations in mid 2010 while keeping on working on customer relationship sticking to their three decades strategy.

1.3 Context

The market of business applications is one of the most competitive nowadays. Companies which are willing to succeed in it need to perform in the following areas:

Enterprise Resource Planning software: ERP, mainly implemented in MNC2s, are the biggest source of profit for companies like SAP and Oracle. Usually associated with high costs of implementation and very low return on investment for the first ten years, the leaders have to put tremendous efforts to change this bad image.

2 MNC: Multinational Corporation



Customer Relationship Management3: CRM solutions turn out to be the companies’ new favourite activity. The software manufacturer which will manage to provide the best offer integrated inside its business suite will get a certain competitive advantage over the others.

Business Intelligence4: BI solutions and CRM were following the same growth rate in companies for the last few years. Providing an easy integration inside the firms’ architecture while allowing users to rapidly build advanced and comprehensive reports is the current trend of the market.

Business Process Management5: BPM attempts to improve processes continuously. This kind of tool aims to promote businesses effectiveness and efficiency and ability to deal with change. Although this holistic approach was not so common in the past, new technology improvements in this area have changed the rules of the game.

Vertical integration: Due to the current economic situation, Chief Information Officers (CIOs) are now reluctant to the multiplication of different vendors’ software solutions. High integration and interoperability cost is the main factor explaining this new strategy. The company who will be able to provide fully integrated business solution will take over its competitors with the best competitive advantage in the eyes of the consumers.

Small and Medium Business affordable offer: Oracle, SAP and Microsoft finally realized that the MNC market was saturated. The current profit-making area is situated in the SMB6 market, and theses leaders are doing their best to get into it. So as to succeed, we have seen recently SMB focused offers emerging in their respective portfolio. The next step for the software manufacturers will be to get recognition from SMB customers and to build long-term relationships with them.

1.4 Research methods used

The Internet will be used to stay posted with the tireless news of the market leaders: acquisition, technology breakthrough, products release, experts and customers interviews.

Academic sources such as Research papers and books will be an invaluable source of information on how to conduct strategic studies and to learn more about the business application software history.

As strategic analysis tools, the following methods will be used:

- SWOT Analysis- Porter’s five forces - Business Strategy Matrix

During this study, the previously mentioned methods will be applied to the three companies and the results will be confronted in order to:

- Underline the leaders respective strategies - Forecast scenarios of the future strategies and future development on the global market- Analyze their business model and make recommendations for future strategic decisions

3 Customer Relationship Management: CRM information system entails all aspects of interaction a company has with its customer, whether it is sales or service related.4 Business Intelligence: refers to computer-based techniques used in spotting, digging-out, and analyzing business data, such as sales revenue by products and/or departments or associated costs and incomes.5 Business Process Management: Business process management (BPM) is a set of management and analytic processes that enable the performance of an organisation to be managed with a view to achieving one or more pre-selected goals.6 SMB: Small and Medium-sized Businesses



I will also attend tradeshow and professional events related to the area of business applications, public corporate events such as Microsoft TechDays (February 2010).

This attendance will be an excellent opportunity to interview the IT decision maker, the Oracle, SAP and Microsoft executives and the end-users. These interviews will enable me whether to support my strategy analysis or to highlight my mistakes.

Finally, I will also use my company (3M France) resources and contact to obtain as much information as possible about the topic and to use the knowledge of our strategy decision-makers.



2 Background Analysis

Back to the 70’s, and the early beginning of computer science, one company: IBM (International Business Machine) was already dominating the computing market. IBM’s business products were at this time considered as industry de facto standards. In the meantime, three other companies have felt the emerging needs in terms of hardware and software for both companies and general public, and even though they are now competing on the same market, their former activities were radically different.

The following section will cover SAP, Oracle and Microsoft respective evolution over the last forty years, will then provide a general overview of their business-oriented current activities to end up with the key challenges to be faced according to the present market.

2.1 Evolution of each firm over the last 40 years

2.1.1 Historical background

2.1.1.1 SAP AG

SAP’s history started in 1972, with the collaboration of five former IBM employees willing to develop standard application software for real-time business processing. From this revolutionary concept, the five German software engineers launched a company called System Applications and Products in data processing with its headquarters based in Manheim (Germany).

One year later, SAP developed financial accounting software which brick-based foundations will give birth to the concept of Enterprise Resource Planning (ERP) and the possibility to integrate additional software components to the architecture.

With this first release (called SAP R/1), SAP’s strategy was very clear: to cover the business field, suffering from the biggest lack of automation while keeping the opportunity to extend the automation to the rest of the company activities (from stock management to human resources).

The 1980’s were a period of rapid growth for SAP, especially the beginning of the decade with the release of SAP R/2. Following SAP R/1 and its strong foundations, R/2 was the first integrated, enterprise-wide package and was an immediate success, mainly in Germany were fifty out of the 100 largest industrial firms were running SAP products.

Even if for years SAP stayed within the German borders, the company’s executives were keeping in mind the multinational potential, thus, R/2 was designed to handle different languages and currencies.

Towards the end of the 80's, client-server architecture became popular and SAP responded by unleashing the release of SAP R/3 (in 1992). With the uniformity of its graphic interfaces, consistent use of relational database, and the ability to run on computers from different vendors, made R/3 as a killer app for SAP, especially in the North American region into which SAP expanded in 1988.

During the 1990’s, SAP was performing its expansion on the international market and for the first time in 1995, their business outside Germany exceeded 50 percent of total sales: R/3 had been installed on more than 9,000 systems worldwide.

The new millennium stands for innovation from SAP point of view, starting with mySAP.com using state of the art Web technology to link e-commerce solutions to existing ERP applications. Nowadays, SAP owns a portfolio of 12 million users distributed among 140,000 installations over more than 75,000 customers in 120 countries.



2.1.1.2 Oracle Corporation

Oracle’s birth came from a research paper written by an IBM employee describing a working prototype for a relational database management system (RDBMS). Larry Ellison (current CEO) and the two other founders (Bob Miner and Ed Oates) realized the tremendous business potential of the concept supported by the fact that no company was commercializing this technology.

In 1979, Software Development Laboratories (SDL, the precursor of Oracle) released the first commercial SQL relational database management system called Oracle version 2 (the first version was never officially put on the market). A revolution in enterprise computing was on its way, SDL defied conventional wisdom that technology would never scale to large amounts of data or extensive number of users.

Right after the crazy innovation decade of the early software industry, the Information Age dawned and the demand for large and secure business data management obliged the young company (SDL was renamed to RSI, Relational Software Inc.) to expand and mature.

Oracle greatly faced this challenge by offering its customers innovative products, simplifying business data management, building solutions for emerging computing platforms and increasing system interoperability for data synchronization and migration.

Oracle’s expansion was real and by the mid 1980’s, the company became the leading RBMS vendor and the company was thrown into new markets for development tools, business applications and services. In the meantime, this success attracted the attention of the industry’s major players such as Microsoft, Sun Microsystems through Initial Public Offering (IPO, shares offering to increase a company capital).

After a decade of explosive growth and wild success, Oracle was able to heavily invest in innovation thanks to the “war chest” piled up. Almost five years before its competitors, the company put a lot of capital in Research and Development of Internet Technologies, ahead on customer demand.

Thanks to this ambitious investment, Oracle was able to lead the market with advanced internet-powered software solutions and became a standard for enterprise computing.

With its privileged position among its customers, Oracle continued to deliver innovation and results despite a downturn in enterprise IT investment during the 2000’s.

2.1.1.3 Microsoft Corporation

Microsoft Corporation’s began in 1974 when William Henry Gates III (now known as Bill Gates) demonstrated one of the first implementation of the BASIC programming language (Altair BASIC) to the developers team of a company called MITS (Micro Instrumentation and Telemetry Systems) which agreed to distribute the language on the business market.

After this “soft-beginning” compared to its current competitors, Microsoft made a giant leap forward in purchasing an operating system from Seattle Computers Products in order to outfit the fleet of IBM personal computers widespread in the business market: MS-DOS was born and Microsoft Corporation rose from a small player to one of the major software vendors in the home computer industry.

In 1985, IBM and Microsoft made collaboration with the development of an alternative operating system called OS/2. In the meantime Microsoft launched the first version of Windows as a graphical extension of MS-DOS. Like Oracle, the company went public in 1986 (through an IPO with a starting price of $21.00). 1989 marked the first appearance of Microsoft Office Suite with software bundled with application such as Microsoft Word and Microsoft Excel. Few years later, Office turned out to be



a “killer-app” for the company and started the situation of monopole among business suites applications.

Both public and business markets were shaken up in two years with the release of Windows NT 3.1 in 1993 and Windows 95 in 1995. Whereas Windows NT brought to companies a high scalability and performance, Windows 95 redefined the way people were using personal computers in bringing to their home the brand new World Wide Web thanks to Internet Explorer.

From 1998 to 2009, none less than seven release of its public operating system were deployed on the market to achieve a market share of 95% in January 2010. In the meantime, following Windows NT 3.1, three major business operating systems were released from Windows Server 2003 to Windows Server 2008 Server.

Thanks to this market penetration, Microsoft decided in 2001 to launch the Business Division to devote more time into the development of financial and business development software for companies.

2.1.2 Companies’ development timeline

The following sections will enlighten the companies’ development timeline from their creation to their current activities and insist on their most important development steps.


See next page.


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Tec

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Firs

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ove

1977 1979 1982 1983 1984 1985 1987 1989 1990 1993 1995Larry

Ellison, Bob Miner, and Ed Oates

found Software

Development

Laboratories (SDL) and

design their first product within the

year.

The first Relational Database

Management System is shipped to the market although

the acceptance

of this breakthroug

h technology

by companies

is quite slow.

SDL, then RSI

following a double-

digit growth

becomes Oracle

Corporation to match its popular

and uniquely named

database.

Written in C programming language,

Oracle database

now runs on several

platforms. This is the

first technology

move leading to

today's open

architecture IT systems.

Data consistency is added to

Oracle database,

e.g. money calculation

in the banking

application will not be

miscomputed anymore.

The first RDBMS

operating in Client/Server mode is released through Oracle

Version 5.

In response

to customer's demand is created

to integrate

closely with its existing

database solutions meeting

essentials business activities.

The first manufacturing application is designed and used by Oracle itself as a proof of

concept.

With the removal

of the soviet trade

barriers, Oracle forms a

subsidiary to serve

countries such as

Bulgaria, Hungary

or Poland.

$177 millions are invested in

R&D to rewrite the

business application portfolio in client/server mode and to

expand the role of Oracle

database.

The product strategy

is redirected by its

CEO Larry Ellison leading

the company

to internet-centric

business.


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Sun

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1997 1998 1999 2001 2002 2003 2005 2006 2008 2010Featuring more than 35 business applications, including financials, payroll or

supply-chain

management, Oracle

Applications contributes to Oracle's

growth

12 years before

everyone, Oracle

invented the

concept of Cloud Computi

ng thanks to Oracle

on Demand a remote

ERP system for its

customers.

OBM is a powerful

tool containing word-class business practices

and processes

helping companies to realize

high return on

investment on

corporate application

s.

Oracle takes

advantage of industry standards Java and XML to create a

personalized and

independent e-

business platform.

Oracle opens its

first development centre in

China building strong

partnerships with

government and local companies.

Oracle's acquisitio

n strategy begins in

2003 with the takeover a rival on the ERP market.

Oracle acquisition strengthen

Oracle’s product

offering and the project

Fusion brings a

comprehensive offer for

their customers.

Oracle becomes

the undisputed

leader in customer

relationship

management software thanks to

Siebel Acquisition.

The application portfolio is becoming more and

more complete.

Based on industry

standards, Oracle's

offer covers now almost all business area with

high level of integration

among already existing

infrastructure.

After facing several

legal issues with Europe Commission

, Oracle finally

closes the deal of Sun Microsyste

ms acquisition. It reinforces

its leader position on

several activity areas.



2.1.2.2 SAP AG

SAP'

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SAP

R/1

Rele

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SAP

R/2

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R/2

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SAP

ITS

1972 1973 1979 1985 1988 1988 1990 1992 1993 1996Five former

IBM employees

founded SAP (System

Analysis and Program

Development).

The first financial

accounting

software is

finalized and

brought to the

market as SAP

R/1.

SAP R/2 handled different language

s and currencies. 50 over

100 largest

German firms were

running SAP.

The first sales organization

outside of Germany is deployed in

Austria.

Thanks to 10 years of R&D,

R/2 now covers all the companies'

critical systems

(Manufacturing, Finance and

HR).

SAP appeals

to an IPO and sells 1.2 million shares on the

Frankfurt and

Stuttgart stock

exchange.

By the end of the

1980's, SAP own

subsidiaries in

Denmark, Sweden, Italy and the US.

SAP R/2 moves

towards the

Client/Server

technology with SAP

R/3 (3 stands for 3

tiers).

For the first time in SAP's history,

sales outside of Germany exceed 50%.

SAP Internet Transaction Services is

released from the labs and

brings Internet

communication to the product.



SAP

CRM

myS

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Dow

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ppea

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Ora

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sues

SAP

Busi

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Obj

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Ac

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ition

SAP

Busi

ness

By

Des

ign

Syba

se A

cqui

sitio

n

1997 2000 2003 2007 2007 2007 2010SAP

became a pioneer in

the Customer

Relationship

Management area

thanks to this new module.

Four years

after SAP ITS, a full

web based

solution called

mySAP is available

on the market.

SAP became

one of the 50 biggest

market capitalizations in the US

and integrated the Dow-

Jones stock exchange.

With Intelligen

ce Property Violation

as a pretext, Oracle brings SAP in

front of the US Court.

SAP acquires Business Object, a French

company leader on

the Business

Intelligence

applications.

Business By

Design is the

Software As A

Service offer of

SAP targeting

Small and

Medium compani

es

SAP realizes

its second biggest

acquisition with

Sybase. Mobility, Business Intelligen

ce and Cloud

Computing are

the three main axes.




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1975 1976 1977 1978 1979 1981 1982 1982 1983Bill Gates and Paul Allen join MITS (Micro

Instrumentation and

Telemetry Systems) and

formed an informal

partnership called Micro-

Soft and release the first version of the

BASIC language.

Microsoft tunes and enhances BASIC and gain their

first renown customers:

DTC (Diamond

Trading Company),

General Electric, NCR

(National Cash

Register) and

CityBank.

Bill Gates became

president and Paul

Allen vice-president of

Microsoft Corporation

The first international sales

office is established in Japan. ASCII

Microsoft, located in Tokyo was the

exclusive sales agent for the "Far

East" business area.

A new sales representative is added in the Europe. Vector Microsoft , of Belgium, will

have the responsibility

to provide advanced services to companies such as ICL, Phillips, R2E and several others OEM

(Original Equipment

Manufacturers).

Microsoft authorizes

IBM to distribute MS-DOS with the

new IBM PC. This

agreement set-up the supremacy

of the company on

the Operating Systems

area.

While promoting

and enhancing MS-DOS to compel it as an industry standard, Microsoft

opens Microsoft

Ltd in England,

becoming the first truly

global personal computer software company.

With the introduction of Multiplan, an electronic spreadsheet

software, Microsoft

makes it first move into

the business application

realm.

Subsidiaries are opened

in three major

European markets: France,

Germany and United Kingdom.

APAC Microsoft Division

(Asia-Pacific) is created to

provide direct access

to the region. At this time Microsoft owns 42

international subsidiaries.



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1988 1989 1991 1995 1996 2000 2003 2005 2007-2008 201048% of

Microsoft annual sales

are done outside of America.

The first version of the best in

class Microsoft

application is unleashed on

both standard

disks and CD-ROM.

Europe is now divided in three regions and the rest of the world in four (Far East, Intercontinental,

Latin America and Asia, India &

Middle East.

Microsoft announces

the availability of Windows 95 worldwide.

New features "plug and play" and improved

performances is pointed up

to the customers.

Windows NT and the family of

BackOffice applications arrive into the market

for the most demanding

business rules: SQL Server 6.5 appears to

fulfil the demand in

term of built-in Internet

applications.

Microsoft outlines its strategy for

web services through .NET

. New Internet

protocols and

standards are emerging

to provide easier, more personalized

and more productive

Internet experiences.

Windows Server 2003 is released

aiming to be at the heart

of companies'

server strategy. Windows

Server System

supplants .NET Enterprise Servers and

becomes the first official

business application portfolio of

the company.

The first ERP product of

Microsoft is released: Microsoft Dynamics

NAV, following the acquisition of

Navision in 2002.

The biggest Microsoft’s Operating

System failure -

Windows Vista - is

released in 2007. In

2008, Windows

Server 2008; Visual Studio 2008, Office

2007 and SQL Server 2008 are

released and are standing nowadays as

a real success.

The business applications strategy is

clearly defined: ERP

solutions (Microsoft Dynamics), Productivity applications (Microsoft

Office), Cloud computing

offer (Windows Azure) are

contributing to gain the

leadership of the market.


ORCL SAP MSFT

2.1.3 Expansion, acquisitions and internationalization

Before moving to the current business market analysis, it is important to gather data about the companies’ evolution for the past fifteen years.

Three evolution’s axes are being emphasized to support this study:

- Expansion: in terms of employees’ growth, Research & Development expenditures and amount of sales over the past fifteen years.

- Acquisitions: the number and evolution per year paired with the most critical companies acquired to support the strategy analysis.

- Internationalization: international workforce, number of international sales offices and international sales will be underlined in this section.

2.1.3.1 Expansion

2.1.3.1.1 Workforce expansion

The bar chart on the right represents the total workforce evolution of the firms since 1995. The hiring process has been following three major phases since 1995:

- 1995-2000: as almost all IT companies at this time, our three key players took advantage from the sudden IT market expansion and were massively recruiting talents (mostly graduate students) in order to fulfil the demand burst in terms of services, software production and consulting.

- 2000-2005: the explosion of the speculative “dot-com bubble” affected the recruitment strategy, even though the number of employees was still growing mainly because of the companies’ acquisitions.

- 2005-2009: This period was supposed to be a recovery period following the difficult previous one, but the financial crisis, with the fall of the investments bank Lehman Brothers in 2008, obliged Oracle, SAP and Microsoft to refine their development strategy. With most of their customers’ IT budgets being cut down, they have decided to capitalize on the recovery period by continuing their workforce’s extension to better serve their customers at the recovery dawn.

Regarding the line chart on the left, a first hierarchy is appearing here. Indeed, Microsoft has always been the biggest company in term of workforce resources and the current trend is not going to change soon, even if Oracle has been growing faster since 2008 (due to its acquisitions).

But this ranking is nonetheless not surprising as regards the firms’ history. Microsoft’s

growth was actually faster than Oracle and SAP because of its first activities (operating

systems) targeting the general public market, a much wider segment than business applications. The

ORC

L

SAP

MSF

T

ORC

L

SAP

MSF

T

ORC

L

SAP

MSF

T

ORC

L

SAP

MSF

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1995 2000 2005 2009

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

1995 2000 2005 20090

20,000

40,000

60,000

80,000

100,000

Oracle Total SAP TotalMicrosoft Total

Figure 1 : Number of employees per company since 1995

Figure 2 : Employees total growth per company since 1995


fact that Oracle is getting nearer can be explained with the diversification of its activities (from a database software manufacturer to vertical enterprise solutions). For SAP, the situation is different since the firm has been focusing on one product: ERP software and did not choose to acquire as many companies as the others so its workforce growth can be characterized as “standard”.

2.1.3.1.2 Evolution of Research and Development expenses

Table 1 : R&D percentage of total revenues per company since 1995

Research and Development has always been a key performance indicator for companies’ business expansion, especially in the IT area. Generally, most companies only spend 5% of their revenue on R&D, but belonging to the range of fast-moving industries, Oracle, Microsoft and SAP have the obligation to spend a large amount of money in their research and development activity since it literally determines the future of their business.

Three trends are emerging from the table above:

1- Besides its capacity to innovate, Oracle’s percentage of revenue in R&D has always been below its competitors. Oracle’s acquisitions leverage two important factors closely linked to R&D but not part of its budget. They bring new technologies to the firm that can be transformed into an innovative product when the integration is a success. They also bring, the R&D past of the company, with its talented engineers and “still in the lab” very close to be released without a lot of expenses. Thus, thanks to its integration capacity and its gifted workforce, Oracle does not need to invest more than its competitors in research and development.

2- SAP devoted a huge amount of its revenue in 1995 (25%), to prepare the internet ordination few years later. The arrival of my SAP ITS (1996) and mySAP (2000), which, back then, were revolutionary products benefited from SAP’s R&D efforts in the 1990’s.

3- Historically, Microsoft has always been a big R&D spender, probably the biggest company of the world in terms of cumulated investments since its creation. But the company has been mainly criticized because these investments are not generating a large return on investment. In comparison, Microsoft has been investing 252% more than Oracle but despite this discrepancy, it is difficult to name innovations associated to Microsoft.

1995 2000 2005 20090%

5%

10%

15%

20%

25%

30%

ORCL - % of Rev SAP - % of Rev MSFT - % of Rev

Figure 3 : R&D percentage of revenue per company since 1995


1995 2000 2005 2009ORCL - % of Revenue 9% 5% 13% 12%SAP - % of Revenue 25% 14% 13% 15%MSFT - % of Revenue 15% 16% 16% 15%


2.1.3.1.3 Evolution of total revenues

1995 2000 2005 2009ORCL – Total Revenues 2,889 20,180 11,715 23,058SAP – Total Revenues 1,752 6,121 8,377 10,667MSFT – Total Revenues 5,733 23,625 38,625 60,000

Table 2 : Total revenues per company since 1995 (in billions of $)

As per the table above and the chart of the right, Microsoft seems to be the fastest growing companies, at least in term of total revenue.

