Has Oracle Met Its Match In SAP?

| About: SAP AG (SAP)

Everyone hates Europe, right? If it's Europe, sell it. Stay away.

Not exactly. Some Europeans are winning. One European technology firm, in particular, is winning


SAP and Oracle (NASDAQ:ORCL) have been rivals for years. Oracle CEO Larry Ellison became a legend by putting nearly all such rivals down for the count. He bought potential competitors and dominated enterprise software.

That may no longer be the case. The reason is SAP.

As business has moved to the cloud, SAP and Oracle have both been threatened. But it's increasingly obvious that Oracle's strategy, buying hardware maker Sun Microsystems, was a huge blunder, while SAP's strategy of buying cloud software companies and offering services around it makes sense.

The latest evidence is SAP's purchase of Ariba for $4.3 billion.

Ariba arrived in the 1990s as a creator of spending management solutions, and in 1999 was valued at $6 billion. Its major purchases in the last decade were market-making companies, TradeEx and FreeMarkets. But it would have remained troubled had not its SaaS services been transformed by underlying technology into "cloud services." The company thought its effort aimed at building Internet applications, AribaWeb, was going to get it out of trouble, but it was its base business that attracted the big bucks.

Ariba will help SAP achieve its current mission, moving from being an enterprise software company to being a cloud applications company, like Salesforce.com (NYSE:CRM).

Over the last year investors have begun taking note of SAP's strategic success. While the stock's price is down slightly over that period, Oracle is down over 20%, and as recently as April SAP shareholders were seeing a 20% gain from last Memorial Day.

What this means is that after some adjustment based on the Ariba price, SAP is probably due to start rising in value again. It is poised to start taking some serious market share from both Oracle and Salesforce.com. Much of that will be in emerging markets that didn't spend during the enterprise days but are now able to look toward SaaS as an alternative.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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