SAPrebleu! SAP Seems to Imitate Only Oracle's Bad Moves (ORCL, SAP)

Includes: ORCL, SAP
by: William Trent, CFA

In a recent article titled SAP Chief: We Won’t Imitate Oracle, SAP (NYSE:SAP) management said there was no reason to follow Oracle (NYSE:ORCL) down the acquisition trail.

“We are independent and we are pretty strong so there’s no reason why we should not continue,” Chief Executive Henning Kagermann told journalists ahead of a company event in Paris.

SAP’s co-founder and supervisory board chairman Hasso Plattner said in a newspaper interview published earlier this month that only three companies were capable of buying SAP: (NYSE:IBM), Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG).

SAP has in the past held exploratory merger talks with Microsoft and Plattner said he could imagine a merger with IBM - rumors of which have swirled around markets recently - although he said no talks were going on.

The big problem in enterprise application software is that there are too many competitors. Furthermore, few of them have any debt and most have lots of cash, so it is unlikely any will go out of business any time soon. The only way to improve the competitive environment, as Oracle recognizes, is to acquire the other companies.

Meanwhile, both Oracle and SAP are forced to compete on price. In the above article:

Kagermann admitted that Oracle’s aggressive pricing tactics were hurting SAP. “Price,” he answered simply, when asked where SAP was feeling the pain.

So, since SAP is not imitating Oracle, we can assume they are maintaining rational pricing, no?

No. As we noted before, they are undermining the previously stable maintenance revenue stream through their purchase of TomorrowNow. The above article continues:

TomorrowNow has been a crucial plank in SAP’s so-called Safe Passage program which it launched at the beginning of 2005 to woo former JD Edwards and PeopleSoft clients away from Oracle, and has also taken away some of Oracle’s maintenance revenues.

At last count earlier this month, SAP said 240 customers had taken advantage of Safe Passage, which offers discounts on new licenses of SAP software along with cut-price maintenance for legacy JD Edwards, PeopleSoft and now Siebel software.

Wunderbar! SAP imitates Oracle’s fierce price competition, but goes its own way when it comes to fixing the underlying cause of the competitive pricing.

SAP 1-yr chart:

SAP 1 yr

ORCL 1-yr chart:

ORCL 1 yr