Even though this assertion is true, we cannot draw any conclusion at first glance and we need to analyse in detail each companies’ revenue distribution (by core activities).

2.1.3.1.4 Companies’ revenue distribution

The figure below represents the revenue distribution for Oracle Corporation:

New software licenses

License updates and product support

Consulting

On Demand

Education

Figure 5 : Oracle Corporation’s 2009 revenue distribution


1995 2000 2005 20090

10,000

20,000

30,000

40,000

50,000

60,000

70,000

ORCLSAPMSFT

Figure 4 : Total revenues evolution per company since 1995 (in billions of $)


Oracle Corporation’s revenues can be divided into two segments:

- Software licenses & Product support: Oracle’s applications licenses, lifetime support policy and product enhancements and upgrades are consolidated within this activity Oracle Support Software license updates are billed on a percentage of new software license fees.

- Business Services: Consulting (application deployment, IT strategy alignments, business process simplification, etc.), On Demand (multi-featured software deployment), Education (customers training) are the three major components of the business services activities.

The figure below represents the revenue distribution for SAP AG:

Software revenue

Support revenue

Subscription and other software-rela-ted service revenue

Consulting revenue

Training revenue

Other service revenue

Figure 6 : SAP AG’s 2009 revenue distribution

Software related activities (blue gradation) and Software related service activities (red gradation) account for the larger amount of SAP AG sales.

The first represents fees earned from the sale of software license to customers, support revenue includes fees related to software updates, upgrades and technical product support while subscription and other software-related service revenue combines rental arrangements and customized solutions.

The latter activity resides in implementation support contract (consulting) and educational services to customers and partners regarding the use of SAP software products.

The figure below represents the revenue distribution for Microsoft Corporation:

Client

Server & Tools

Online Services Business

Microsoft Business Di-vision

Entertainment and Devices Division

Figure 7 : Microsoft Corporation’s 2009 revenue distribution

Compared to its two competitors, Microsoft performs business in five different areas:



- Client: this business division is mainly in charge of Microsoft’s operating system (currently Windows 7). It includes Windows 7 box sales (directly in the stores’ shelves) and OEM (Original Equipment Manufacturers) sales which are Windows version sold directly to the PC manufacturers for a default installation on the computers.

- Server & Tools: targeting IT technology professionals with several server oriented products such as Windows Server or SQL Server.

- Online Services Business (OSB): personal communication services (email, instant messaging), and advertising platforms belongs to the OSB division.

- Microsoft Business Division (MBD): the most important division for our competitive analysis includes Microsoft Office (Productivity) and Dynamics (ERP) and other business application solutions.

- Entertainment and Devices Division: includes Xbox 360 platform and related video games.

As opposed to its competitors, Microsoft is very active on the general public market through its client & EDD businesses. But the combination of the Server & Tools and MBD represents almost 70% of Microsoft’s total revenues, an important factor for our business applications war analysis.

As a conclusion of the total revenue analysis, it is obvious that the companies are making profits through their software related sales: new licenses and product support. This observation highlights the necessity to offer innovative products to their clients thanks to high research and development investments, this assertion will be confirmed in the current strategy analysis (part three).

Oracle and SAP, two historical business applications manufacturers, are following the same revenue distribution, in opposition to Microsoft’s extremely diversified activities. Even if such a diversification can be seen as a drawback in regards of business applications focus, Microsoft is taking advantage of it by using its other activities experience and revenue to increase its Business Division market shares.

2.1.3.2 Acquisitions

Acquisitions are a major driver of a company’s development strategy for the following reasons:

- It testifies the financial health of a firm, indeed acquisitions are often very costly and only wealthy company with an important cash flow can afford such expenses.

- Acquisitions can bring a new expertise to the buyer to complete its existing offer and provide new innovations to the customers, this is called a synergy.

- Acquisitions can help companies to penetrate a new market, impossible to reach before because of a lack of knowledge in the area.

- Acquisitions can call a competitor leadership into question when a company takes over a company related to its competitor’s core activity.

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

0

20

40

60

80

100

120

Oracle Cumulated SAP CumulatedMicrosoft Cumulated

Figure 8 : Companies’ acquisitions evolution since 1995



The above chart represents the number of acquisitions per company since 1995. Three firms, three different strategies to be explained:

- Oracle Corporation: Before 2002, Oracle’s had no real acquisition strategy. Oracle was focusing on internal (organic) growth and its flagship database solutions. PeopleSoft acquisition (2004) was the first move made by Larry Ellison (Oracle’s CEO) to move from a database manufacturer to an enterprise solutions manufacturer.Larry Ellison rapidly understood that the power of its database products used by all enterprise solutions manufacturer (eg. SAP, PeopleSoft, JD Edwards) was an amazing foundation for his company to provide fully integrated solutions to its customers (from the database to the end-customer software).Starting from scratch in this market was unthinkable because of its potential competitors’ large experience in this area, which is where Oracle’s Corporation frenzy begins.

- SAP AG: Although SAP has not been an intensive buyer compared to its competitors, it has nonetheless been active since 2007 (Business Object acquisition). SAP’s core activity is enterprise applications and he has always been the leader (see section 3.1.4 ERP currentmarket). Historically focused on internal growth, SAP’s acquisitions only occur to add a missing brick to its enterprise solution.

- Microsoft Corporation: Microsoft has been the biggest purchaser since 1995. Its acquisitions did not generate the same type of buzz as Oracle and SAP’s big moves but were critical to the success of its current product line. The firm of Redmond has been facing dozen of criticisms from its detractor for ages. Their credo was the fact that Microsoft’s “supposed innovation” is not a real one since it comes from mergers. Literally, these criticisms are well-founded since Microsoft has not invented anything, but the success of the firm is to be able to integrate the acquired products into their existing product line to provide a better experience to their customers.

The next part lists the most strategic acquisitions of the three key players, and quotes the high-level management declarations to the press right after the financial operation completed.

2.1.3.2.1 Oracle Corporation’s strategic acquisitions

Oracle’s acquisitions strategy is a secret for no one in the business applications industry. Instead of growing from within, Larry Ellison have decided since 2002 (60 acquisitions until now) to extend Oracle’s market shares thanks to strategic firms’ acquisitions we are identifying below.

ERP market

"Today we announced both a great quarter and the agreement to acquire PeopleSoft. This merger gives Oracle even more scale and momentum. The real highlight of our most recent quarter was the 57 percent growth in our applications business, and this merger is going to make that applications business bigger and stronger." – Larry Ellison (Oracle’s CEO, 2004)

PeopleSoft(2004)

CRM

"Oracle is now the undisputed leader in Customer Relationship Management software. Oracle's focus on modern, standards-based applications and middleware is moving us into a leadership position in applications and on-demand services. Siebel accelerates that move." – Larry Ellison (Oracle’s CEO, 2006)

Siebel(2006)



Retail Applications

“Oracle has the largest applications business in North America, and we intend to expand that leadership position. Combining Oracle with Retek is an important step in that direction, and it strengthens our position in the retail applications market globally." – Larry Ellison (Oracle’s CEO, 2005)

Retek(2005)

Business Intelligence

"The acquisition of Hyperion makes Oracle the category leader in the high growth enterprise performance management market, Hyperion's EPM software coupled with Oracle's Business Intelligence (BI) tools and analytic applications form an end-to-end performance management system." – Larry Ellison (Oracle’s CEO, 2007)

Hyperion(2007)

Middleware

"The addition of BEA will accelerate innovation by bringing together two companies with a common vision of a modern service-oriented architecture (SOA) infrastructure, the addition of BEA products and technology will significantly enhance and extend Oracle's Fusion middleware software suite."– Charles Phillips (Oracle’s President, 2009)

BEA Systems(2008)

Enterprise Software & Computing Systems

“Oracle will be the only company that can engineer an integrated system – applications to disk – where all the pieces fit and work together so customers do not have to do it themselves. Our customers benefit as their systems integration costs go down while system performance, reliability and security go up.” – Larry Ellison (Oracle’s CEO, 2009)

Sun Microsystems(2009)

2.1.3.2.2 SAP AG’s strategic acquisitions

SAP on its side is a discrete player on the “acquisition game”, but when it comes to acquiring a company meeting SAP’s development strategy, the firm makes tremendous efforts to take on its prey. Until now, only two major acquisitions have been counted for SAP.

Database Management System

"With this transaction, SAP will dramatically expand its addressable market by making available its market-leading solutions to hundreds of millions of mobile users, combining the world's best business software with the world's most powerful mobile infrastructure platform." – Bill McDermot (SAP’s co-CEO, 2010)

Sybase(2010)




“The combination of SAP and Business Objects in their respective domains will benefit customers, prospects, partners, employees and shareholders. At SAP, we are excited about the prospect of having Business Objects join the SAP Group.” – Henning Kagermann (SAP’s former CEO, 2007)

Business Objects(2007)

2.1.3.2.3 Microsoft Corporation’s strategic acquisitions

It is in Microsoft habits since its beginning to acquire companies on a regular basis to extend its activities or the better serve its customers.

We are presenting below Microsoft’s most important acquisitions, divided into four categories (Productivity, internet services, enterprise search and ERP).

Productivity

“Forethought makes a program called Powerpoint that allows users of Apple Macintosh computers to make overhead transparencies or flip charts. Some industry officials think such ''desktop presentations'' have the potential to be as big a market as desktop publishing.” – New York Times (1987)

Forethought(1987)

“We are thrilled to officially welcome Visio, a pioneer in delivering unique diagramming solutions to business and enterprise customers, to the Microsoft family of business products, together, Microsoft and Visio will bring visualization and diagramming software to a broader range of customers while improving the ways knowledge workers can present their ideas.” – Bob Muglia (Microsoft Group’s former Vice President, 2000)

Visio Corporation(2000)

Internet services

“Our goal is to combine the benefits of Hotmail with Microsoft® services and technology to provide consumers the best combination of free and premium e-mail services, we are committed to making it even easier for people to communicate over the Internet from anywhere in the world.” – Laura Jennings (Microsoft Network’s former Vice President, 1997)

Hotmail(1997)

“aQuantitative represents the next step in the evolution of our ad network from our initial investment in MSN, to the broader Microsoft network, and now to the full capacity of the Internet. Microsoft is intensely committed to creating a thriving advertising business and to partnering closely with all key constituencies in this industry to help maximize the digital advertising opportunity for all.” – Steve Ballmer (Microsoft’s CEO, 1997)

aQuantitative(1997)

Enterprise search

“Until now organizations have been forced to choose between powerful, high-end search technologies or more mainstream, infrastructure solutions. The combination of Microsoft and FAST gives customers a new choice: a single vendor with solutions that span the full range of customer needs.” – Jeff Raikes (Microsoft’s Business Division President, 2008)

FAST(2008)



ERP

“Combining the businesses of Navision, a midmarket leader in Europe, and Microsoft Great Plains to create Microsoft Business Solutions will produce superb business opportunities for our partners and an outstanding array of solutions for our customers.” – Doug Burgum (Microsoft’s former Vice President, 2002)

Navision(2002)

2.1.3.3 Internationalization

2.1.3.3.1 International workforce

Before drawing any conclusion about the companies’ expansion, one last factor needs to be reviewed: internationalization. Indeed, the ability of a firm to be a major actor at a global scale lies in its international power. To do so, two axes will be confronted:

- International workforce evolution- Worldwide presence

2.1.3.3.2 International workforce

ORCL SAP MSFT ORCL SAP MSFT ORCL SAP MSFT ORCL SAP MSFT1995 2000 2005 2009

010,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

Original Original-Excl

Figure 9 : Employees repartition outside of their original country per company since 1995

The above represents the repartition of the workforce outside of their original country since 1995. The internationalization’s process started after 1995, when the international workforce outnumbered the employees located in the original country. Until now, this process has followed a sustainable growth and there is no reason it would not continue.

Research Paper / Comparative Strategy Analysis of 101Figure 10 : Employees growth outside of their original country

per company since 1995


Oracle and SAP are on the same strategy: keeping their core activities in their original countries and making tremendous efforts to capture international customers with a worldwide workforce extension. For both companies, their two favourites regions to extend their activities are the US and India.

Microsoft’s case is different since its workforce grew up very quickly in the US compared to its competitors, but the trend is the same: internationalization of its activities.

2.1.3.3.3 Worldwide presence

With an international presence (customers and subsidiaries) of 145 countries, Oracle is the international leader in term of country presence. The former database manufacturer firm is followed by SAP with 120 countries, whereas Microsoft is the latest with 105 countries.

To sum-up, the three firms early understood the importance of international expansion in order to gain the leadership in the business application market. Since 1995, we have seen an incredible evolution in this area, where the business outside of their respective countries represented a small part of their total revenues to the predominance of international activities.

Regarding the two axes studied above, we cannot determine any leader with a critical advance in this area since they are all moving on the same shape on the internationalization’s wave.

2.1.3.4 Expansion strategy conclusion

Oracle Microsoft SAP

Organic growth

R&D New Product

Release

Internationalization

External growth

Mergers & Acquisitions

Partnerships and Alliances

Joint-Ventures

Table 3 : Expansion’s scorecard per company

As a conclusion to the expansion strategy, we will use the table as a reference to determine the performance of the firms both in terms of organic and external growth.

Organic growth


1995 2000 2005 20090

20,000

40,000

60,000

Oracle US-Excl SAP - GER-ExclMicrosoft US-Excl

1995 2000 2005 20090

50

100

150

Oracle Countries SAP CountriesMicrosoft Countries


The organic growth of a company comes from its own operations. It measures the ability of a company to enhance its sales thanks to its internal resources. Specifically excluded from organic growth is the business expansion resulting from mergers and acquisitions.

Oracle: it is difficult to measure Oracle’s organic growth because of the amount of M&A7 achieved for the past 10 years. Of course Oracle has been improving its own core product (Oracle Relational Database Management System) and continuously unleashed new versions on the market, but the major release and improvements are coming from acquisitions so cannot be considered as organic growth. Even if it is not the case in terms of products, internal development of Oracle happened in the internationalization process of the company which successfully expanded its activities throughout the world.

SAP: as opposed to Oracle, over the past fifteen years, SAP has mainly focused its growth on internal expansion, with high research and development expenses and internationalization of its activities. Even if the German company has faced fierce criticisms about its capacity to release innovation, SAP’s expansion has been achieved thanks to internal resources, the talent of its engineers and internal growth focus of its managers.

Microsoft: on its side, the feeling about Microsoft’s organic growth is mixed. Indeed, successful products have been released thanks to the internal skills, but we must not forget that all these achievements would not have been possible without acquisitions which brought the missing functionalities turning Microsoft products from normal software to “kill-apps”.

External growth

The external growth of a company is the mean used by a company to rapidly achieve its corporate objectives in terms of market shares by carrying out mergers & acquisitions, takeover or joint ventures. Two kind of external growth are identified:

- Horizontal diversification: companies are taking over their competitors to increase their market shares and diversify their offer. This kind of scenario usually happens in mature or declining markets where this kind of restructuration can lead to cost savings.

- Vertical diversification: among the concept of vertical integration, two strategies are conceivable: backward and forward vertical integration. A company is showing backward vertical integration when it controls subsidiaries at the source of the production of its products (e.g. raw material producer in the industry sector). Control of a company’s production inputs is creating stable source of supply combined with a consistent quality check until the final product release. On the other hand, forward vertical integration is the strategy to buy companies positioning themselves after the production of the product such as distribution centers or retailers.

The forthcoming paragraph deals with the analysis of the firms’ diversification strategy, explaining both horizontal and vertical integration on a case by case basis.

Oracle: thanks to the integration success of dozen of mergers and acquisitions, Oracle managed to diversify its offer from database related software solutions to a fully integrated business applications offer. To do so, Oracle leveraged both horizontal and vertical diversification. With the acquisition of ERP software manufacturer (People Soft), Customer Relationship Management solution (Siebel) or Business Intelligence application (Hyperion), Larry Ellison took the most out of horizontal integration to propose all the application stacks of an enterprise solution. Recently, with the difficult Sun Microsystems acquisition, Oracle scrapped the horizontal diversification strategy and made it first move toward the backward vertical integration. As a recall, Sun Microsystems is mainly a chips, computers and storage devices manufacturer (Java language & mySQL database are not the core

7 M&A: Mergers and Acquisitions.



activities). It means that Oracle is now the owner of full product stack (called the “Oracle Stack Advantage”) from hardware to end user application within the same production line.

SAP: Apart from Business Objects acquisition in 2007 to stimulate growth through horizontal diversification and provide the power of business intelligence to its ERP products, SAP was not a really big fan of external growth and gave priority to internal development. But the recent takeover of the relational database manufacturer Sybase (May 2010), is a whole new ballgame in SAP’s growth strategy. Even though this buyout can be understood as a backward vertical diversification by melding Sybase relational database management software to its ERP products, it is definitely not: “We believe that our customers must have the choice” (Jim Hagemann Snabe, SAP’s co-CEO). The knowhow of Sybase in the fields of mobile technologies and data in-memory processing 8are the real motives of the German firm (we will get into more detail in the following parts).

Microsoft: Microsoft successfully addresses the growth issue with the combination of horizontal and vertical diversification. Horizontal integration was achieved thanks to very efficient partnerships and alliances with PC manufacturers, with the OEM version of its operating system Microsoft Windows. Vertical integration has been accomplished through software integration: with its different takeovers, Microsoft now manages the full software line: the operating system, web browser, productivity suite (Microsoft Office) and now business applications (e.g. Microsoft Dynamics).

2.1.4 Financial performance

Before going into the competitiveness area of the three companies, it is important to have a brief overview of their respective financial health regarding the following indicators:

- Market capitalization (market cap): is based on the stock-exchange situation of a firm and corresponds to the measurement of the size of an enterprise equal to the share price times the number of shares.

- Employees: the number of persons currently working for a company and belonging to its own total wage bill.

- Quarterly Revenue Growth (yoy): is equal, in percentage, to an increase of a company’s sales compared to a previous period. The term ‘yoy’ refers to a comparison year over year. This indicator gives a much better idea to investors on a company’s performance throughout the time.

- Revenue Trailing Twelve Months (ttm): refers to the sum of the revenue over the last twelve months.

- Gross margin (ttm): measures the percent of revenue left after removing all direct production costs.

- EBITDA (ttm): Earnings Before Interest, Taxes, Depreciation and Amortization, its purpose is to indicate to possible lenders, a company’s ability to pay interest on a debt. The greater this ratio is, the less is the risk to the lender and bigger the ability of the company to repay a debt.

- Operating Margin (ttm): basically measures how many dollars a company is earning on each dollar of sales. This proportion refers to the revenue left after removing variable costs. A ration of 45% means that a company is earning $0.45 for every dollar of sales.

- Net income (ttm): the net profits of a firm.

Oracle Microsoft SAPMarket Cap: 115.26B 245.57B 51.76BEmployees: 86,000 93,000 47,578Qtrly Rev Growth (yoy): 4.50% 14.40% -8.50% Best performance:

8 Data in-memory processing: dramatically increase the data processing fastness by storing information in computers’ random access memory instead of hard drives which are a thousand times slower to response.



Revenue (ttm): 23.23B 58.69B 15.3B Worst performance:Gross Margin (ttm): 81.08% 79.78% 68.83%EBITDA (ttm): 11.04B 24.43B 4.7BOper Margins (ttm): 38.98% 37.64% 30.90%Net Income (ttm): 5.80B 16.26B 2.6B

Table 4 : Financial indicators per company in 2009

The best and worst performers are prominently displayed but should be carefully taken into account.

Indeed, whereas SAP seems to be in a relative bad financial position compared to its competitors, it does not mean that their future strategy to gain market leadership is necessarily compromised.

The same is true for Microsoft which is the best company in almost all indicators, but, first of all, it does not intend any leadership on the market and does not predict any success at all in the future.

This overview is just a fact used to cover the current situation and will be re-used farther to endorse our analysis.

2.1.5 Application portfolio

2.1.5.1 Oracle Corporation’s portfolio

Oracle’s product line has dramatically expanded since the beginning of the acquisitions strategy from a portfolio of database management system to a full business suite covering, ERP, CRM, BI, Middleware9and SaaS10 offer.

Software Solution DescriptionERP Oracle E-Business Suite

(OEBS)E-Business Suite is a complete solution of integrated applications standing for the major ERP product of Oracle Corporation designed to fulfil the most demanding MNC’s requirements.

Oracle E-Business Suite Special Edition

OEBS Special Edition is the version of OEBS targeting the SME market.

PeopleSoft Enterprise Only based on internet technologies, PeopleSoft Enterprise (following PeopleSoft’s takeover in 2004) is an ERP solution addressing different segments such as financial, public, education or health sectors.

JD Edwards Enterprise One

Enterprise One is an ERP dedicated to companies’ resources management activities.

CRM Siebel Following Siebel’s buyout in 2007, Oracle enhanced the existing product to deliver one of the most complete CRM solution.

BI Oracle Business Intelligence

Hyperion’s acquisition in 2007 helped Oracle to offer one of the most powerful business intelligence product on the market.

Middleware Oracle Fusion Oracle’s knowhow in the interoperability standards (SOA,

9 Middleware: Middleware is computer software that connects software components or applications. The software consists of a set of services that allows multiple processes running on one or more machines to interact. This technology evolved to provide for interoperability in support of the move to coherent distributed architectures, which are most often used to support and simplify complex distributed applications.10 Saas: or Software As A Service is software that is deployed over the internet and/or is deployed to run behind a firewall in your local area network or personal computer. With SaaS, a provider licenses an application to customers as a service on demand, through a subscription or a “pay-as-you-go” model. Saas is also called “software on demand”.



Middleware BPEL, etc.), combined with the power of BEA Systems products (2008) ended with Oracle Fusion Middleware allowing firms to interconnect their scattered existing IT architecture to optimize their productivity and efficiency.

SaaS Oracle On Demand Surfing on the SaaS revolution, Oracle On Demand is the implementation of Oracle’s applications hosted in “the cloud”.

RDBMS Oracle Database Oracle best of breed database solution is the world recognized best relational database management system for business application.

OS Oracle Solaris Former Sun’s proprietary Unix operating system, Solaris is one of the most implanted server solutions for companies.

Hardware Solution DescriptionServer Sun Servers Sun embodies more than 20 years of systems expertise.

High performance servers combined with high efficiency in terms of energy consumption are the most important assets of Sun Servers.

Storage Sun Storage and Tapes Tape, Networking and Disk storage solutions technologies leader on the market.

Table 5 : Oracle Corporation Application Portfolio

In addition to its top-full business software portfolio, Oracle owns the full application stack thanks to Sun’s acquisitions. With its server systems linked with the Solaris operating system, the best storage solutions, Oracle’s new slogan “Complete, Open and Integrated” promises the best future for the company.

2.1.5.2 SAP AG’s portfolio

SAP AG is the leader on the business application market. The following products have met a successful when unleashed on the market and now stands for references in the sector.

Solution DescriptionERP SAP Business Suite Business Suite is SAP’s flagship ERP product and leader

on the market. From PLC Management, to SCM through CRM and SRM, Business Suite persuaded the biggest companies of the world.

SAP Business One The ERP suite designed for the SME market.SAP Business All In One A pre-packaged ERP solution targeting specific industry

sectors.CRM SAP CRM Fully integrated among ERP Business Suite, SAP CRM

offers a high-level CRM solution to SAP customers.BI SAP Business Objects The missing link to SAP solutions was a powerful business

intelligence product. Following Business Objects acquisition in 2007, SAP has filled an important gap in its product line and now offers a best class business intelligence solution.

Middleware SAP Netweaver Netweaver is the middleware technology platform of SAP used to interconnect SAP applications to existing IT architecture.

SaaS SAP Business By Design Business By Design was the first major solution to implement the SaaS business model. Offering the power of SAP on demand, Business By Design is the perfect solution to lower IT costs.



Sybase Adaptive Server Enterprise (ASE)

Originally developed in partnership with Microsoft, ASE became an independent product in 1995. Sybase solutions are mainly focused on high availability and distributed transaction management product, with most of its customers belonging to the financial market.

Table 6 : SAP AG Application Portfolio

For a long-past period SAP expanded its product line only thanks to research and development. Since Business Objects takeover, the German firm decided to expand its portfolio with few strategic acquisitions which perfectly suits its existing business suite.

2.1.5.3 Microsoft Corporation’s portfolio

From an operating system manufacturer to an emerging actor in the business applications market, Microsoft now owns a very well integrated business suite.

Solution DescriptionERP Microsoft Dynamics AX Microsoft’s ERP product targeting companies bigger than

200 employees.Microsoft Dynamics GP Microsoft Dynamics GP has been built to solve

problematic faced by midsize European companies.Microsoft Dynamics NAV Microsoft Dynamics NAV, born after Navision’s take over

addresses small and medium sized American companies.Microsoft Dynamics SL Dynamics SL is specialized into helping project oriented

midsize organisations with efficiency, accuracy and customer satisfaction functionalities.

CRM Microsoft Dynamics CRM Fully integrated with the Microsoft Office suite, Dynamics CRM offers a power and innovative CRM solution.

BI Microsoft Dynamics BI Dynamics BI is a clever mix of an applications’ ecosystem such as Microsoft Excel, SharePoint or SQL Server.

Middleware Microsoft BizTalk Server BizTalk Server is a Business Process Management suite, based on adaptors following interoperability standards, BizTalk Server interconnects IT applications.

SaaS Microsoft Live Solutions Microsoft Live solutions such as Office Live or Dynamics CRM Live are the SaaS implementation of Microsoft products.

Microsoft Windows Azure Windows Azure is an operating system acting as an online service offering to developers a flexible environment to create cloud applications and services.

RDBMS Microsoft SQL Server SQL Server (currently in version 2008) is the database product of Microsoft. Initially developed in partnership with Sybase, SQL Server is nowadays at the center of all business applications from the firm of Redmond.

OS Microsoft Windows Microsoft Windows (currently in version 7) is the leader of the operating systems both on the general public and professional markets.

Table 7 : Microsoft Corporation Application Portfolio

Following its early strategy, Microsoft has been very active on the acquisitions battle field. With clever choice and well-performed integration among its existing products, Microsoft is ready to compete with Oracle and SAP.



2.2 Key challenges to be faced according to the present market situation

Based on the above trends listed until 2009, the list below sums up the key challenges awaiting the three key players from 2010:

- Important focus on business applications benefits and return on investment (ROI). After damage on IT budgets due to the financial crisis, CIOs and COOs will continue to face a huge pressure of their management to reduce both capital and operating expenses. Oracle, SAP and Microsoft will have to find innovative solutions to reduce the spending of IT departments in terms of licences, implementation and maintenance costs to fight the hesitation of markets to invest in expensive software.

- Small and Medium Enterprises will drive the growth’s revival. All crisis recoveries go through SMEs ability to galvanize growth. With the recession period almost behind us, SMEs will look for solutions to automate their operations and to expand their revenue growth.

- Increase the SaaS offer for SMEs. With the predictable SME market expansion, business software manufacturers will have to offer affordable solutions to stick to the SMEs investments capacity. Currently, the SaaS model seems to be the best choice for the three key players to minimize IT costs.

- Accelerate SaaS growth for MNCs. Even though the SaaS model is the best solution for SMEs it is not the case for MNCs. Large IT organisations are still inclined to minimize cost and risk with non-SaaS solution instead of leveraging the long-term benefits opportunity of the on demand offer. That is why software vendors willing to increase their market shares will have to push this model towards MNCs.

- Continue software stacks consolidation. During the past ten years, the market has been witnessing a dozen of acquisitions. With the biggest takeovers in their history for Oracle and SAP, the success and the fastness of the key technologies integration (through middleware technologies) give a certain competitive advantage on the market.

- Focus on the integration power of the solutions. Integrating their products among existing IT architecture is one of the biggest challenges. Offering powerful middleware solutions providing seamless integration of their products thanks to successful industries standards implementation will be the key of their solutions acceptance.

- Deliver real innovation. Because of budgets restrictions, companies will be less likely to invest on new features where the return on investment will not have been proven yet. Incremental updates with immediate and measurable business value will be the trend of the market.

- Mobile ERP. The recent SAP’s takeover on Sybase (and its mobile portfolio) is a good indicator of the emerging market trend. Rather cautious on its external growth, the German firm is confirming its position on the mobile sector. The market testified an extraordinary expansion over the past three years. Thanks to the power of mobile platforms such as iPhone OS (Apple) or Android (Google), smart phones are ready to host mobile ERP related solutions depending on the business area (Human Resource, Finance, Procurement, etc.).

- Green IT. Sustainable development finally managed to become a reality both for enterprises and the general public. With major government investments into the market with a view to reducing the carbon footprint of their country (will it lead to an international treaty soon?), Green IT initiatives are fairly encouraged. According to a recent Forrester survey, 69% of the



firms surveyed realized the opportunity to cut operations costs through energy-saving investments.

As a conclusion to the background analysis section, we will sum-up the different ideas tackled above to give a clear overview of the current situation. We will present the initial activities per companies on different sectors to the current state and will remind the methods used to perform such an evolution.



Initial activity Present Activity Methods

ERP

Ora

cle

No presenceThe second player of the market

- Acquisition: PeopleSoft was the first move of Oracle in the ERP market, but other major acquisitions transformed the former database manufacturer into the leader’s biggest threat.- Research and Development: Oracle made possible its integrated offer only through R&D investments in the interoperability of its applications.- Partnership: Oracle uses its database software partners to sell a complete package (database and ERP).

SAP

First ERP manufacturer The leader of the market

- Research and Development: The power of SAP core product comes from clever R&D investments to improve its existing product line.- Partnership: SAP’s recognition in the MNC market is due to the power of its satisfied partners.

Mic

roso

ft

No presenceAn emerging important player on the market

- Acquisition: Dynamics solution comes from a series of takeovers.- Research and Development: integrating its acquired products and improving them was made possible only through R&D activities.

RDBM

S

Ora

cle First RDBMS

manufacturer

Uncontested leader of the market

- Research and development: to offer the latest technologies in terms of data security and performance.- International development: to offer its cutting-edge solutions to foreign companies and also to lower operational costs (R&D centre in India).- Partnerships: thousands of technological partners contributing to the leadership.

SAP

No presenceAn important RDBMS solution manufacturer

- Acquisition: Sybase’s takeover brought SAP database activity from nowhere to an important role.

Mic

roso

ft

A small RDBMS manufacturer

An important RDBMS solution manufacturer

- Partnership: thanks to a technological partnership with Sybase, Microsoft gained technological knowhow in the field before breaking the collaboration and offering its own solution.

CRM

Ora

cle A common CRM

software manufacturer

A major player on the market with high growth expectation

- Acquisition: Siebel’s brought the missing international reputation of its former offer Oracle CRM.

SAP A major CRM software

manufacturer

A declining leader of the market

- Research & Development: heavy investments on its CRM products to fight the emerging competition.- International development: to increase market shares and lower R&D costs.

Mic

roso

ft

No presence

An emerging important player on the SME market

- Acquisition: With Dynamics CRM, Microsoft is positioning its products as a credible alternative to the leader’s solutions.- Partnership: thanks to its huge partners network,

BI

Ora

cle

A common product on the market (Oracle Brio)

An important player of the market

- Acquisition: Hyperion’s technological solution on the BI sector helped Oracle to become an influent company in the sector.



SAP

No presenceThe second player of the market

- Acquisition: Business Objects buyout helped SAP to add the missing link to its enterprise applications suite.- Research and development: integration of BO’s solution among its own portfolio implies R&D expenses.

Mic

roso

ft

No presenceAn emerging important player on the market

- Acquisition: Once again, thanks to Dynamics and the combination of its own products, Microsoft offers an alternative to the big players’ solutions.

Mid

dlew

are

Ora

cle A common player of

the market

The second player of the market

- Acquisition: BEA Systems helped Oracle to become the second player (IBM is the leader). With Fusion middleware, Oracle has very high expectations regarding its potential.- Research and development: the middleware sector requires a high technological knowhow. Oracle’s interoperability capacity comes from high investments in the field.

SAP A major player of the

marketA major player of the market

- Research and development: SAP Netweaver is a key product of SAP’s product line. It brings the power of products integration among IT existing architecture.

Mic

roso

ft

No presence An emerging player

- Research and development: With all his acquisitions, Microsoft understood soon the importance of middleware solutions inside its own architecture. The firm is now pushing his Business Process Management solution on the market and starts to be recognized.

SaaS

Ora

cle

No presenceAn important player of the market

- Research and development: The three companies followed the SaaS explosion by turning some of their business applications into SaaS-compatible products.

SAP


Mic

roso

ft


Table 8 : Manufacturer's Activities Evolution


LOWER MARKET

UPPER MARKET

MID MARKET

ENTERPRISE

SHRINK WRAP MARKET

Tier 1

Tier 2

Tier 3

Tier 4

Tier 5

Users Employees Revenue60-1000+ 2000+ $250mil+Software: $750k + Implementation: 3-10X Software

Users Employees Revenue30-1000+ 1000+ $100-500mil+ Software: $250k + Implementation: 2-4X Software

Users Employees Revenue5-250 50-1000 $25-250mil+ Software: $50k + Implementation: ½ -3X Software



Oracle

SAP

Microsoft


3 Strategies analysis

3.1 Area of competitiveness and market shares

3.1.1 Business applications market overview

Before analyzing the market shares of the different vendors, it is important to define how the market in segmented in terms of customers. Compared to other sectors where the consumers’ activity is driving the segmentation, the business application slicing is rather different: it is based on the firms’ size, and five tiers have been underlined.

Combined with the size axes, this market overview also covers the implementation costs implied by the different solutions implementation. On the right of the pyramid appear the software manufacturers’ main business sectors.

Tier 1 – Enterprise Software: Firms belonging to the Fortune TOP 500 ranking are concerned by this sector. Usually multi-location and multi-national, these complex companies necessitate complex software solutions (i.e. costly) that have a very high interconnection power for a successful integration among the existing architecture. Oracle and SAP are the major players of this sector, with a rivalry far behind them.

Tier 2 – Upper Market Software: Firms of the Tier 2 market are not as large as the Tier 1 companies but are fairly complex and require with substantial deployment efforts of the solutions. Oracle and SAP are still major players on this sector, but Microsoft with its Dynamics solutions is knocking at the door.


Figure 11 : Business Software Market Overview


Tier 3 – Mid Market Software: The mid-market is the biggest growth opportunity for Oracle, Microsoft and SAP. Containing the biggest SMEs, this sector is living a major expansion and captivates the attention of the software manufacturers. Despite the high competition of this sector, software manufacturers are putting a lot of efforts to penetrate it and gain market shares.

Tier 4 – Lower Market Software: A very specific field in which the requirements are depending on the industry area. The big players are not established on the market yet (apart from some specific cases) but, in parallel with the tier-3 sector, are developing scalable solutions at a very low cost.

Tier 5 – Shrink Wrap Software Market: Usually called the Small Office/Home Office (SOHO) market, this sector appears to draw the full software market overview but does not capture the interests of the three key players since the growth opportunities are very low.

3.1.2 Business applications market forecast

The figure below represents the US business applications’ market growth forecast that we will use as a reference.

2008 2009 2010 2011 2012 2013

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

Figure 12 : Business applications US market’s growth forecast

As no figures are available for the international market, we are using the US market as a reference for the market growth forecast. The trend followed by the American business brings a very good estimation of future evolutions.

The fourth quarter of 2008 market shows the beginning of the financial depression and the software manufacturers did not break away from this phenomenon. As usual, a period of recession is followed by a fairly long period of recovery, according to the analysts this stage should end in 2010 and the revival planned for 2011. Hopefully the comeback of liquidities and capital in 2011, will involve great growth opportunities for software manufacturers.

As we can see on the graph, the market will continue to grow afterwards, with a slight decrease in 2013 (which can be trivialized with current the lack of visibility). Catching the “growth wagon” for Oracle, SAP and Microsoft will depend on how they managed to increase their market shares, secured the loyalty of their customers and kept on increasing the quality of their products during the crisis period.

As a confirmation of the growth forecast, the above graph represents the IT spending forecasts in 2010 a strong sign of the recovery start.


2009 2010

-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%8.00%

Software IT ServicesFigure 13 : IT spending forecast


Within the following section, we are going to analyze how well the three players managed to overcome the crisis effects in terms of market in the following key sectors: market shares per sectors such as ERP, CRM, BI and Middleware.

3.1.3 Applications license, maintenance and subscription revenue evolution

During this section, we will use the forecast of applications license, maintenance and subscription revenue evolution to sustain our analysis.

2006 2007 20080

2000

4000

6000

8000

Oracle SAP Microsoft

Figure 14 : Applications License, Maintenance, and Subscription Revenue by Vendor, 2006-2008 ($M)

As underlined in the previous section, maintenance costs represent the major source of profits of Oracle, SAP and Microsoft, that is why it very important to analyze the trend on this key indicator.

The three curves demonstrate the same trends for the three firms: they tended to increase the maintenance costs to maximize their revenue.

Most IT customers have been complaining about these costs’ increasing for several reasons:

- Even if the costs increased, the level of service provided and the number of innovations brought to them has never changed.

- The software vendors do not provide enough visibility of their costs increasing strategy and because of this paralyzes the budget plans of their customers.

3.1.4 ERP current market

The figure below represents the current state of the Enterprise Resource Planning industry and how it has evolved since 2007.

2007 2008 20090.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

ORCL SAP MSFT

Figure 15 : ERP market shares evolution, 2007-2009, (%)

All along the crisis years, both Oracle and SAP lost market shares on the ERP market as opposed to Microsoft. The product price position adopted by the firms and the IT budget restriction of the past two years give a strong explanation of this trend.



Indeed, Oracle and SAP mainly target very expensive ERP solutions, compared to the less affordable Dynamics offer of Microsoft. Even though the two firms have lost market shares, it does not mean that they are not ready to face future challenges. Instead, the financial dramatic climate made them realize the urgency to change their business model to regain the growth path.

15.75%

24.30%

7.35%

52.60%

ORCLSAPMSFTOTHER

Figure 16 : ERP current market shares by vendors

As previously mentioned, SAP is still the undisputed leader on the ERP market. Despite Oracle’s big efforts to catch up, the firm has still a lot of work to significantly improve its position on the ERP sector. Microsoft on its side represents a small, but non negligible portion of the industry.

3.1.5 CRM current market

On the graph below are showed the CRM (Customer Relationship Management) market shares evolution since 2007. CRM solutions are nowadays at the centre of corporate information systems. With the cost reduction strategy and the processes rationalization of the largest companies, software manufacturers are compelled to offer a global solution covering all the aspects of this sensitive activity.

SAP has provided such a solution for a while now but is losing market shares mostly in favour of Oracle (especially since Siebel’s acquisition) and Microsoft Dynamics CRM (on the SME sector). Even if other players such as Salesforce are emerging, the three big players are major actors on this sector.

2007 2008 20090.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

ORCLSAPMSFT

Figure 17 : CRM market share evolution per company since 2007

SAP AG and its module SAP CRM has lost market shares between 2007 and 2008 because of Siebel’s takeover by Oracle, but managed to invert the trend and to get back a foothold on the growing sector.

On its side Oracle has met a small but steady growth on the sector until now. The acquisition of Siebel’s world-class solution with the combination of its existing technologies helped Oracle to become a major player.



Microsoft early realized the impossibility to compete on the large companies sector so decided to target the SME sector. With its strategic productivity suite, very popular in the small firms Dynamics benefits a very high satisfaction rate.

3.1.6 BI current market

The figure below shows the evolution of BI’s market shares during the past three years. As we can see, a lot of hierarchy changes happened and the sector is now reallocated. IBM (with Cognos) is still the biggest player, but SAP (thanks to Business Object’s buyout in 2007) has met an important growth to become the second player of the market. Oracle, once again thanks to external growth (Hyperion), is now claiming 15% of the market whereas Microsoft, in spite of the success among SME is losing market shares.

2007 2008 20090.00%

5.00%

10.00%

15.00%

20.00%

25.00%

ORCLSAPMicrosoft

Figure 18 : BI market shares evolution per company since 2007

3.1.7 Middleware current market

Middleware solutions bring the power of interoperability and interconnections inside companies’ IT architecture. In a market widely dominated by IBM (with WebSphere), the three key players are willing to offer their own products.

Oracle changed its position from a normal player to an important actor with BEA Systems takeover in 2008. Unfortunately, the numbers of SAP’s market shares in this area are not disclosed, but SAP’s offer (NetWeaver) is facing an important success. On its side, Microsoft and BizTalk are quietly growing in the sector.

2006 2007 20080%

2%

4%

6%

8%

10%

12%

14%

16%

OracleSAP (N/C)Microsoft

Figure 19 : Middleware market shares evolution per company since 2006

3.1.8 Database solutions

Regarding the enterprise database solutions market, the situation is very clear: Oracle, the historical leader with 45% of market shares, followed by Microsoft with its emerging solution SQL Server,



claiming almost 19% of the sectors and finally, SAP with Sybase owning only 3.50% percent of the sector.

ORCL SAP MSFT0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

Market shares

Figure 20 : Database Solutions market shares in 2009

During the previous sections, we have covered the situation of the three key players on the critical sectors of the business applications market. The first outcome emerging from this coverage is the repartition of the leadership: on a general point of view, there are currently two categories:

- Oracle and SAP, the established firms on the top of the hierarchy owning turn by turn the leadership depending on the sector.

- Microsoft, the emerging company gradually expanding its position in favour of its competitors.

Within the following section, we will take a closer look at the current strategy of the companies. Thanks to different strategy analysis tools such as the SWOT Analysis, the Porter’s Five Forces Model and the Business Strategy Matrix, we will determine the resources used to increase their growth and profits while making a parallel to the current state of the market and explain the reasons implying such choices.

3.2 Current Strategy Axes

It is important to insist on the fact that this section is standing as a “snapshot” of the market. We will only cover the current strategy without taking into account the recent announcements about the future roadmap of the firms, which will be covered within the following section (Future Prospects). We will start by quoting the companies’ vision & mission and comment them to have a global view of their position and we will progressively go deeper into the analysis thanks to the previously mentioned models.

3.2.1 Companies’ visions

For a company, the first way to make its current strategy understood by its customers is to provide a clear vision statement. Within the next section, we will go through each of them and analyse them.

3.2.1.1 Oracle Corporation: simplicity

“Simplify

Speed Information Delivery with Integrated Systems and a Single Database.

The best way to simplify IT systems—and business operations—is to consolidate information. Businesses need to know how their supply chain is faring, how quickly inventory is moving, what competitors are doing, and where the markets are going. Now. Not next quarter. Companies need instant access to accurate, consolidated information to meet legal and regulatory mandates for corporate performance management and responsibility. To get this complete view of their



customers and their business, companies have to simplify. All business systems must be connected, and all business applications must share a single database of customers, products, service information, and more.”

According to Oracle, corporate performance goes through IT architecture simplification. Thanks to its database experience, which should be “single” and at the center of the information system, Oracle capitalizes on the richness of its application and their ability to “easily communicate” between themselves to attract its customers.

3.2.1.2 SAP AG: clarity

“Our vision is for companies of all sizes to see clearly, think clearly, and act clearly so that they can close the gap between strategy and execution and become best-run businesses. Best-run businesses drive clarity into their organizations by gaining insight for improved performance, efficiency for optimized operations, and flexibility to adapt quickly to changing circumstances.”

The slogan “Best-run businesses run SAP” is a summary of the German firm vision. By addressing the size of companies being able to run its software (“all sizes”), SAP is positioning its solutions on the global market (including MNC & SME). Bringing clarity into companies’ organizations thanks to its solutions will help SAP’s customers to improve their reactivity towards their respective markets uncertainty.

3.2.1.3 Microsoft Corporation: collaboration

“Microsoft’s long-term productivity vision explores how we will create and share content; collaborate across teams, organizations and networks; and gain contextually relevant insights based on preferences and intent. Each scene showcases real technologies being explored by Microsoft teams and partners and others in the industry.”

On its side, Microsoft’s vision of the business market’s evolution is collaboration oriented. The firm of Redmond believes that corporate performance goes through communication and collaborative solutions across organizations. Microsoft is bringing the power of its collaborative offer (especially Sharepoint) to convince its customers.

3.3 SWOT Analysis

3.3.1 Oracle Corporation

Strengths Weaknesses

- Recognition of its database products- Wide network of historical and loyal

partners- Experience in international acquisitions- Wealth of its application portfolio- Innovation power- Financial health

- External growth is complicated to manage

- High licences and support costs- Relative lack of integration of its

products- Known as a Database manufacturer

rather than as a business application provider

Opportunities Threats

- Expansion of the SaaS technology- SME market still under construction- Process rationalisation of the firms to

lower operational costs- End to end capabilities of its products

- Leadership position of its direct competitor on its key products

- Competitors’ strong hold on its key accounts

- Quality of alternative solutions: small



players or open-source- Third-party maintenance and support

approach- Price war

Table 9 : Oracle Corporation’s SWOT

3.3.1.1 Strengths vs. Weaknesses

3.3.1.1.1 Database activities

Even though Oracle’s image among businesses is gradually changing, the company still suffers from its historical database activities. Indeed, its potential customers tend to doubt about its capacity to deliver efficient business solutions because of its relative inexperience in the market. To counter this cliché, Oracle insists on the unprecedented success of its database products to justify a real ability to produce quality solutions.

Oracle counts on the global dimension of its organization to develop its business applications activities. The skills and human resources developed thanks to external growth combined with the IT excellence recruitment policy internationally, allow the company to leverage the existing knowledge to face the business market challenges.

3.3.1.1.2 Acquisitions strategy

The company’s acquisition strategy of the past ten years has brought confusion into the sector. Oracle’s ability to integrate companies among its own eco-system has been successfully demonstrated and ends up with real integrated solutions for its customers (e.g. PeopleSoft, Hyperion). But other takeovers such as BEA Systems, and more recently Sun Microsystems, did not show up yet with real solutions and have been questioned by the market raising the following question: “Is Oracle spending more time and resources into acquisitions than delivering products and innovations to its customers?”

In order to answer this question positively, Oracle counts on its financial health to set up all the resources and know-how required by takeovers and in the meantime continues to invest in research and development and deliver breakthrough products. Moreover the current company organisation with an entire business unit devoted to integration strategy helps Oracle to remind its customers that acquisitions have limited impacts on the company’s core activities.

3.3.1.1.3 Application portfolio

One of the most recurrent criticisms towards Oracle’s solutions is directed to the relative lack of integration of its products. Oracle owns the largest portfolio compared to its competitors, which is a tremendous advantage subject to high integration capabilities among the company’s own applications as well as interoperability within customers’ existing architecture.

Oracle has always developed a strategy directed to “industry standards compliant” and will follow up on this track: the company owns a specialized workforce in this area and has structured its corporate management and culture to do so.

3.3.1.1.4 Partner’s network

Throughout its experience of thirty seven years, Oracle has developed a huge network of different partners:



- Customers: Oracle’s culture is to work in a close collaboration with its existing clients to gather their feedbacks, propose them premium innovations and involve them into the new product release cycle.

- Other vendors: Oracle managed to build an advanced synergy between both software and hardware vendors and its core activities.

Larry Ellison made the partner’s network a key activity of its management policy and has been pretty successful in it.

But Oracle has to be careful with the side effects of its other strategy: rapid growth and rapid cash flow increase through levelling up its maintenance and updates costs: the loyalty of its partners is at stake. However, the innovation power of the company and the scale effects implied by the extension of its customers’ base and product offer is a strategic area Oracle can lean on to reverse the current trend.

3.3.1.2 Opportunities vs. Threats

On the business applications market, Oracle currently suffers from the leadership position of SAP and meets difficulties to outcome this position. Nonetheless opportunities to inverse the trend exist and are addressed in the firm strategy:

- Diversification of its activities in still emerging markets is a splendid occasion for Oracle to gain a leadership position which will affect its position on the other sectors. With the expansion of the SaaS technology and the emerging needs of SMEs to rationalize their processes are undeniable factors leveraged by Oracle to thwart the domination of its competitors.

Another threat for Oracle is the relationship of its customers with its direct competitors. Indeed, historically the company has been the database manufacturer provided to run its competitors products. Now that the firm turned itself into a major business application vendor, it has to leverage the integration power of its product line:

- Acquisitions brought to Oracle the ability to build an end to end solution from the hardware to the application stacks. Capitalize on the advantages of an end to end product line in terms of scale effects and cost reduction opportunities.

The emerging of the open-source solutions, the appearance of third-party maintenance and the price war are all related to the same problematic: how can Oracle lower its costs to gain more market-shares?

- As mentioned above, the salvation of Oracle to struggle these threats will come from its ability to take the most of its end-to-end capabilities to lower operational costs and gain market shares through emerging markets to increase its sales volume and reduce its currently high margins.

3.3.2 SAP AG


- Historical experience in the business applications market sector

- Deep customisation of the products per business sectors

- Extensive knowledge of customers’ expectations in the MNC market

- Customers’ loyalty- Innovation power

- Implementation costs- Licenses and support costs- Belated return on investment of its

solutions- Difficulty to transform lab innovations

into customers solutions- Relative stasis over new market trends- Bad reputation of its SME offer



- Responsiveness to market changes- Wide network of historical and loyal

partners

- Lack of acquisition experience


- Breakthrough innovations available in the laboratories

- Expansion of the SaaS technology- SME market still under construction- Processes rationalisation of the firms to

lower operational costs

- Economic slowdown through the reduction of IT budgets

- Emergence of serious direct competitors- Quality of alternative solutions: small

players or open-source- Third-party maintenance and support

approach- Price war

Table 10 : SAP AG's SWOT


3.3.2.1.1 Bad return on investment of its solutions

The general opinion agrees that the return of investment on SAP’s solutions is hard to assess during the first five years after the implementation of the product. This assertion is actually true because of the long-term orientation implied by SAP’s offer.

Process rationalization among companies, breaking up working habits and learning how to take the most of SAP’s products is a long road for everyone willing to invest into business applications solutions.

Here is where the power of SAP takes place: the German firm gathered an incredible experience of its customers’ various activities during the past thirty years and is now able to address all kind of businesses issues on the MNC sector:

- The biggest worldwide companies are running SAP’s solutions- Among these firms, all kind of business sectors are addressed (from retail, to pharmaceutical

through manufacturing oriented activities) thanks to a wide range of customization possibilities.

3.3.2.1.2 Relative stasis over new market trends

Despite its image of a big giant, SAP is seen as a partisan of a wait-and-see strategy when the question of following the market trends is raised. The German company has always talked up its innovation power, its “so called” incredible research and development strike force and its cutting-edge technologies.

This assertion was certainly true ten years ago but the situation has changed. As a proof, the customers’ open-letter (see Appendix B) complaining about the company’s lack of reactivity combined with low added value delivered to its products.

Hasso Plattner (former CEO of SAP) was the first victim of the management comity and a huge will of the firm to radically change its own organisation to focus its activities to deliver real innovation. Fortunately, SAP’s financial health allows such a change of direction and owns the resources (in terms of workforce and research and development) to reverse this critical weakness.



3.3.2.1.3 Lack of acquisition experience

It is in the German firm’s blood to build its effective solutions thanks to organic growth. But sometimes, external growth is a necessity to rapidly fill a missing part of a solution. It happened to the company where the necessity to provide an efficient business intelligence solution in association with its products was very urgent.

But Business Objects turned out to be a long and painful experience for SAP because of its lack of experience in large acquisitions best practices. However, the learning curve of SAP in unknown areas is a key strength of the company.

3.3.2.1.4 Bad reputation of its SME offer

Historically and by the nature of its solutions, SAP is associated with high implementation costs and, as a consequence, limits its “desirability” towards SMEs rather looking for cheap solutions. Here is where the responsiveness to market shares of SAP is coming into the picture:

- The company’s ability to adapt its organization, create special business units or reallocate resources has been a “workaday” since the early beginning.

- Even though SAP tends to be long to react, when the management decides to drive the company to a specific sector, it has always been successful (e.g. CRM activities).


The current biggest threat for SAP is the reduction of IT budgets implied by the economic slowdown following the financial crisis. It leads the emergence of other threats related to cost reduction such as open source solutions or third-party maintenance and support approach.

However, SAP can take advantage of interesting opportunities to minimize this threatening situation and continue to gain market shares.

Indeed, breakthrough innovations are available in the laboratories and might shake the current market with a clever development strategy to transform them into reality for company. If SAP manages to deliver cost reducing innovations and improve the ROI of its solutions to its customers, it will reduce their inhibitions to invest.

The expansion of the SaaS technology and the fact that the company has already a foot into the sector will conduct to the release of new products solving the main fears of the sector such as security issues or system availability. Actually, the power of cloud computing might even be the firm’s salvation to achieve scale effects on its offer and finally be able to offer a more affordable price range for all kind of businesses.

Nowadays, most businesses cannot achieve operational excellence and cannot claim to significantly grow without an effective information system, especially during a recession period:

- Corporate management of businesses wants to have a clear overview of their cash flows wants to locate their major cash “leaks” and have decision-making tools at their disposal.

That being said, it turns out to be an amazing opportunity for SAP to finally demonstrate the power of its scalable solutions to the whole market. The corporate management must capitalize on its experience in business processes improvements and clarification to prove the potential customers the great cost-saving opportunities of its solutions.

3.3.3 Microsoft Corporation


- Flagship product at the bottom of the - General public experience rather than



companies’ software stack- Renown products- Prevailing use of its leading products in

the SME market- Acquisition experience- Wide network of historical and loyal

partners- Innovation power- Relative low-cost of its offer- Collaborative solutions power

business market- General public renowned offer- Detrimental trend to lay down its own

(closed) standards- Robustness of its business application

still to demonstrate- Business application strategy not really

defined- Difficulties to recognize growth

opportunities


- Expansion of the SaaS technology- SME market still under construction- Integration power of its offer thanks to

the operating system layer- Research and development

expectations

- Competitors expansion on its core activity: operating systems

- Court battles regarding antitrust lawsuits- Competitors’ leading position on the

business sector

Table 11 : Microsoft's SWOT


Before starting the analysis of Microsoft’s SWOT, it is important to explain the position of the company compared to its two other rivals. Historically, the firm of Redmond has been mainly acting on the general public software market (where it manages to get an outrageous domination) before recently redirecting its activities to the business market.

Thus, Microsoft has to be seen as an emerging competitor for Oracle and SAP and is part of this competitive analysis because of the huge potential of the firm to penetrate new markets and being successful in it (e.g. the entertainment and leisure sector with the Xbox which overturned the leadership of Sony and Nintendo).

3.3.3.1.1 General public experience

As mentioned above, Microsoft’s reputation is focused on the general public and its solutions meets difficulties to be considered as a professional alternative to the already existing solutions. However, even if this situation leads to a very low adoption rate of its products among the MNCs’ professional (except for Microsoft Office), its solutions are already widely used by SMEs.

To sustain this adoption rate among SMEs and push its solutions to large businesses, Microsoft relies on a huge network of historical and loyal partners. This is in Microsoft’s corporate strategy to develop its products in very close collaboration with partners. Due to the position of the operating system in companies’ application stack, every actors of the software market has to work with Microsoft, which is the biggest strength of the company.

3.3.3.1.2 Closed standards adoption tendency

Microsoft has built its success on a strategy mainly directed towards closed standards often incompatible with the predominant industry ones (e.g. the recent discussions about the open document format) and this reputation is a real weakness in the era of the standards explosion in the business sector (e.g. Service Oriented Architecture).



But despite this bad image, Microsoft should not be considered as a bad student in the interoperability sector. Indeed, the firm has massively invested in research and development to improve the integration of its operating system among existing architectures.

3.3.3.1.3 Robustness still to demonstrate

On a large scale implementation, except for its operating system, Microsoft’s business applications robustness has not been proven yet. To inverse the trend, Microsoft can rely on its acquisition experience of the past thirty-five years where it has been very successful to integrate new technologies to improve its existing product line.

The firm is also able to leverage the innovation power inherent to its corporate strategy (Microsoft is the biggest R&D investor of the world) to increase its solutions and give them a wider dimension.

3.3.3.1.4 Business application strategy not really defined

Due to its relative youth on the business applications market, it is pretty hard for the customers to understand Microsoft’s strategy on this sector and to trust him on a long-term orientation. But Microsoft is willing to point out its vision of the future companies’ performance through collaborative platforms and is directing its strategy to do so:

- Research and Development investments to increase its existing products collaboration power and provide the most efficient collaborative solution.

- Clever acquisitions to complete its product line and bring added value to customers.


Despite the leadership position of its operating system Microsoft Windows, competition blusters to contest this situation. Alternative solutions such as MacOS X (Apple’s operating system) and open-source products such as Ubuntu start to be recognized both on the general public and professional market. This threat obliges Microsoft to react and regain a confidence lost because of Vista’s operating system.

The firm of Redmond leveraged its R&D power to adjust its tactic and release brand new operating systems with new foundations and managed to regain goodwill towards the global market. This change of direction testifies the great opportunities embodied by the Research and Development expectations of the company, countless innovations are developed in the laboratories and the firm has to capitalize on it to finally make them real for their customers.

On the other side, despite its innovation power, Microsoft has to be careful regarding the antitrust position of its solutions. Related to the conservative strategy over its solutions technology, the firm has faced several court battles (especially on the operating systems market) which considerably weakened the power of the company in terms of cash (a fine $1.3 billion announced by the EU in 2008 for the licensing structure of its interoperability protocols and patents) and the company’s image.

But the growth opportunity related to the interoperability of its operating system is present. Microsoft realized it has more to lose than to win in the “standards war” and is willing to change tack and deliver more information about its protocols and patents and put more effort to follow the industry’s standards (e.g. the adoption of the “Open Document Format” inside Microsoft Office products).

Last but not least, the major threat for Microsoft on the business applications market is the current leading position of its competitors. Indeed, Microsoft is a relative new comer on this sector and has to demonstrate the credibility of its offer regarding the competition and above all manage to impose them to gain market shares. In the same manner as its competitors, the salvation might come from the expansion of the SaaS technology and the SME market. Microsoft has to impose the effectiveness



of its products on those sectors to gain credibility and recognition which will help him to penetrate the leading sectors of Oracle and SAP: the biggest companies markets.

3.3.4 Vendors’ SWOT confrontation

As a conclusion to the SWOT analysis section of the three companies, we will confront the results in a table representing the “Key Success Factors” and “Risks” acting as a synthetic vision of the situation to start drawing a draft of the business applications strategy for the three key players.

To draw up a list of Key Success Factors, the following question will be raised: "What are the key actions that will ensure its success as a business, if the company implements them properly?" Then we will fill in the blanks with the sentence: "If the company ______________________, then it will be successful." 11

We will be filling the opposite sentence to identify the potential risks for the vendors: “If the company ____________________, then it will not be successful.”

Oracle Corporation SAG AG Microsoft Corporation

Key Success Factors

1- Provide high-level of integration and interoperability among the current application portfolio.

1- Continue to provide high-customized solutions no matter the business sector, to customers

1- Work on the integration and interoperability of the solutions.

2- Offer an end-to-end solution from hardware to software to lower the costs for customers.

2- Capitalize on the MNC market position to sustain growth.

2- Convince customers of the importance of collaborative solutions in a business.

3- Follow the industry interoperability standards.

3- Transform labs innovations into reality.

3- Demonstrate the robustness of its solution on a large scale implementation (MNC market)

4- Invest in R&D to provide innovations that characterized Oracle’s database solutions.

4- Manage to lower implementation costs and improve ROI lead-time.

4- Make the most of its operating system adoption to gain business applications market shares

5- Rely on the existing partners’ network to promote new solutions and gain market shares.

5- Be more responsive towards new market trends

5- Strengthen the potential of its offer on the SMEs sector

6- Do not miss the SaaS and SMEs expansion growth opportunities.


6- Transform labs innovations into reality



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Table 12 : Vendors' Key Success Factors Confrontation

Oracle Corporation SAG AG Microsoft Corporation

Risks

1- Fail into integrating the technologies externally acquired.

1- Stick to the difficult and costly implementation reputation of its solutions.

1- Stick to the general public oriented reputation of its solutions.

2- Fail to lower operational costs of its solutions (license and update costs).

2- Fail to correctly integrate its last acquisition (Sybase) because of a lack of experience in the area.

2- Face a new court suit for abusing its dominant market position.

3- Potential emergence of cheaper alternative solutions.

3- Miss the business application market change because of a lack of responsiveness.

3- Miss to deliver advanced solutions to the MNCs sector.

4- Suffer from SAP’s comparison on the critical ERP sector.

4- Potential emergence of cheaper alternative solutions.

4- Miss to deliver high interoperable and open solutions not following the industry standards.

Table 13 : Vendors' Business Risks Confrontation

3.4 Porter’s five forces

Michael Porter’s five forces model is a framework builds to model an industry as being influenced by five forces: 12

- Force 1 - Competitive Rivalry: Structure of the competition, degree of product differentiation, switching costs, strategies objectives, exit barriers and brand identity.

- Force 2 - Threat of New Entries: Economies of scale, capital / investment requirements, access to technology, customer switching costs, access to industry distribution channel, brand loyalty and retaliation ability.

- Force 3 - Threat of Substitution: possible substitute, Price, performance and quality of the substitute, buyers’ willingness to substitute and perceived level of product differentiation.

- Force 4 – Buyers’ Power: Buyers’ concentration, buyers’ volume, buyers’ level of information, threat of backward integration, potential substitution, price of the solutions, product differentiation and buyers’ incentives.

- Force 5 – Suppliers’ Power: Possibility of forward integration of suppliers, switching costs opportunities, high power of brands.

This model allows us to determine which factors (inside and outside) of the business applications’ industry influence the way in which the three vendors compete. Porter’s model is well-known for its

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Threat of New

Entries

Threat of Substitution

Oracle CorporationSAP AG

Microsoft CorporationBuyers’Power

Suppliers’Power

CompetitiveRivalry


ability to define the elements which are driving competition and how the competitive environment is created by the interaction of the five forces.

We will rate the components of the forces with a grade between one and five to determine the intensity (low(1), low to medium(2), medium(3), medium to high(4) and high(5)) of each factor and will use them to define the competitiveness of the industry:

- Average of the components between zero and two: Low importance of the force- Average of the components between two and four: Medium importance of the force- Average of the components above four: High importance of the force

During the following sections, we will analyse the competitive environment of the industry by exerting the model force by force which will lead us to the conclusion of the strategies’ analysis represented by the Business Strategy Matrix applied to all vendors.

3.4.1 Competitive Rivalry

Structure of competition: The enterprise software industry (or business applications industry) is intensely competitive and evolving rapidly. Total cost of ownership, performance, functionality, ease of use, standards-compliance, product reliability, security and quality of technical support are key competitive factors. As mentioned above, the three major vendors are in direct competition on all frontlines: ERP, BI, CRM, Middleware and SaaS. Consolidation through mergers and acquisitions within the corporate software industry has led to an oligopoly of four giants: our three vendors and IBM.

Degree of product differentiation: The enterprise software industry is a mature market where there is an established product definition, leaving few places for differentiation. Basically, the three vendors are proposing the same kind of solutions. However, differentiations exist, based on the targeted sectors and are being expressed as follows:

- Integration capabilities (interoperability) among existing IT architecture of their customers- Targeted industry sector: Finance, Health Care, Manufacturing- Customers’ company size: SMEs and MNCs


Figure 21 : Porter's Five Forces Model


Switching costs: The switching costs represent for customers all the financial-related efforts required to switch from one’s supplier solution to another one. Nowadays, the importance of information systems inside companies makes the switching costs very high, associated with a great risk to paralyze their activities such as manufacturing and order fulfilment. Thereby we rarely see one customer switching its whole IT systems from a vendor it has massively invested in to another one. High switching cost does not contribute to the competition’s hardening.

Strategic objectives: The three vendors are pursuing the same kind of strategy, focused on the growth of their revenue: external growth, licences and supports fees increase and high level of investment required by their solutions. Such a situation, where vendors are following the same strategy tend to escalate the rivalry of the industry.

Exit barriers: Leaving the enterprise software industry is not an option for any manufacturer because of the following reasons:

- It is Oracle Corporation and SAP AG’s core activity, they are specialized in this sector, are successful in it and have no expertise in other fields.

- Despite its reputation of new comer, Microsoft has already invested a lot in the sector and already well established in the market where the company sees great revenues opportunities.

Since it is more costly for the vendors to leave the market rather than fight to just stay in, it exhibits a greater industry’s rivalry.

Brand identity: Established for a long time in the software-related industry, the three manufacturers all benefit from their recognition and the power of their brand at different degrees:

- Oracle Corporation is well-known for the robustness of its database products- SAP AG is recognized for the effectiveness of its solutions in the MNCs market- Microsoft’s image embodied the success on the general public sector.

Since the brand identity is a major factor taking into account by customers during the buying process of business applications, this component also tend to intensify the industry’s rivalry.

As a conclusion to the competitive rivalry analysis, the table below represents the grade of each component of Porter’s first force where one embodies the lowest intensity and five the highest intensity in terms of competition.

Structure of competition

Degree of product

differentiation

Switching costs

Strategic objectives

Exit barriers

Brand identity

Grade 5 4 1 5 5 5

Table 14 : Competitive Rivalry Summary

With an average of 4.2, the rivalry of the enterprise software industry is considered as high.

3.4.2 Threat of new entries

Economies of scales: Oracle, SAP and Microsoft are three historical enterprises who acquired a lot of experience in the “manufacturing” process of enterprise software. Economies of scales, software components reuse, and synergy of solutions have been their obsession since the early beginning. That is why a potential appearance of a new player tends to be difficult, unless it has a very long experience in the software market (other than enterprise applications) and strong financial resources to implement production tools to achieve economies of scale.



Capital / investment requirements: High initial investment costs to enter new markets characterized the software industry. With constant innovation and new product development as a key to long-term success and profitability, substantial R&D budgets are also required. This may discourage companies with limited financial resources to enter.

Access to technology: Unauthorized third parties may resort to illegal alternatives to enter the market i.e. copy or reverse engineer portions of the vendors’ products or otherwise obtain and use their intellectual property. However the manufacturers are used to this industry spying situation and are well prepared to fight this threat (see: Oracle accuses SAP of “massive” theft13):

- Legal services represent a business unit in the firms and all the required resources are allocated to track down technology theft.

- The manufacturers’ know-how is very well patented which add an extra barrier to the technology access.

Customer switching costs: Once again, the costs and the risks implied by changing from one manufacturer to a new entrant are high that it protects the existing players at least in their already established sectors. Indeed, the switching costs are not a barrier in the SME market still under construction.

Access to industry distribution channel: The three companies have very well established domestic and international distribution channels based on the following intermediates:

- Related-solutions vendors strong partnerships- Hardware-related vendors strong partnerships- Customers’ strong partnerships- Consulting firms strong partnerships- IT solutions distributors strong partnerships- University partnerships

The wideness and loyalty of the partners’ network make the emergence of a new comer extremely difficult, which would have prove the advantages of its solutions to already convinced firms, to destroy long-term relationships and build a wide and strong network (it took thirty years for Oracle, SAP and Microsoft)

Brand loyalty: With strong brand loyalty towards the vendors, customers reduce the risk to see a new entrant appearing from nowhere in their already established activities. But as the customer switching costs, the SME market (not yet under the influence of the manufacturers), present a limited brand loyalty.

The likelihood of retaliation from existing industry players: Even if the three vendors might be seen as giants having difficulties to rapidly adjust their strategies and radically change their direction, when a threat is emerging and jeopardize their potential revenues, they are able to leverage unsuspected resources and are able to heavily retaliate thanks to their experience and financial health. Such retaliation ability is another barrier to a potential new entry in the market.

To conclude the competitive rivalry analysis, the table below represents the grade of each component of Porter’s second force where one embodies the lowest intensity and five the highest intensity in terms of threat of a new entry.

Economies of scale

Capital / Investment

requirements

Access to technology

Customer switching

costs

Access to industry

distribution channel

Brand loyalty

Retaliation ability

Grade 1 1 1 1 1 1 1

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Table 15 : Threat of New Entries Summary

With an average of 1, the threat of new entries is considered as low, therefore quite unlikely.

3.4.3 Threat of substitution

Possible substitute: Although small and medium sized businesses are enthusiastic to adopt SaaS as it simpler to maintain, large companies, however, are not in a hurry to replace their existing investment in traditional software from the vendors. Substantial investments have been made and they have been through the pain. It will be sometime before they will fully embrace the service model. But in a relatively close future, it is expected that eventually, only the software that provides competitive advantage to a firm will remain and everything else will be a service.

Open source alternatives to commercial software exist in all enterprise applications sector, such as MySQL in relational database management systems, Pentaho, a complete business intelligence solution, SugarCRM or JBoss in the middleware sector. All these solutions affect the competitive environment. These products are typically offered free of charge and are readily available over the Internet.

Price, performance and quality of the substitute: Regarding the possible substitution from existing solutions to the SaaS alternative, several factors have to be taken into account:

- The biggest argument supporting this technology is the capital expenses (CAPEX) drastic reduction. Indeed, infrastructure costs related to hardware investments, support and upgrades are outsourced.

- Because of the software outsourcing implied by the SaaS model, the performance might be a critical issue on a large scale implementation of a hosted solution.

- Potentially, the quality of the “on-demand” model is the same as it “on-premise” model, since the functionalities do not change but only the infrastructure.

For the open-source alternatives, the point of view is different. It is true that there are no license costs associated to the products, which is a great source of savings when we take a look at the revenue model of the vendors. But the counter-argument is that its support costs can be significantly higher than those of conventional software. In terms of quality and performance such solutions successfully fill the requirements list of small businesses but tend to show their limits when it comes to large scale implementation.

Buyers’ willingness to substitute: Buyers are willing to choose a substitute rather than one of the vendors’ solutions provided that the alternative will provide the same (or better) return on investment. The buyers will opt for a substitute only if they have the guaranty of a long-term support and a high integration power of the solution among their existing architecture.

Perceived level of product differentiation: There is real differentiation feeling regarding full integrated solutions (FIS) of the three vendors, open-source products and best-of-breed software. FIS tend to be the most robust software with a certain pledge of quality both in the functionalities and in the interoperability. On the other hand open-source products are perceived as cheaper and a little bit less efficient whereas best-of-breed software’s perception relies on the interoperability rather than their quality.

To conclude the threat of substitution, the table below gives a grade to all the components of this force.

Possible substitute

Price, performance, quality of the

substitute

Buyer’s willingness to substitute

Perceived level of product

differentiationGrade 4 2.5 2 2



Table 16 : Threat of Substitution Summary

With an average of 2.6, the threat of substitution is considered as medium.

3.4.4 Buyers’ power

The buyers’ power can be divided into two categories defining how much pressure customers can place on a manufacturer. The first one is the bargaining leverage a company has towards its suppliers; it represents the dependence of a manufacturer over its customers to sell its products. The latter concerns the price sensitivity; it helps to determine the price’s importance of a product or solution during the buying process of customers.

Bargaining leverage

Buyer concentration vs. industry concentration: The outcomes of the market analysis demonstrate that only few players are sharing the market shares of the enterprise software industry, in addition to the three companies being the subject of the research few companies also step in (e.g. IBM). Conversely, there is no such a concentration of buyers since potentially all firms are business applications seekers.

Buyer volume: As opposed to consumer goods makers, the number of solutions sold is not a decisive factor for the manufacturers’ revenue. Their business model is based on the licenses and support costs of their products (see Figure 14: Applications License, Maintenance, and Subscription Revenueby Vendor, 2006-2008 ($M)), thus what is important for Oracle, SAP and Microsoft is the size of the company with a high number of end-users which will directly affect their profits. That is why, the MNCs sector have a higher bargaining leverage than SMEs, where accumulating customers is more important for the manufacturers.

Buyers’ level of information: On the MNCs sector, with high resources, the potential customers are very well informed about the enterprise software industry and the different players in place with their strengths and weaknesses. It gives to large firms a high bargaining power, with their ability to highlight the flaws of the vendors’ different solutions and force them to reduce their prices.

The situation is totally different on the SME sector, with still a lot of uninformed customers who are basing their choices on rumours and reputation of the vendor, the bargaining leverage is therefore inverted in favour of the manufacturers in this sector.

Threat of backward integration: The question to be raised here, to determine the possible threat of backward integration is: “Can my buyers start producing products I provide to reduce their costs?” 14. The answer is clear and simple: “No”. Indeed, it is almost impossible for a firm to build one of their suppliers’ solutions from scratch, because of the complexity and the resources required (IT expertise and financial resources) implied to design enterprise software. The impossibility of the customers’ backward integration is an important factor contributing to the high bargaining power of the business applications manufacturers.

Potential substitution: As mentioned above, the threat of substitution is real for the biggest enterprise software manufacturers; the amount of possible alternatives tends to give strong bargaining power to their potential customers.

Buyer concentration

vs. industry concentration

Buyer volume Buyer’s level of information

Threat of backward

integration

Potential substitution

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Grade 3 2.5 3 0 4

Table 17 : Buyers' Bargaining Leverage Summary

With an average of 2.1, the buyer’s bargaining power is considered as low to medium.

Price sensitivity

Price of the solutions relative to total expenditures of buyers: We did not find any data regarding the total expenditures ration but the percentage of revenues generated by IT budgets is a good indicator as well. Indeed, studies show that IT budgets represent an average 2% of revenues15, based on the activities of the different industry sectors we can assert that enterprise software have more importance in services oriented companies’ expenditures than in manufacturing ones. We consider this factor as medium regarding the price sensitivity of the buyers.

Product differentiation: On the enterprise software market, the three vendors are recognized as best-in-class solutions providers compared to the competition (open-source, best-of-breed). They are using their brand recognition to establish their solutions and counter their competitors’ sales opportunities.

On the other hand, despite their quality recognition, they are also associated with complex implementations and poor return of investment before five years which does not work in their favour. That is why we will consider the product differentiation as mitigated in the buyers’ power evaluation.

Buyers' incentives: Buyers’ incentives represent the rewards customers might receive by their suppliers. The three vendors are very fond of this kind of incentives and are often rewarding their most loyal customers. For example, they have developed specialized programs promoting companies that have shown tremendous capabilities to implement their solutions (e.g. SAP’s Gold Client program). In addition, by giving their best customers access to special resources such as skilled-engineers or research and development programs, the three vendors have managed to embolden their customers to choose their products and minimize their buying power at the same time.

Price of the solutions Product differentiation Buyers’ incentivesGrade 2.5 2.5 4

Table 18 : Buyers' Price Sensitivity Summary

With an average of 3.0, the buyer’s price sensitivity is considered as medium.

The table below summarizes the two categories of the buyers’ power:

Buyers’ Power Summary

Bargaining Leverage Price sensitivityGrade 2.5 3.0

Table 19 : Buyers' Power Summary

With an average of 2.8, the buyer’s price sensitivity is considered as medium.

3.4.5 Suppliers’ power

Oracle Corporation, SAP AG and Microsoft are service-oriented manufacturers and are only acting on the enterprise software market. We have decided not to take into account the servers’ production of Oracle following Sun Microsystems takeover, since it is too soon to evaluate to power of the

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suppliers on Oracle’s activities. As opposed to the production of commoditized products, software does not require any raw material to be produced. Thus, the evaluation of the suppliers’ power towards the three vendors such as the suppliers’ sourcing repartition or level of competition does not make sense in this analysis.

3.4.6 Porter’s Five Forces Conclusion

Porter’s Forces IntensityCompetitive rivalry High

Threat of new entries LowThreat of substitution Medium

Buyers’ power Low to mediumSupplier’s power Non-applicable

Table 20 : Porter's Five Forces Summery

However, despite such a rivalry, it is hard to imagine the pure and simple disappearance of one of the players regarding the size of the market

Only few companies are competing on the enterprise application market, with a high level of intensity. This environment can be qualified as “cutting-throat”, indeed, the manufacturers are having the same strategies designed to take down their opponents by using all their resources (distributors, partners, research and development and finance) in order to gain leadership on the critical sectors.

Such competition is definitely profitable for customers:

- They will benefit from the “price war” currently taking place between manufacturers to gain market shares.

- They will also benefit from the innovation race which will bring them real innovations without impacting their expenditures.

Regarding the threat of a new entry, it is unlikely to see an emerging company positioned in direct competition with the existing players. They have accumulated such a tremendous experience both in technologies and customer needs, that only a company with almost unlimited resource and a strong know-how in the software manufacturing process, would be able to claim a small piece of cake of the enterprise applications market. Theoretically, such barriers act for the profitability of the existing players since they do not see their market shares drastically taken by a new comer, on the other hand, it increases the market rivalry.

Even if the intensity of new entries is weak, the manufacturers have really to take care of the emergence of alternative solutions. Previously portrayed as open-source solutions or best of breed, corporate IT management starts considering these alternatives because of the cost reduction demanded by the economic recession.

Finally, the impact of the buyer’s power is important to precisely define the enterprise business applications market. We are attending a trend evolution, from a situation where buyers were not taking care of their IT spending as long as the product was working, to a situation where the IT budgets have been impacted first by the crisis, thus IT managers are becoming more sensitive about prices, and will not hesitate to opt for an alternative solution even if this will complicate their architecture.



3.5 Business Strategy Matrix

As a conclusion to the vendors’ strategies analysis, we will use the model of General Electric/McKinsey to enlighten the business portfolio study on the strategic business units of the three corporations.

The GE/McKinsey business strategy matrix allows us to confront the industry attractiveness with the strategic business units (SBU) of the firms, and determine how they are performing on critical sectors and whether such performance is worth and profitable for their growth or not depending on the enterprise applications market attractiveness.

3.5.1 Methodology

3.5.1.1 GE / McKinsey Matrix construction

The GE/McKinsey Matrix model below is build according to the following steps:

1- Evaluate the industry attractiveness per sectors:a. Define the criteria used to evaluate the industry sectors.b. Weight the criterion according to their importance on the enterprise applications

market.c. Rate the industry sectors on each of the criteria with a scale ranging from one to five.d. Achieve a weighted score by multiplying the weights of the second step with the

ratings from the third step.e. Sum the weighted score to find the total attractiveness for the industry sectors.

2- Evaluate factors which determine the SBUs strengths on a particular sector per company:a. Define the criteria used to evaluate the SBUs strengths.b. Weight the criterion according to their importance on the sector.c. Rate the SBUs on each of the criteria with a scale ranging from one to five.d. Achieve a weighted score by multiplying the weights of the second step with the

ratings from the third step.e. Sum the weighted score to find the strengths of the SBUs on the different industry

sectors

3- Plot the SBUs in the matrixa. Draw a pie for each industry sector.b. Slice the previous mentioned pie with the market shares of the SBUs on a sector.c. Place the pie on the y-axis according to the industry attractiveness.d. Place the pie on the x-axis according to the SBUs strengths on a sector.e. Use an arrow to determine the expected future position of the circle.


30%

40%


Strategic Business Unit Strengths

High Medium Low

Indu

stry

Att

racti

vene

ss

High

Medium

Low

Figure 22 : GE / McKinsey Matrix Model

3.5.1.2 GE / McKinsey Matrix interpretation

Once the matrix has been build, the strategic business units have a specific position in the nine cells framework. We will lean on the theoretical model16 below to analyse the role of the SBUs among the manufacturers’ organisation and define which strategic actions should be taken regarding their activities.

Strategic Business Unit Strengths

High Medium Low

Indu

stry

Att

racti

vene

ss

High

Medium

Low

Table 21 : GE / McKinsey Matrix Interpretation

16 http://www.palgrave.com/keyconcepts/pdfs/Strategic%20Management%2014039_21350_10_G.pdf


Invest heavily for growth

Invest selectively

and build

Develop for

income

Invest selectively

and build

Develop selectively

for income

Harvest or divest

Develop selectively and build on strengths

Harvest Divest

http://www.palgrave.com/keyconcepts/pdfs/Strategic%20Management%2014039_21350_10_G.pdf


3.5.2 Industry attractiveness per sector

All along this section, we are going to define the factors used to qualify the sectors’ attractiveness for the enterprise applications industry.

3.5.2.1 Criterion Definition

According to the previously completed market analysis (see section 3.1 - Area of competitiveness and market shares) we have segmented the enterprise applications market into seven sectors:

On the first five sectors below, the three key players are having an intense competition and share the same strategic business units:

1- Enterprise Resources Planning (ERP)2- Business Intelligence (BI)3- Customer Relationship (CRM)4- Middleware5- Small and Medium Enterprises (SME)

In addition, two other sectors can be underlined, but all the manufacturers are not playing a part in them:

6- Database solutions7- Operating Systems

The following factors with their associated weights will be used to underline the industry attractiveness per sector:

Factors WeightsOverall market size 0.2

Competitive intensity 0.3Market growth 0.2Pricing trends 0.1

Product differentiation 0.1Entry barriers 0.1

Table 22 : Industry Attractiveness Factors Definition

3.5.2.2 Industry sectors attractiveness rating

The ratings applied in the tables below are not subject to any explanation, since they rely on areas already covered since the beginning of the research paper development.

3.5.2.2.1 Enterprise Resources Planning (ERP)

Factors Weights Rating TotalOverall market size 0.2 4 0.8Competitive intensity 0.3 3 0.9Market growth 0.2 3 0.6Pricing trends 0.1 4 0.4Product differentiation 0.1 3 0.3Entry barriers 0.1 4 0.4

Total 3.2

Table 23 : ERP Industry Attractiveness



3.5.2.2.2 Business Intelligence (BI)


Total 3.0

Table 24 : BI Industry Attractiveness

3.5.2.2.3 Customer Relationship (CRM)


Total 2.9

Table 25 : CRM Industry Attractiveness

3.5.2.2.4 Middleware


Total 2.6

Table 26 : Middleware Industry Attractiveness

3.5.2.2.5 Database solutions


Total 2.7

Table 27 : Database Solutions Industry Attractiveness



3.5.2.2.6 Operating Systems

Factors Weights Rating TotalOverall market size 0.2 5 1Competitive intensity 0.3 1 0.3Market growth 0.2 3 0.6Pricing trends 0.1 2 0.2Product differentiation 0.1 5 0.5Entry barriers 0.1 5 0.5

Total 3.1

Table 28 : Operating Systems Industry Attractiveness

3.5.2.2.7 Small and Medium Enterprises (SME)


Total 4.4

Table 29 : SME Industry Attractiveness

3.5.3 Strategic Business Units Strengths per company

3.5.3.1 Criterion definition

The second step of the GE / McKinsey Matrix definition is to define criterion with several factors (see Table 30: SBU Factors Definition) with their associated weights, which are testifying the power of a business unit towards its competitive environment.

In the following sections, we are going to rate all these factors for each company, in order to be able to fill their business strategy matrix and have a clear understanding of their respective overall strategies.

Factors WeightsStrengths of Assets and Competencies 0.2Relative Brand Strength (Marketing) 0.2

Market Shares 0.2Customer Loyalty 0.1

Research and Development Capabilities 0.1Quality of the Products 0.1

Access to Financial Resources 0.1

Table 30 : SBU Factors Definition


Factors Weights Rating Total

ERP

Strengths of Assets and Competencies 0.2 3 0.6Relative Brand Strength (Marketing) 0.2 3 0.6

Market Shares 0.2 2.5 0.5



Customer Loyalty 0.1 3 0.3Research and Development Capabilities 0.1 4 0.4

Quality of the Products 0.1 3 0.3Access to Financial Resources 0.1 4 0.4

Total 3.1

BI

Strengths of Assets and Competencies 0.2 3 0.6Relative Brand Strength (Marketing) 0.2 1.5 0.3

Market Shares 0.2 2 0.4Customer Loyalty 0.1 2 0.1

Research and Development Capabilities 0.1 4 0.4Quality of the Products 0.1 3 0.3

Access to Financial Resources 0.1 4 0.4Total 2.5

CRM





Mid

dlew

are





Dat

abas

e So

lutio

ns





SME Strengths of Assets and Competencies 0.2 3 0.6

Relative Brand Strength (Marketing) 0.2 3 0.6Market Shares 0.2 1 0.2

Customer Loyalty 0.1 1 0.1Research and Development Capabilities 0.1 4 0.4

Quality of the Products 0.1 3 0.3Access to Financial Resources 0.1 4 0.4

Total 2.6

Table 31 : Oracle Corporation - SBUs Rating



3.5.3.3 SAP AG

Factors Weights Rating TotalER

PStrengths of Assets and Competencies 0.2 5 1.0Relative Brand Strength (Marketing) 0.2 4 0.8




BI





CRM





Mid

dlew

are

Strengths of Assets and Competencies 0.2 N/A N/ARelative Brand Strength (Marketing) 0.2 N/A N/A

Market Shares 0.2 N/A N/ACustomer Loyalty 0.1 N/A N/A

Research and Development Capabilities 0.1 N/A N/AQuality of the Products 0.1 N/A N/A

Access to Financial Resources 0.1 N/A N/ATotal N/A

Dat

abas

e So

lutio

ns





SME







Table 32 : SAP AG - SBUs Rating


Factors Weights Rating TotalER

P





BI





CRM





Mid

dlew

are





Dat

abas

e So

lutio

ns





Ope

ratin

g





15%

15%

SME

DB

45%

CRM

15%

MID

15%


Sys Access to Financial Resources 0.1 4 0.4

Total 4.2SM

EStrengths of Assets and Competencies 0.2 5 1.0Relative Brand Strength (Marketing) 0.2 4 0.8




Table 33 : Microsoft Corporation - SBUs Rating

3.5.4 Final GE / McKinsey Business Matrix

Following the previous study of the different industries attractiveness and strategic business units strengths, we are now able to draw the final business matrix for each player.


Strategic Business Units Strengths

High Medium Low

Indu

stry

Att

racti

vene

ss

High

Medium

Low

Table 34 : Oracle Corporation - GE / McKinsey Business Matrix

3.5.4.1.1 Interpretation

The table below is a summary of the SBUs position on the GE / McKinsey Business Matrix for Oracle Corporation:

ERP BI CRM Middleware DB SME

StrategyInvest

selectively and build

Develop selectively for income

Invest selectively and build



Develop for income

Table 35 : Oracle Corporation GE / McKinsey Matrix Results


40%

ERP

BI


ERP: Invest selectively and build

Oracle’s position on the ERP market is fussy. The company managed to become a major player, but is still quite far from the historical leader SAP. Although, the firm has met a tremendous growth on the sector during the past ten years thanks to external growth with takeovers (see 2.1.3.2.1 OracleCorporation’s strategic acquisitions), the ERP SBU is now stagnating and struggles to pass over the next step.

According to the business matrix position of the SBU, Oracle has to keep on investing in this crucial sector, but in a clever way in order to build a strong and more comprehensive offer for its customers.

BI: Develop selectively and build

With its offer Hyperion, Oracle is quite late on the very attractive sector of Business Intelligence. Indeed, a powerful BI solution is mandatory for an enterprise software manufacturer and represents the finality of the full software suite bought by a company. BI solutions bring the opportunity to gather and interpret all data consolidated in the information system to help managers to make the right decision at the right time.

The position of the SBU in the matrix confirms this statement: Oracle has to emphasize the development of this other very attractive industry sector.

CRM: Invest selectively and build

Once again, Oracle is acting as a major player in the Customer Relationship Management sector but is not positioned as the leader. But the trend is positive for the company and Oracle should on no account stop injecting financial resources into its acquired product Siebel to improve it and transform it into a best-in-class in its category.

Middleware: Develop selectively for income

Nowadays, Oracle owns a representative part of the middleware where IBM reigns supreme over the sector. However, the power of the technologies acquired (BEA Systems) brings a lot of hope for the firm which should carefully develop its offer to increase its income and deliver an effective solution supporting the whole software stack.

Database Solutions: Invest selectively and build

If there is only one SBU Oracle can count on to sustain growth, it is definitely the database solutions unit. Indeed, Oracle is by far the undisputed leader on the market with high recognition of its offer. Database being at the centre of every IT architecture, Oracle has to continue investing, but selectively to improve its offer and propose real innovations to its customers.

SME sector: Develop for income

As mentioned in the previous sections, the SME sector is the most attractive sector at the moment. Still under construction, the SME market, with the number of potential clients, represents a tremendous growth opportunity. However, Oracle’s offer is as the market, still under construction and a little bit late to prepare the SME’s economic upturn. That is why Oracle has to massively invest in its offer, develop it and deliver a cheap and powerful offer to the market.


SME

DB

4%


3.5.4.2 SAP AG


High Medium Low

Indu

stry

Att

racti

vene

ss

High

Medium

Low

Table 36 : SAP AG - GE / McKinsey Business Matrix


The table below is a summary of the SBUs position on the GE / McKinsey Business Matrix for SAP AG:

ERP BI CRM Middleware DB SME

StrategyInvest

heavily for growth

Invest heavily for

growth


N/AHarvest or

divestDevelop for

income

Table 37 : SAP AG GE / McKinsey Matrix Results

ERP: Invest heavily for growth

SAP is the historical leader of the ERP sector, one of the most attractive of the enterprise application market. Despite relative loss of market shares during the past five years (due to Oracle & Microsoft growth), SAP’s offer is still the most powerful and customizable fulfilling almost all their customers’ needs. However, the high costs associated with the brand name oblige the German firm to keep on investing heavily in its offer to lower the costs and provide real innovations.

BI: Invest heavily for growth

Business Objects acquisition took time to be profitable and bring real added value to its existing offer, but SAP is now on the right track to take the most of the technology and integrate it perfectly within its software stack. According to the matrix, SAP has to invest heavily for growth and keep the advantage it already has to its competitors, and as usual lower the costs and release tremendous innovations.

CRM: Invest selectively and build

SAP CRM is implemented in approximately a quarter of the market and represents a strong point for the German firm. Although this sector is not the most attractive, its importance is nevertheless


40%

ERP

25%

BI23%

CRM

23%

SME

OS

90%

DB

19%


considerable. SAP has to invest selectively in his offer to fulfil a high emerging demand from its customers.

Database Solutions: Harvest or divest

The recent appearance of SAP in the database solutions industry is due to the recent takeovers of Sybase. With its offer called AES, Sybase is a relative small player and would need too much investment to inverse the trend and take market shares from its competitors. However, the activity should neither be harvested nor divested because of its promising technologies in the area of “in-memory” data processing.

SME sector: Develop for income

As its favourite competitor Oracle, SAP is still a minor player in the SME industry and has to focus its effort to develop its related business unit.



High Medium Low

Indu

stry

Att

racti

vene

ss

High

Medium

Low

Table 38 : Microsoft Corporation - GE / McKinsey Business Matrix


BI 7%

CRM

7%

ERP5%

MID

4%



The table below is a summary of the SBUs position on the GE / McKinsey Business Matrix for Microsoft Corporation:

ERP BI CRM Middleware DB OS SME

Strategy Develop for income

Develop selectively

for income


Harvest or divest

Develop selectively

for income

Develop selectively

for income

Invest heavily

for growth

Table 39 : Microsoft Corporation GE / McKinsey Matrix Results

ERP: Develop for income

Microsoft is a small player in the lucrative ERP market. New comer like Oracle but with less important acquisitions (e.g. Navision), the firm of Redmond has to develop its offer to better serve the biggest companies (MNCs) in order to increase the income of the business unit.

BI: Develop selectively for income

The BI unit of the company is positioned as its ERP counterpart except that the BI industry is less attractive. Indeed, Microsoft Dynamics BI owns only a few market shares but incorporate interesting functionalities that need to be developed carefully and improved to attract more customers.

CRM: Develop selectively for income

The CRM unit is not an exception to the rule regarding the new comer status of the company. Microsoft has to keep on investing and develop its offer still in minor position compared to competition.

Middleware: Harvest or divest

Microsoft’s position on the middleware industry is delicate because not important enough and requiring massive investments to catch up competition. On the other hand, middleware considered the backbone of all IT architecture should not be abandoned by the company. Indeed, with the strong position of being the operating system manufacturer, Microsoft has the opportunity to build the most powerful offer ever with clever research and development and investment.

DB: Develop selectively for income

SQL Server is an important player in the enterprise database applications industry. Still quite far from Oracle in terms of market share and functionalities, Microsoft’s offer differs from the historical leader with relatively low operational costs explaining its success. The position on the matrix confirms the fact that the firm of Redmond should continue to invest and develop its product in a clever way to gain more customers.

OS: Develop selectively for income

It is not a secret for anyone: Windows is the undisputed operating system leader and will be for at least the next twenty years. This sector is a cash cow for the company at the origin of most of its treasury. For this reason, enabling the firm to develop other business units, the company has to keep on investing in its products and frequently release new versions bringing real innovations to customers (e.g. Windows 7).

SME: Invest heavily for growth



As its competitors, Microsoft owns a very powerful business unit compared to the others. It turns out this SBU is the one which is expected to meet the biggest growth within the next five years. The position on the matrix confirms this fact and encourages Microsoft to invest heavily in the SME sector to achieve an important growth and keep away the competition.

3.5.5 Strategic Business Units Confrontation

Within the following sections we will use the firms SBUs position towards the industry attractiveness and confront them on sectors where the companies are in direct competition.

3.5.5.1 ERP SBUs confrontation

The table below confronts the three companies on the ERP industry:

Oracle Corporation SAP AG Microsoft Corporation

ERP Invest selectively and build Invest heavily for growth Develop for income

Performance

Table 40 : ERP SBUs Confrontation

On the lucrative ERP market the advantage is for SAP. As this activity has been its core activity for forty years, the German company benefits from a huge installed and satisfied customer base. But Oracle has met a formidable growth for the past ten years and is positioning its offer as the only real competitor for SAP. With still a lot of integration work to achieve (to perfectly assemble its acquisitions), the former database manufacturer is hoping for a bright future. On its side, Microsoft is not ready yet to compete on equal terms with the two others player, due to an inadequate and insufficient offer for large scale implementation.

3.5.5.2 BI SBUs confrontation

The table below confronts the three companies on the BI industry:


BIDevelop selectively for

income Invest heavily for growthDevelop selectively for

incomePerformance

Table 41 : BI SBUs Confrontation

Thanks to the acquisition of the French business intelligence solutions Business Objects (BO) in 2007, SAP is from now on a major player in the industry. With BO, the company managed to bring the missing analytical software stack of its portfolio, mandatory to provide a full and comprehensive offer. Far behind in terms of market shares and solutions robustness, Oracle and Microsoft have to improve their business intelligence solution by selectively choose their investments in the sector.

3.5.5.3 CRM SBUs confrontation

The table below confronts the three companies on the CRM industry:


CRM Invest selectively and build Invest selectively and buildDevelop selectively for

incomePerformance



Table 42 : CRM SBUs Confrontation

Status quo on this sector for Oracle and SAP, with powerful equivalent solutions the two players are pushing Microsoft into the background which suffers once again of the relative youth of its offer.

3.5.5.4 Middleware SBUs confrontation

The table below confronts the three companies on the middleware industry:


Middleware Develop selectively for income N/A Harvest or divest

Performance

N/A

Table 43 : Middleware SBUs Confrontation

On second position behind IBM, Oracle is an important player on the sector, and might increase its position with the last release of the middleware solution BPM 11G17. We did not manage to find the figures for SAP, but according to the press, the German firm follows on the heels of Oracle to impose it product among IT architecture. Far behind, Microsoft has still a lot to build to perform in this area.

3.5.5.5 Database SBUs confrontation

The table below confronts the three companies on the database industry:


DB Invest selectively and build Harvest or divestDevelop selectively for

incomePerformance

Table 44 : Database SBUs Confrontation

On this important sector, it is Oracle’s turn to benefit from the leader position. As a first mover, the firm has a huge advantage over its competitors, especially against SAP which recently acquires Sybase. But according to the German firm’s management, Sybase’s takeover was not meant18 to position the firm in the database industry. Regarding Microsoft’s position on this sector, the company has been quickly growing during the past ten years and now stands for a credible alternative the Oracle’s offer.

3.5.5.6 SME SBUs confrontation

The table below confronts the three companies on the SME industry:


SME Develop for income Develop for income Invest heavily for growth

Performance

Table 45 : SME SBUs Confrontation

17 http://www.itbusinessedge.com/cm/blogs/lawson/bpm-11g-for-oracle-its-all-about-integration/?cs=4187518 http://www.lemondeinformatique.fr/actualites/lire-sap-rachete-sybase-pour-ses-technologies-mobiles-et-in-memory-30663-page-2.html


http://www.lemondeinformatique.fr/actualites/lire-sap-rachete-sybase-pour-ses-technologies-mobiles-et-in-memory-30663-page-2.html


http://www.itbusinessedge.com/cm/blogs/lawson/bpm-11g-for-oracle-its-all-about-integration/?cs=41875


On a market which will meet an incredible growth within the next four years 19, Microsoft has taken a significant advantage over its competitors and meets a great success in this market. Based on the tremendous adoption and use of its productivity suite Microsoft Office, the firm of Redmond managed to capture the essentials needs of this kind of customers. In a sector which rapidly provides added-value at a low cost, SAP and Oracle are left behind but count on the SaaS revolution to reverse the situation.

On the highly competitive and broaden enterprise applications’ market we have gone through all the strategic business unit that successfully combined altogether would make one of the player the undisputed leader.

Such an achievement seems today unlikely for any company which shared turn by turn the leadership on different sectors. With SAP and ERP, Oracle and database solutions or Microsoft and the SME sector the firms are not in position to dominate and eliminate their opponents.

During the following section, we will finally lay out the conclusions of the research by taking a personal approach based on all the development made above. From the background analysis to the strategies analysis through the current market situation, we have gathered the entire information essential to draw up future prospects of the industry and make recommendations to the companies about strategic improvements to better perform and gain a hypothetical market leadership.

19 http://findarticles.com/p/articles/mi_m0EIN/is_2008_June_11/ai_n25494568/


http://findarticles.com/p/articles/mi_m0EIN/is_2008_June_11/ai_n25494568/

1990’s 2000’s 2010’s

DATABASE

HARDWARE

SME

SaaS


4 Future prospects

The first step of the research paper’s conclusion starts with the future prospects regarding the three key players of the business applications industry. Within a two steps approach, we will first determine by using eloquent figures how their business models evolved in terms of activities and conclude with the presentation of the recent long-term strategies announcement made by the companies during the last few months.

4.1 Business model evolution

The figures used below to represent the business model evolutions are organized as a timeline from the 1990’s to the 2010’s through the 2000s. Are indicated, the original activity of the firms, their activities extensions and the currently happening changes.


From its original database manufacturer activities, Oracle’s business model has radically changed. While being successful in the sector and providing the most advanced solutions to better serve its customers, the company understood the growth potential of database offer extension.

At the centre of every information system and communicating with all the enterprise applications ecosystem, Larry Ellison was one of the first IT executive to consider the consolidation needs. During the 1990’s and the tremendous extension of the IT industry, all companies where buying the best solutions from different vendors with the associated license and maintenance costs and the interoperability issues.

From this assertion, started Oracle’s takeovers frenzy and the forward integration began. So as to provide better integrated solutions with unified license and maintenance costs, the firm managed to acquire quality solutions gravitating around its database system to build a unique enterprise applications portfolio.


Figure 23 : Oracle Corporation's Business Model Evolution

1990’s 2000’s 2010’s

ERP

SME

SaaS

MOBILE


Recently, Oracle brought its portfolio to the next level and acquired the missing stack: hardware. We will see in the next few months how the company will transform this acquisition into real source of growth.

Oracle’s strategy regarding the promising SME market appears on the horizon and there is every indication that it will continue. This is where the SaaS technology development takes place, with its economic model today directed towards small businesses.

4.1.2 SAP AG

For its part, SAP started with an ambitious project: to be the first one to build an applicative suite managing the vital functions of companies from manufacturing to human resource through finance. After several years of development, the concept of Enterprise Resource Planning (ERP) was born and thirty years later became one of the most competitive sectors on the enterprise applications industry.

With a certain advantage over its competitors on the market, SAP was obliged to adapt its activities to better stick to its customers’ needs. Here is the reason behind Business Objects acquisition in 2007, the best offer of the market at that time and a perfect complementary software stack to bring the analytical dimension of ERP’s unified data. In the meantime, the German firm did not forget to integrate the Front Office dimension with the development of a powerful CRM solution and advanced Business to Business functionalities (see 2.1.1.1 SAP AG – mySAP).

Today’s challenge for SAP lies in the emergence of the SME market, where the company has to push and affordable and simple offer. This change will certainly be driven thanks to the SaaS technology expansion and the research and development investments in this area that have already been made.

Finally, Sybase’s takeover represents for a SAP a tremendous opportunity to capture the needs in term of enterprise mobile applications. The experience in the area of the former database


Figure 24 : SAP AG's Business Model Evolution

1990’s 2000’s 2010’s

OS

COLLA-BORATION

MNC

SaaS


manufacturer potentially allows the integration of SAP’s applications into mobile platforms (smart phones or tablet computers).


Originally targeting the general public market, with the manufacturing of operating systems, productivity suites or even internet search engine, Microsoft has taken a leap forward during the 1990’s to penetrate the business applications market.

Relying on the tremendous adoption of the previously mentioned products, Microsoft started the development of the enterprise offer with a database solution. Then, mainly thanks to external growth, the firm of Redmond gathered almost all software stacks required to conquer the market. However the firm has hard time capturing the MNCs market due to an inadequate offer, and has chosen to turn toward the SME market with a definitive success.

Today, Microsoft’s vision of the industry runs through collaboration suites in the middle of IT architecture with Microsoft SharePoint. Reshaping the way people think about information sharing is the new keystone of the company.

Of course, the firm does not escape from the SaaS development and is even among the pioneer of the SaaS oriented host platform with Windows Azure, one of the best cloud computing offers at the moment.

4.2 Future strategic evolution

During the following sections, we are going to cover the recent long-term strategies announcements made by the manufacturers during the annual trade shows I have attended and Oracle Webcast series regarding the future strategy:

- Microsoft TechDays: February 8th, 2010 at “Palais des Congrès” in Paris


Figure 25 : Microsoft Corporation's Business Model

Applications

Middleware

Database

Hardware


- SAP World Tour: June 20th, 2010 at “Palais des Congrès” in Paris- Oracle Product Strategy Webcast Series20


“Complete, Open, Integrated”, Oracle’s new slogan well summarizes the future direction of the company. Based on the Oracle Stack Advantage (see Figure 26: Oracle Corporation Future Strategy) the future strategy directly addresses the most critical IT manager’s concerns:

1- Open and standard based: following the latest and strongest open industry standards, Oracle ensures a perfect interoperability of its offer among IT architecture.

2- Optimized, integrated and extensible: the vertical integration of the Oracle’s offer, allows the company to optimize the functionalities and ease additional components extension.

3- Better performance, reliability, security: integrating all the components into one “software brick” leads to better control over performance, improved reliability and unified security policy.

4- Shorter deployment times: deployment issues, one of the most consuming activities of IT architects are rubbed out with an end-to-end solution.

5- Easier to manage and upgrade: license and upgrade management is becoming childish with a cohesive application stack from a unique manufacturer.

6- Lower cost of ownership: costs of ownership or capital expenditures (CAPEX) will be inevitably lower with the opportunity of drastically lower the costs when a customer buys the full Oracle Stack.

7- Reduce change management risk: infrastructure or application evolution management, are simplified with a unique manufacturer which will perfectly accompany its customers in their change approach.

8- Integrated support: with an only official spokesman for their whole IT portfolio support matters, companies have the opportunity to benefit from a qualified and unified support consulting.

20 http://www.oracle.com/events/productstrategy/index.html


Figure 26 : Oracle Corporation Future Strategy

http://www.oracle.com/events/productstrategy/index.html


4.2.2 SAP AG

Following the ousting of its CEO Hasso Plattner in February 2010, mainly because of unsatisfactory strategy which led to important loss of market shares (see Figure 15: ERP market shares evolution,2007-2009, (%) ) and goodwill, the new board of direction enlightened a three pillar strategy for the following ten years:

1- On-premise: On premise solutions are applications which are hosted inside customers’ infrastructure. SAP reiterated its commitment to increase its leadership in the sector and finally deliver the promised, but delayed, innovations for its flagship SAP Business Suite (see Table 6: SAP AG Application Portfolio). The program “Innovations 2010” 21 aims to enhance the business processes and deliver them without discontinuity. Predicting a technology break-up with the appearance of “in-memory processing”, the German firm wants to bring the real-time data processing to its customers.

2- On-demand: Surfing on the SaaS wave, SAP intends to bring the power of its on-premise solutions in a simple and seamless way and push their tremendous collection of best-practices to run the SME business end-to-end, without any software or hardware to install. In addition, SAP has considered the importance of the affordability of a SME offer and will leverage the SaaS advantages to deliver its product at a rational price.

3- On-device: The German firm promises to deliver business processes and analytics applications across all leading mobile platforms to help mobile people (e.g. sales force) to take the most of SAP’s solution on the field and help them to make the best decisions regarding a specific situation.

21 http://www.sap.com/about/newsroom/press.epx?pressid=13269


Figure 27 : SAP AG Future Strategy

http://www.sap.com/about/newsroom/press.epx?pressid=13269



Figure 28 : Microsoft Corporation Future Strategy

Confirmed by the vision statement (see section 3.2.1.3 Microsoft Corporation: collaboration), Microsoft foresees the future of its activities throughout enterprise collaboration suites. Embedded among the company application portfolio, the company believes that performance is driven by people and the way they are interacting together.

Of course, the firm is not denying the necessity of all enterprise applications stacks (ERP, CRM, BI, Middleware) but wants to make them cooperate through a unique collaboration platform driven by the workforce: Microsoft SharePoint (see section 2.1.5.3 Microsoft Corporation’s portfolio). Connecting people, process and information as seen by Microsoft relies on six pillars:

- Business Intelligence- Collaboration- Portals- Enterprise search- Enterprise content management- Business Processes and forms

In addition, Microsoft will provide all the required software stack from the operating system (Windows 7)to the ERP (Dynamics) solution through database management system (SQL Server).



Collaboration

PortalsEnterprise Search

Enterprise Content

Management

Business Processes and Forms


5 Recommendations

In this section we will deal with recommendation towards the strategies improvement for the three key players, in order to gain the enterprise applications industry leadership.

5.1 Oracle Corporation

The following recommendations rely on Philippe Leclerq’s interview. The summary of the interview is located in Appendix A (see section 13.1 APPENDIX A: Interview – Philippe Leclerq (SOA People)) and the full interview available in the CD attached to the document.

Integration

Oracle’s acquisition frenzy involves the problematic of technologies integration. Even if Oracle claims to have an integrated offer, the market is still unconvinced about this assertion. As Philippe Leclerq mentions, Oracle has still a lot of efforts to do in this area and the release of the project Fusion 22 (Oracle’s next generation suite of enterprise applications) is becoming very urgent. On the success of this offer will depend Oracle’s future in the industry, indeed it would silence the criticisms and would demonstrate the knowhow of the company.

End up the acquisition process

Now that Oracle owns a full software stack and is ready to face the future market challenges, the company should stop its acquisition strategy and focus on delivering breakthrough innovations to its customers instead of spending a considerable amount of time and money to integrate technologies.

Capture more market shares in the critical sectors

Apart from the database industry where the company is the undisputed leader, the other strategic business units are not predominant enough to make Oracle’s enterprise applications a de facto choice for customers. One the previously mentioned SBUs, the company will have to be creative, follow the market trends and be more responsive towards customers’ expectations.

Make a success of Sun Microsystems’ takeover

This acquisition might be the most critical ever for Oracle. With the opportunity to be the only one of the three key players to commercialize hardware, the growth opportunity and especially the costs reduction possibility could be a decisive advantage in the future market development. To do so, Oracle will have to perfectly integrate Sun’s portfolio among its ecosystem and transform this non-profitable company (Sun was losing $100 Million a month23) into a success machine.

Build a strong SME offer

As Philippe Leclercq said, it becomes urgent for Oracle to unleash a real SME business application suite and get into this expanding sector wagon. Whereas its competitors already started to conquer the market (especially Microsoft), the company still lags behind and should really inject more resources in the devoted strategic business unit.

This construction will be accompanied by the ability of the firm the handle the SaaS explosion and how successful will be the transformation of its existing product line into the on-demand model.

Lower operational costs

22 http://www.techgoondu.com/2009/10/15/oracle-unveils-fruits-of-project-fusion/23 http://www.webpronews.com/topnews/2009/09/22/sun-losing-100-million-a-month-as-oracle-waits


http://www.webpronews.com/topnews/2009/09/22/sun-losing-100-million-a-month-as-oracle-waits

http://www.techgoondu.com/2009/10/15/oracle-unveils-fruits-of-project-fusion/


With the current economic situation freezing the funds transfer, companies are stingier to invest with complete confidence and are willing to dramatically lower their expenditures. Thus, Oracle will not be able to increase it costs or keep a high level pricing policy at the risk of seeing its customers having their backs to the solutions. Once again, the Saas opportunity might be the triggering factor of this revolution.

5.2 SAP AG

The following recommendations rely on Timo Elliot’s interview. The summary of the interview is located in Appendix A (see section 13.2 APPENDIX B: Interview – Timo Elliot (Business Objects)) and the full interview available in the CD attached to the document.

Deliver innovations

The recurrent criticism about SAP is about its non-capacity to transform lab innovation into real added-value for its customers. The German company should reconsider its research and development global strategy and focus on deliverable instead of running after the “ultimate and magical” innovation that probably does not exist.

Consider all customers

Another mistake for SAP is to focus its effort and communication towards its hundred biggest customers. From an external point of view, and when belonging to the “other 94900” (see 13.1 APPENDIX A: Interview – Philippe Leclerq (SOA People)) we believe that SAP is adjusting its new product release only to the top tier 1 sector (see 3.1.1 Business applications market overview) and that the others have to wait. This situation has to change very quickly and it seems that the new management team is acting in that direction.

Build a strong SME offer

SAP does not escape from the major stakes behind the SME enterprise application industry. Better than Oracle but far from Microsoft, the German firm have to develop its product SAP Business By Design (see Table 6: SAP AG Application Portfolio) through the SaaS technology and capitalize on its MNC experience.

Successfully integrate Sybase

With the takeover of Business Objects, SAP has met a lot of difficulties and has painfully digested this acquisition. It is explained by the relative inexperience of the firm in the acquisition process which is very complex and could be the source of massive cash loss. Nowadays, the Business Object offer is now perfectly integrated among SAP’s application portfolio and the company has learned a lot in this area. The recent Sybase acquisitions and the stakes behind the integration of the technologies are enormous; the future major product release will depend on it. With BO’s experience we can legitimately expect a smooth integration of the database and mobile solutions manufacturer, but we will keep a watchful look at the future release announcements.

Lower operational costs

This recommendation has been advised to Oracle Corporation as well and stands for SAP. The two giants tended to impose their pricing policy on the market and were right to do it since the customers were paying for it. But the situation has changed, and the German company cannot take the liberty of keeping a high cost strategy which could lead to its ruin. Instead, the firm has to be creative and use the opportunities of the SaaS model in order to adjust its prices to the competition.

5.3 Microsoft Corporation

Develop a MNC oriented offer



Microsoft’s current position on the MNC market is a real weakness on the enterprise application industry. Even if all large companies are running Microsoft Windows and Office, the firm does not own any equivalent ERP, BI or CRM offer in comparison with Oracle and SAP. In order to be successful in the industry the firm of Redmond will have to drastically develop its current offer (see Table 7: Microsoft Corporation Application Portfolio) and transform it into a reliable and powerful application suite for large scale implementation.

Keep the SME position

The current position on the SME market is a real asset the company has to make the most of. Expected to be the future most growing sector of the business applications industry, Microsoft has to keep its leadership and be careful with a competition that will be extremely intense during the next few years. That is why the company should not rest on its laurels and keep on being innovative and creative as it used to be until now.

Deliver innovations

As a parallel with SAP, Microsoft has been blamed for its relative inability to deliver innovations despite tremendous research and development investments. Transform lab innovations into a reality for its customers (both on the general public market and enterprise industry) is an obligation for the company’s successful future.

Prove more open mindedness towards open standards

With the current trend of following the industry standards and the interoperability race, Microsoft cannot release “closed” products anymore. Even though this strategy pays in the general public market, professional are keen on open solutions with seamless integration capabilities among their existing IT architecture. That is why the firm of Redmond must change tack on the interoperability issues at the risk of finding itself locked up in a dead-end.

Develop the SaaS offer

Even if Microsoft provides the most affordable offers compared to its competition, on no account should the company miss the SaaS wagon. The company started to build the foundations with Windows Azure (see Table 7: Microsoft Corporation Application Portfolio) and have to go farther in the process by sending its offer into the cloud.



6 Result synthesis

What are the different strategies implemented by each market player (Microsoft, Oracle and SAP) in order to gain market leadership?

All along the research paper we have gone through all the critical steps defining a firm strategy to gain market leadership:

- The historical background: we found out that the three players are coming from radical different activities but are now in direct competition on all the sectors of the enterprise applications industry.

- The expansion strategy: we have enlightened that the three firms have chosen different growth vectors, Oracle and Microsoft with external growth through acquisitions whereas SAP have always been focusing on its core activities and organic growth.

- The importance or research and development: in such a competitive technology market, the firms have no other alternative but to massively invest into research and development in order to provide the latest valuable innovations to their customers.

- The width of the application portfolio: for all manufacturers it is important to tackle all software stacks implied by the business applications industry.

- The market leadership repartition: we having a closer look at the industry, we came to the conclusion that currently there is no global leadership in place, but each player is leader turn by turn on the key sectors.

- The different strategy axes followed by the manufacturers: with Oracle and its vision of integrated systems from hardware to end-user applications, SAP and its focus on innovations and clarity and finally Microsoft with its devotion to the collaboration tools among its own eco-system.

- The importance of the brand name: in an industry where the level of competition is very high, the brand name is a critical advantage for the players and they have to work very hard on the reputation of their solutions, through innovations and agile marketing communication.

- The importance of alliances: the network of partners in the global IT market is one of the most important growth factor, since the firm who will gain the maximum partners will be able to impose its solutions to the maximum of customers.

- The future of the industry focused on SMB: it is very clear that the future growth of the firms will go through gaining the biggest market shares in one of the most promising sector in terms of profits.



7 Work benefits

To end my Master’s Degree in IT project management, I have decided to give an international business approach to my curriculum. Indeed, today’s challenge for any IT manager is to go beyond the basic process of software realisation: needs collection, planning, control and delivery.

I am totally convinced that IT should be at the centre of every company and is one of the most important value-added providers to the customers. Thus, being able to speak the same language as the marketing or sales services is the biggest competency I have been able to learn throughout the International Business specialization.

That being said, the stakes of my research paper were critical to me for several reasons. First of all, I have learned how to conduct a strategy analysis with the implementation of strategic framework such as the Porter’s Five Forces model or the GE / McKinsey Business Matrix

Secondly, I made a tremendous experience into the market analysis area. Be able to identify the leaders of different sectors, gather critical data to enlighten trends, analyse financial report to extract significant information regarding a company’s health are so many challenges I have taken up since the beginning of this research’s elaboration that will improve my way of thinking about IT project management and foresee the companies’ stakes behind enterprise applications realisation.

Also, all along the writing process of the research, I have shown abilities to synthesize ideas and retain only facts that count I have never considered before. Although I have already been confronted to such situation in my professional experience, thanks to this realisation I have taken this competency to the next level and will use it as one my most advanced quality as project manager.

According to me, the greater benefit of this work resides on how I have improved my knowledge of the enterprise application industry. The writing process and the orientation I have chosen to conduct the strategic analysis forced me to deeply dig into the three key players activities, read and sort the analyst comments regarding their strategy and confront them in order to distinguish between what is justified and what is not, have hugely developed my education in the area that I will use to sell my profile on the labour market.

Even though some people might not see all the opportunities behind a research paper, for all the reasons mentioned above I benefited greatly from this experience which turns out to be the perfect last achievement of my degree.



8 General conclusion

As the final conclusion of the research paper, we will answer to the tricky question “Will there be a clearly defined market leader in the enterprise applications industry in its global nature?”

To better tackle this interrogation, we will divide our assumptions in two approaches:

- Short-term market evolution- Long-term market evolution

It is important to mention that my assumptions are based on the industry understanding I have learned during this research and are following the current companies’ trends. I do not claim to certify the industry will evolve in the way mentioned below but at least my assertions are based on a meticulous analysis.

8.1 Short-term development of the global market

In a two years future, here is my vision of the market summarized in key points:

- SME sector: Microsoft will still be the leader but will see its competitors moving closer thanks to successful strategic investments in the market. The market will still meet a tremendous growth and a more intense competition than ever.

- MNC sector: The timeframe seems too soon for Microsoft to release an adequate MNC offer, so the competition will still take place between SAP and Oracle. At this time, these two companies will have delivered their major releases according to the previously mentioned future prospects (see section 4-Future prospects). We can assume that the acquisition strategy will pay for Oracle and that the company will continue to gain market shares against SAP, however both firms will still see a growth in their profits.

- Global industry: The competition will become more and more intense, and the players will have to leverage their best strengths in order not to be left behind.

8.2 Long-term development of the global market

In a ten years future, here is my vision of the market summarized in key points:

- SME sector: the sector will be mature and the market shares will be equally shared between the competitors because of the respective advantages of their solutions.

- MNC sector: SAP will manage to be the leader in the ERP and BI market thanks to the success of its innovations whereas Oracle will have the leadership in CRM, Middleware and Database sectors thanks to the success of its integration strategy.

- Global industry: The competition will still be intense, but the position clearly defined on the different sectors with a shared leadership.

My final answer to the question rose about the likelihood of a global leadership in the business applications industry is simple: it will not happen unless two players choose to leave the market, which is totally unlikely. The reasons conducting this assertion are summarized in the following key points:

- Alliances between the three players: it might be a curious fact, but the reality says the current three competitors need each other in order to perform in the market: SAP needs Oracle database to run its products and SAP and Oracle need Microsoft Operating system to commercialize their offer.

- Legal issues: a global leadership on the market will never be tolerated by the business laws, especially the antitrust one.



- Shared leadership on different sectors: as we have seen all along this analysis, each player owns the leadership in one or more critical segments mainly due to its historical activities. For this reason, it is almost impossible to see the fail of a company in its core activities which prevents the market from any kind of global leadership.

For all the reasons mentioned above, I am fully convinced that the three key players will still do their best to take down their competitors throughout investments and innovations but will share between them all the sectors of the enterprise applications industry and will never manage to gain its full leadership.



9 Glossary

Enterprise Resource Planning (ERP): a business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing.

MNC: Multinational Corporation

Customer Relationship Management: CRM information system entails all aspects of interaction a company has with its customer, whether it is sales or service related.

Business Intelligence: refers to computer-based techniques used in spotting, digging-out, and analyzing business data, such as sales revenue by products and/or departments or associated costs and incomes.

Business Process Management: Business process management (BPM) is a set of management and analytic processes that enable the performance of an organisation to be managed with a view to achieving one or more pre-selected goals.

SMB: Small and Medium-sized Businesses.

M&A: Mergers and Acquisitions.

Data in-memory processing: dramatically increase the data processing fastness by storing information in computers’ random access memory instead of hard drives which are a thousand times slower to response.

Middleware: Middleware is computer software that connects software components or applications. The software consists of a set of services that allows multiple processes running on one or more machines to interact. This technology evolved to provide for interoperability in support of the move to coherent distributed architectures, which are most often used to support and simplify complex distributed applications.

Saas: or Software As A Service is software that is deployed over the internet and/or is deployed to run behind a firewall in your local area network or personal computer. With SaaS, a provider licenses an application to customers as a service on demand, through a subscription or a “pay-as-you-go” model. Saas is also called “software on demand”.



10 Illustrations Table

Figure 1: Number of employees per company since 1995...................................................................21Figure 2: Employees total growth per company since 1995.................................................................21Figure 3: R&D percentage of revenue per company since 1995...........................................................23Figure 4: Total revenues evolution per company since 1995 (in billions of $)......................................23Figure 5: Oracle Corporation’s 2009 revenue distribution...................................................................24Figure 6: SAP AG’s 2009 revenue distribution......................................................................................24Figure 7: Microsoft Corporation’s 2009 revenue distribution..............................................................25Figure 8: Companies’ acquisitions evolution since 1995......................................................................26Figure 9: Employees repartition outside of their original country per company since 1995................30Figure 10: Employees growth outside of their original country per company since 1995....................30Figure 12: Business Software Market Overview...................................................................................40Figure 13: Business applications US market’s growth forecast............................................................41Figure 14: IT spending forecast............................................................................................................41Figure 15: Applications License, Maintenance, and Subscription Revenue by Vendor, 2006-2008 ($M).............................................................................................................................................................42Figure 16: ERP market shares evolution, 2007-2009, (%).....................................................................42Figure 17: ERP current market shares by vendors................................................................................43Figure 18: CRM market share evolution per company since 2007.......................................................43Figure 19: BI market shares evolution per company since 2007..........................................................44Figure 20: Middleware market shares evolution per company since 2006..........................................44Figure 21: Database Solutions market shares in 2009..........................................................................45Figure 22: Porter's Five Forces Model..................................................................................................55Figure 23: GE / McKinsey Matrix Model...............................................................................................63Figure 24: Oracle Corporation's Business Model Evolution..................................................................78Figure 25: SAP AG's Business Model Evolution.....................................................................................79Figure 26: Microsoft Corporation's Business Model.............................................................................80Figure 27: Oracle Corporation Future Strategy....................................................................................81Figure 28: SAP AG Future Strategy.......................................................................................................82Figure 29: Microsoft Corporation Future Strategy...............................................................................83



11 Tables

Table 1: R&D percentage of total revenues per company since 1995..................................................22Table 2: Total revenues per company since 1995 (in billions of $).......................................................23Table 3: Expansion’s scorecard per company.......................................................................................31Table 4: Financial indicators per company in 2009...............................................................................33Table 5: Oracle Corporation Application Portfolio................................................................................34Table 6: SAP AG Application Portfolio..................................................................................................35Table 7: Microsoft Corporation Application Portfolio...........................................................................36Table 8: Manufacturer's Activities Evolution........................................................................................39Table 9: Oracle Corporation’s SWOT....................................................................................................47Table 10: SAP AG's SWOT.....................................................................................................................49Table 11: Microsoft's SWOT.................................................................................................................51Table 12: Vendors' Key Success Factors Confrontation........................................................................53Table 13: Vendors' Business Risks Confrontation.................................................................................54Table 14: Competitive Rivalry Summary...............................................................................................56Table 15: Threat of New Entries Summary...........................................................................................57Table 16: Threat of Substitution Summary...........................................................................................58Table 17: Buyers' Bargaining Leverage Summary.................................................................................59Table 18: Buyers' Price Sensitivity Summary........................................................................................60Table 19: Buyers' Power Summary.......................................................................................................60Table 20: Porter's Five Forces Summery...............................................................................................61Table 21: GE / McKinsey Matrix Interpretation....................................................................................63Table 22: Industry Attractiveness Factors Definition............................................................................64Table 23: ERP Industry Attractiveness..................................................................................................64Table 24: BI Industry Attractiveness.....................................................................................................65Table 25: CRM Industry Attractiveness.................................................................................................65Table 26: Middleware Industry Attractiveness.....................................................................................65Table 27: Database Solutions Industry Attractiveness..........................................................................65Table 28: Operating Systems Industry Attractiveness..........................................................................66Table 29: SME Industry Attractiveness.................................................................................................66Table 30: SBU Factors Definition..........................................................................................................66Table 31: Oracle Corporation - SBUs Rating.........................................................................................67Table 32: SAP AG - SBUs Rating............................................................................................................69Table 33: Microsoft Corporation - SBUs Rating....................................................................................70Table 34: Oracle Corporation - GE / McKinsey Business Matrix...........................................................70Table 35: Oracle Corporation GE / McKinsey Matrix Results................................................................70Table 36: SAP AG - GE / McKinsey Business Matrix..............................................................................72Table 37: SAP AG GE / McKinsey Matrix Results..................................................................................72Table 38: Microsoft Corporation - GE / McKinsey Business Matrix......................................................73Table 39: Microsoft Corporation GE / McKinsey Matrix Results...........................................................74Table 40: ERP SBUs Confrontation........................................................................................................75Table 41: BI SBUs Confrontation..........................................................................................................75Table 42: CRM SBUs Confrontation......................................................................................................76Table 43: Middleware SBUs Confrontation..........................................................................................76Table 44: Database SBUs Confrontation...............................................................................................76Table 45: SME SBUs Confrontation.......................................................................................................76



12 Bibliography

12.1 Printed sources

Michael Porter. 2000. Competitive Strategy: Techniques for Analyzing Industries and Competitors.

Krishna S.Boppana. 2007. Enterprise Software: Analysis of Product Strategies.

12.2 Online sources

12.2.1 Online books and publications

Eugene Ciurana. 2009. “Best of Breed”. [Slideshow]. Available at:http://0921ccnz33vh1pvcmg02.images.s3.amazonaws.com/cdn/Best-of-Breed.pdf

Bruce Cleveland. 2009. “The State of the Enterprise Software Market”. [Case Study]. Available at:http://www.interwest.com/perspectives/downloads/Cleveland_Perspectives_1207.pdf

Mitch Rosenbleeth, Stephen Chen, Corrie DeCamp. 2006. “Future of the Enterprise Software Industry”. [Case Study]. Available at:http://jobfunctions.bnet.com/abstract.aspx?docid=932691

P. Rajan Varadarajan. 1999. “Strategy Content and Process Perspectives Revisited”. [Commentary]. Available at:http://www.springerlink.com/index/F824H5Q36731067R.pdf

Gartner Perspective. 2009. “IT Spending 2010”. [Market Study]. Available at:http://www.slideshare.net/rsink/gartner-report-it-spending-2010

Palgrave Macmillan Consulting. 2003. “Strategic Management”. [E-Book]. Available at:http://www.palgrave.com/keyconcepts/pdfs/Strategic%20Management%2014039_21350_10_G.pdf

Simon Jacobson, Jim Shepherd, Marianne D’Aquila, and Karen Carter. 2005. “The ERP Market Sizing Report, 2006–2011”. [Market Study]. Available at:http://www.sap.com/solutions/business-suite/erp/pdf/AMR_ERP_Market_Sizing_2006-2011.pdf

Oracle Corporation. 2000-20010. “Security Exchange Commission (SEC) 10k Fillings”. [Annual Report]. Available at: http://www.oracle.com/corporate/investor_relations/sec/secdisclaimer.html

SAP AG. 2000-20010. “Security Exchange Commission (SEC) 10k Fillings”. [Annual Report]. Available at: http://www.sap.com/about/investor/reports/index.epx

Microsoft Corporation. 2000-20010. “Security Exchange Commission (SEC) 10k Fillings”. [Annual Report]. Available at: http://www.microsoft.com/msft/aspx/secfilings.aspx?DisplayYear=2006

Panorama Consulting. 2009. “2010 ERP Report”. [Market Study]. Available at: http://www.microsoft.com/msft/aspx/secfilings.aspx?DisplayYear=2006

Ramnath K. Chellappa, Nilesh Saraf. 2009. “Alliances, Rivalry and Firm Performance in Enterprise Systems Software Markets: A Social Network Approach”. [Case Study]. Available at: http://www.bus.emory.edu/ram/Papers/alliances_chellappa_saraf.pdf


http://www.bus.emory.edu/ram/Papers/alliances_chellappa_saraf.pdf

http://www.microsoft.com/msft/aspx/secfilings.aspx?DisplayYear=2006

http://www.microsoft.com/msft/aspx/secfilings.aspx?DisplayYear=2006

http://www.sap.com/about/investor/reports/index.epx

http://www.oracle.com/corporate/investor_relations/sec/secdisclaimer.html

http://www.sap.com/solutions/business-suite/erp/pdf/AMR_ERP_Market_Sizing_2006-2011.pdf

http://www.palgrave.com/keyconcepts/pdfs/Strategic%20Management%2014039_21350_10_G.pdf

http://www.slideshare.net/rsink/gartner-report-it-spending-2010

http://www.springerlink.com/index/F824H5Q36731067R.pdf

http://jobfunctions.bnet.com/abstract.aspx?docid=932691

http://www.interwest.com/perspectives/downloads/Cleveland_Perspectives_1207.pdf

http://0921ccnz33vh1pvcmg02.images.s3.amazonaws.com/cdn/Best-of-Breed.pdf


Business Software Consulting. 2010. “Top 15 ERP Vendors Revealed”. [Market Study]. Available at: http://www.business-software.com/top-10-erp-software-vendors.php

12.2.2 Online articles

Steve Ma. Reyna. 2007. “Key Factors of your business”. [Article]. Available at: http://www.powerhomebiz.com/vol95/key.htm

Papers4you.com. 2003. “What is Porter’s Five Forces”. [Article]. Available at: http://www.coursework4you.co.uk/essays-and-dissertations/porter-5-forces.php

Chanda Himanshu. 2010. “How Michael Porter’s five forces framework can take your business to the next level”. [Article]. Available at: http://bizdharma.com/blog/how-michael-porter’s-five-forces-framework-can-take-your-business-to-the-next-level/

Computer Economics. 2006. “IT Budgets as Percent of Revenue at Highest Level Since 1997”. [Article]. Available at: http://www.computereconomics.com/article.cfm?id=1153

Loraine Lawson. 2010. “For Oracle, it’s all about integration”. [Article]. Available at: http://www.itbusinessedge.com/cm/blogs/lawson/bpm-11g-for-oracle-its-all-about-integration/?cs=41875

Maryse Gros. 2010. “SAP rachète Sybase pour ses technologies mobiles et in-memory”. [Article] Available at: http://www.lemondeinformatique.fr/actualites/lire-sap-rachete-sybase-pour-ses-technologies-mobiles-et-in-memory-30663-page-2.html

Business Wire. 2008. “SME Business Enterprise Applications Market to Grow to $80.3 Billion by 2012”. [Article]. Available at: http://findarticles.com/p/articles/mi_m0EIN/is_2008_June_11/ai_n25494568/

Aaron Tan. 2009. “Oracle unveils fruits of Project Fusion”. [Article]. Available at: http://www.techgoondu.com/2009/10/15/oracle-unveils-fruits-of-project-fusion/

Chris Crum. 2009. “Sun Losing $100 Million a Month as Oracle Waits”. [Article]. Available at: http://www.webpronews.com/topnews/2009/09/22/sun-losing-100-million-a-month-as-oracle-waits

12.2.3 Other online sources

Oracle Corporation. 2010. “Oracle + Sun Product Strategy Webcast Series”. [Informative Webpage]. Available at: http://www.oracle.com/events/productstrategy/index.html

SAP AG. 2010. “Sap takes innovation in leaps, so customers can take it in strides”. [Informative Webpage]. Available at: http://www.sap.com/about/newsroom/press.epx?pressid=13269


http://www.sap.com/about/newsroom/press.epx?pressid=13269

http://www.oracle.com/events/productstrategy/index.html

http://www.webpronews.com/topnews/2009/09/22/sun-losing-100-million-a-month-as-oracle-waits

http://www.techgoondu.com/2009/10/15/oracle-unveils-fruits-of-project-fusion/

http://findarticles.com/p/articles/mi_m0EIN/is_2008_June_11/ai_n25494568/





http://www.computereconomics.com/article.cfm?id=1153




http://www.powerhomebiz.com/vol95/key.htm

http://www.business-software.com/top-10-erp-software-vendors.php


13 Appendices

13.1 APPENDIX A: Interview – Philippe Leclerq (SOA People)

1. Pouvez-vous vous présenter ?- Philippe Leclerq, Directeur Commercial des activités PME (Vente et Avant-Vente)- SOA People, 350 personnes, Spécialisation dans les offres verticalisées- Intégrateur exclusif SAP All in One2. Quelle est la position de SAP sur le marché des PME ?- PME pour SAP : 3 catégories (< 500 millions d’euros de chiffre d’affaires)- SAP travaille en direct sur les grands comptes et en indirect avec les PME (via cabinet de

consulting)- Raison : Meilleure pénétration du marché- Lorsqu’un partenariat est négocié pour l’implémentation de solutions SAP par un cabinet de

consulting, celui-ci est exclusif.3. Lors de vos différents appels d’offre, face à quels produits concurrents vous retrouvez-vous

majoritairement ?- Selon la taille de l’entreprise et du secteur d’activité- Parfois Oracle via JDE mais de moins en moins de concurrence sur le secteur des PME- Très souvent Microsoft via l’offre Dynamics- Sage dans le domaine de la pharma- Offres Open-source 4. Quelle est la motivation des entreprises dans le choix des solutions SAP ?- Avec SAP, capacité à répondre à tous les besoins- Nuances réelles avec les solutions concurrentes dans la couverture du besoin en profondeur

et dans la largeur des solutions.- Les outils concurrents sont constitués de multiples outils partiellement intégrés et

harmonieux- Il s’agit plus d’une suite de « best-of-breed », que d’une approche unique- SAP a construit ses solutions de l’intérieur, parfois par acquisitions mineures mais avec le

souci de reformater les solutions dans un cadre SAP. Ce qui permet d’affirmer que lorsque l’on installe un CRM qui communique avec un ERP, il s’agit de la vérité contrairement aux produits concurrents (notamment Oracle & Siebel).

- Pas de communication entre Siebel & JD Edwards (Oracle), il s’agit d’un sentiment général du marché

5. Oracle Fusion permettra-t-il à Oracle de régler ses problèmes d’intégration ?- A la base oui, c’était l’objectif.- Il y a 3 ans, le marché voyait Oracle en avance sur l’approche SOA (middleware), mais le

problème n’est pas ici.- Le problème provient de solutions concurrentes au sein même d’Oracle, et aujourd’hui n’est

pas encore ressorti la solution miracle.- En interne chez Oracle, le projet Fusion est appelé « Confusion ».- Ex : appel d’offre gagné par SOA People sur une solution SAP face à Oracle où la solution

CRM d’Oracle était meilleure, mais l’intégration pas au rendez-vous.- Avec SAP, l’avantage l’intégration, résultat d’une évolution de 30 ans, qui est donc mature6. Une fois les produits SAP intégrés chez vos clients, sont-ils conformes à leurs attentes ?- La réussite d’un projet est due à 3 facteurs : le choix de l’outil, l’intégrateur & le client.- Certains intégrateurs ont fait une mauvaise presse à SAP car ils ne connaissaient pas le

produit et découvraient le produit en même temps que le client.- Les composantes du projet sont prépondérantes dans l’adoption des outils SAP. L’outil en

tant que tel n’est pas un frein à l’adoption.- En PME, le niveau d’exigence est important en raison de la hauteur de l’investissement, tout

réside dans la conduite du changement.



13.2 APPENDIX B: Interview – Timo Elliot (Business Objects)

1. Pouvez-vous vous présenter ?- Timo Elliot, Senior Director of Strategic Marketing chez Business Objects depuis 19 ans, filiale

de SAP depuis 3 ans- Chez Business Objects depuis 1991 & SAP depuis 2007- Fonction de Business - Evangelist : expliquer les nouvelles technologies et ce qui va changer dans l’avenir aux clients

de SAP2. La nouvelle stratégie de SAP est orientée innovations, contrairement à l’ancienne

direction, que va-t-il changer chez SAP ?- Discussion avec un client d’un grand groupe : systématiquement, SAP avait les meilleures

idées mais ne devenaient pas souvent produit.- Chez Business Objects, la tendance était différente et de nouveaux produits étaient

véritablement délivrés. base stable.- Intérêt d’aujourd’hui : faire les choses de manière efficace- Problématique : comment faire des applications flexibles, qui répondent à des activités non-

procédurales (ex : réorganisation de services)- Produits centrés sur l’humain via la collaboration, liens forts avec des systèmes centrés sur la

stratégie-- Le processus d’innovation possédait un écart entre les idées des laboratoires et les besoins

réels des clients (certaine réticence vis-à-vis de l’innovation).- Aujourd’hui SAP change de cap : faire de l’innovation sur une - Les applications de l’avenir seront basées sur ces concepts, mise en place de plateformes

technologiques unifiées et basées sur des best practices- Autre atout de SAP : énormément de compétences sur des domaines différents. Ex : créer

des applications pour la gestion des acquisitions- Technologie In-memory : énorme pas en avant, élimination de couches logicielles et

accélération des processus3. Vis-à-vis d’Oracle et son offre verticale complète, comment se positionne SAP ?- Oracle a fait énormément d’acquisitions pour créer un ensemble d’outils qui marchent plus

ou moins bien ensemble.- Le point fort de SAP : partir de la même technologie4. Que pensez-vous de l’acquisition de Sun et de ses activités hardware ?- Stratégie étrange- Les machines sont de moins en moins importantes aujourd’hui (applications en cloud

computing), plus personne ne se soucie de la machine sur laquelle tourne son application- Les PME sont très orientées cloud computing avec notamment Business By Design5. Business By Design est-il un success?- SAP a mis très longtemps à sortir le produit, ceci afin de sortir un produit parfait- Le retour des clients est satisfaisant, ils sont très contents- Sur la partie BI, le cloud computing de Business Object marche très fort6. Par rapport à Business Objects, que va apporter Sybase ?- Impossible de communiquer sur cette récente acquisition- Technologies intéressantes, notamment IQ (base de données en colonnes), dashboard en

temps réel7. En termes de date, quand peut-on attendre une première livraison des technologies Sybase

combinées à celle de SAP ?- No comment8. Microsoft et le marché des PME ?- SAP & Microsoft sont partenaires & concurrents



- Collaboration entre les outils SAP & Microsoft- Pas de menace sur le marché des grands-comptes- Sharepoint est très fort sur le marché des portails et travaille avec SAP pour une

communication réussie- L’offre Microsoft sur le secteur de l’entreprise 2.0 n’est pas très poussée, mais Microsoft a la

possibilité de faire changer les choses

13.3 APPENDIX C: Open-Letter to SAP’s former CEO Hasso Plattner

Global CIO: An Open Letter To SAP Chairman Hasso PlattnerTen very candid suggestions on overhauling SAP's value proposition, corporate culture, commitment to the cloud, competitive outlook and more. Dear Hasso:It's great to hear you're going to re-engage with the company you founded 34 years ago because it can sure use some big new ideas and some strong leadership. As you undertake this new adventure with your new co-CEOs, I'd like to share a few thoughts and observations as a very close observer of your company for the past year and as a big believer in the potential SAP has to be a world-class IT partner for the many instead of just the few.You're no doubt extremely busy in planning out how to carry out all the promises you made in your recent webcast announcement, so I'll be brief in offering a thought or twoon each of these 10 vitally important areas:• Your need to overhaul SAP's chaotic approach to communicating with the world (the maintenance-hike fiasco is but one of many examples);• Your need to create the SAP Customer Bill Of Rights (and then live up to it);• Your need to view customers in terms of what they need rather than what you have (will make product development seem easy by comparison);• Your need to articulate what SAP is and what it stands for--and what it rejects; • Your need to excite and delight all of your 95,000 customers, not just the Top 100;• Your need to listen to your CTO and Chief Value Officer because they get what SAP needs to be;• Your need to clarify the real plan for Business ByDesign (currently a credibility- crusher);• Your need to stop being so defensive about having co-CEOs--it's abnormal but you've made your decision (and just to clarify, neither Oracle nor Microsoft ever had co-CEOs);• Your need to adapt SAP's timetable to the realities of the market instead of the convenience of internal operations (e.g., last December's once-every-five-years rollout of corporate strategy); and,• Your need to address your primary competitor (and I don't mean Oracle).

Customer Needs Vs. SAP Desires. I have to tell you, Hasso, it was a real stunner to hear you say that you and all of SAP's other executives believed that because your

SAP's problem isn't just that it communicates its strategy and intentions poorly; it's that it communicates them so poorly so often and so consistently. The maintenance increase flip-flop disaster; the dribbling of rumors about flat-rate pricing; the muddled story of two-tiered pricing; the world's longest-rumored product, Business ByDesign; and so on. How can customers--other than your Top 100--know what to expect and how to plan for it? And then, this week, you made your own contribution to the mess with your well- intentioned but ultimately confusing comments about trust and happy employees. You comments about the need to re-establish trust and the need to make employees happy once again coincided with the announcement that Leo Apotheker was not being brought back as CEO, but when you were asked if the loss of trust and happiness were the reasons for his departure, you refused to answer the question directly. When you were asked why you chose to drop him as CEO, you huffily stated you weren't going to get into that. For a moment, forget what you know and put yourself in the mind of your customers and partners:does your answer inspire confidence and trust? No, it doesn't--and that same result holds true for all the botched and inconsistent and ineffective messaging that's come out of SAP this year.



SAP Customer Bill Of Rights. Yes, this would probably decrease the leverage your salespeople have with clients--but it would send an unmistakably clear message to your customers that you are willing to do more than just talk about re-establishing trust. (Altimeter Group's Ray Wang would be the perfect person to help you craft this.) I'm not talking here about the Top 100, for which you and all of SAP seem to be performing brilliantly; no, I'm talking about the other 94,900, each of whom needs to be able to leverage IT to move faster, smarter, more flexibly, and with more confidence than ever before--and to do that, they need to know what they can or can't expect from one of the top enterprise software companies in the world. And they need that in writing, and they deserve for it to be a very public commitment.Top 100 customers are tickled pink with your enterprise support quality and pricing, then all of your other 94,900 customers must feel that way as well. (And c'mon now--is it really true that all of those Top 100 are "extremely happy with what we do in maintenance and what they have to pay for it"? Heck, I don't expectyou to tell me--but you should be brutally honest with yourself, because if it's not true, there's big trouble ahead for SAP.) Consider what that means for the element of SAP's culture that you need to obliterate: it means that no one in all of SAP--no executives, no sales managers, no board members, no one--was willing to say that this myopic view of the world was completely wrong, that most of SAP's customers do not think 22% maintenance fees are just wonderful, and that your rollout of across-the-board maintenance hikes based on that distorted view of the world would lead to disaster. If they're not willing to speak up about something as fundamentally vital as that, Hasso, then what other topics do they consider taboo? More important, how do you break down and flush away the cultural impediments that led to such see-no-evil groupthink?

What Is SAP? What Value Does It Deliver? I saw a staggering statistic glommed on at the end of a recent SAP earnings announcement: that 65% of the transactions making up the world's global economic output are touched or managed by SAP systems. Is that true? And if so, what does it mean about the role SAP plays in today's global economy, and the role it can play in tomorrow's more-complex and farther-flung and faster-paced global marketplace? Is SAP an ERP company--and anyway, what does that mean anymore? Is SAP a BI company, a middleware company? Does it make customers better, faster, smarter? Does it do mobile better than any enterprise company in the world? What is SAP, and what value does it deliver? Again, there's no doubt that you and your fellow executives know the answers--but in today's hyperevolving IT marketplace, do your customers and prospects?

The Top 100 And The Other 94,900. I've touched on this above in a few places but this might be the single most important issue for you to tackle so here are a couple of other thoughts. What are the reasons that those Top 100 love SAP so much? And how can you then bundle or package as much of that goodness as possible and make appropriate portions available to the other 94,900? Because if you can't, maybe you need to split the company up in some way to be able to keep a small number of premiere accounts extremely happy while creating a whole different structure to handle The Masses: a Cadillac and Chevy approach?

Your Very Righteous CTO And CVO. CTO Vishal Sikka glides through discussions of complex technology and optimized business processes and the business value they can create with an ease that I've rarely seen from any executive in any company. Great move to put him on the Executive Board, but be sure his ideas and insights are heard because he's the one SAP executive I've seen or heard who can really articulate why SAP is relevant and valuable now and has the potential to continue to be so in the future. And Chief Value Officer Chakib Bouhdary brings to your party that elusive thing that's missing from the discussion above about What Is SAP and what will it be in three years: a metric-based framework for generatinggrowth and business value from business technology in general and SAP software in particular. We wrote about it a few months ago in Global CIO: SAP 2.0 Promises Business Value Over Products: Can It Deliver?.



Business ByDesign: Credibility-Crusher? Here's a little anecdote that typifies my assertion that SAP has botched, consistently and methodically, every attempt to tell the world about what this product is, what it means, when it will be out, and how it will complement other SAP products:About a year ago, my colleague Mary Hayes Weier was interviewing now-departed CEO Leo Apotheker about BBD and other things and in the course of their discussion about BBD, Mary asked when the multitenant version will be finished. And Leo looked at Mary like she was a stark raving lunatic and indignantly shot back an answer along the lines of, "Who cares? What difference does that make?" Well, it makes a whole heckuva lotta difference unless you're willing to have a product whose price is an order of magnitude higher than that of your competitors'- -but Apotheker dismissed it as unworthy of discussion, a trifling distraction from whatever spin SAP was applying that week to the BBD story. I think, Hasso, your customers and prospects would simply like to know when it will be available, how it will work, and how it will interact with SAP's on-premises workhorses. If BBD's vaporware status continues to reinforce the belief in more and more people that SAP can't do anything beyond on-premise, what does that mean for your future growth prospects?

Co-CEOs: Full Speed Ahead. You seemed kinda defensive in your comments about 'legal expression' of top-level titles and how Oracle and Microsoft had their best years with dual CEOs or 50-50 management responsibilities, and that didn't come off well. It is strange, at least in the U.S., but that's okay--your company needs to change a great deal and if the right approach to get that done is to have a re- energized chairman and two CEOs, then damn the torpedoes. But don't try to streeeetch the truth to fit your narrative by saying that Bill Gates and Steve Ballmer, as well as Larry Ellison and Ray Lane, were equal partners--no one in his right mind would ever believe that. Did Gates and Ellison both have strong leaders beside them during times of great success? Absolutely--and no one's disputing that. But to equate that to co-CEOs was, well, silly. And besides that, it's unimportant-- you've got much bigger fish to fry--so in general, don't get caught up in that type of trivial pursuits. At the same time, it wouldn't hurt for them to make clear in their upcoming public appearances to talk briefly and simply about areas of unique involvement and areas of overlapping responsibility and decision-making.

Your Agenda Vs. The Marketplace's. In December, SAP held a meeting in Boston at which it rolled out some strategic visions. In discussions about attending the event, Iwas told that SAP holds these strategy rollouts only once every five years, so itshouldn't be missed. And I thought, now that is just plain nuts--we aren't in 1950 any more and business dynamics do seem to find a way to change over the course of 60 months. If I'm a customer or a key partner and I'm told that SAP does this every five years, will that reinforce in my head that this is a nimble, fast-paced sprinter that can run with me, or will it conjure up images of a woolly mammoth with a couple of feet starting to get sucked into the tar pit of oblivion? And in your public comments the other day: you had the attention of tons of analysts and reporters and you could've said "Let me give you a coming attraction of what you can expect at Sapphire," but instead you just said no, we'll talk about those things at Sapphire, and everybody just cool your jets until then. Ironically, you cited Apple in that comment and said you'd be doing your presentation on an iPad to emphasize the growth in mobile computing. But whereas Apple's relentless innovation and success and brilliant communications and marketing has earned it the right to dictate when it will or won't take the opportunity to talk to the world, you and your team at SAP are in a very different place: sagging stock price, declining revenue, a lack of trust from customers (a point you made), and employees who are not happy (another point you made). You pledged to do everything in your power to restore the growth and excitement of SAP and you had a chance to push that forward--but you fell back on a schedule that is optimized for your needs and convenience, rather than that of the marketplace. And that seems like part of that massive cultural overhaul you need to lead.

Read more about SAP's reorg here. Who Is SAP's Primary Competitor? The easy answer is it's Oracle. But that would also be the wrong answer. Oh, sure, you guys will continue to slug it out and take shots at each other whenever possible (Leo's last one was that he saw Oracle "fading in the



rearview mirror"--ouch!), but unless you plan to acquire Dell and become an integrated systems company, I don't see Oracle as your top competitor. Rather, SAP's top competitor is cloud computing and SaaS and rapid and lightweight deployment and automatic upgrades and low up-front expenses and shared risk and Salesforce.com and SuccessFactors and Workday and NetSuite and many many other small, nimble, and highly successful companies who are giving the market what you don't have: speed, simplicity, predictability, lower costs, and a deeper sense of partnership and shared commitments. Now you can, of course, scoff at that comparison and say their combined revenue is barely a rounding error in SAP's overall financials. You can say that Business ByDesign will destroy all of them. You can say that customers are wrong, narrow-minded, unfair, and fickle. You can say that SAP is a powerhouse in cloud computing already and will only increase its lead in 2010. But I hope you don't--because none of that is true, no matter how eagerly you want to believe that it is. No, Hasso, your big-dog competitor is the new wave of simpler and easier and faster and less expensive cloud-based whizkids, and if you don't address that reality quickly and aggressively, just try to imagine how hairy the situation's going to be a year from now. Because for them, the future isnow.Well, that's it for now. I would love to hear back from you and your team on some of these suggestions because the Global CIO audience remains very interested in and committed to SAP. But unless you address the concerns of that audience, that interest and commitment will disappear faster than you can imagine. And that would be a shame.


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