When it Rains, it Pours

Oracle Sues SAP; Shai Agassi Leaves SAP
by: Jerry Liao

What do you when your fieriest competitor filed a case against your company and then the presummed successor to the CEO of your company resigns? All happening while your company is experiencing a tough year on the financial front. Definitely your company will be under tremendous pressure – and this is exactly what’s happening to SAP – a company that develops business process software solutions designed to link nearly all transactions that occur during the normal course of everyday business across the entire organization.

Oracle recently filed a lawsuit against enterprise software rival SAP, alleging the European software company broke into its computer system to steal confidential information. The case, filed at the District Court in San Francisco, has been described by Oracle as being about “corporate theft on a grand scale”. Oracle claims it discovered SAP was engaged in systematic and illegal access to Oracle’s computerized customer support systems and alleges that SAP stole thousands of proprietary, copyrighted software products and other confidential materials.

Oracle added that there were more than 10,000 illicit downloads from the site between September last year and January of this year, a systematic sweeping of Oracle’s support website from SAP TN (TomorrowNow) servers prior to the expiry of customer licenses. Oracle said it has invested billions of dollars in research and development (R&D) for these products which include patches, updates, bug fixes and instructional documents and regards them as a vital subset of technical support.

SAP bought a small product support company called TomorrowNow in early 2005, which now operates as SAP TN, and was formed by several former PeopleSoft engineers promising to provide less expensive software support. SAP indicated that they intend to aggressively defend against the claims made by Oracle.

Next problem, the resignation of Shai Agassi. Who is Shai Agassi and why is he considered by many as a big loss to SAPs cause.

Shai Agassis is SAPs President of Product and Technology Group, he joined SAP 2001 and was appointed to Executive Board 2002. It was reported that Agassi was very much behind a major platform push that led to the development of NetWeaver, mySAP ERP, SAP’s integration and development platform, and the company’s transition to a SOA (service oriented architecture) model.

“While we regret Shai’s decision to leave, we congratulate him on his record of achievement,” said SAP chairman Hasso Plattner, in a statement.

According to reports, Agassi’s departure had nothing to do with the Oracle lawsuit or SAP’s bumpy financials. The more popular reason was because SAP’s board extended Henning Kagermann’s CEO contract to 2009, leaving Agassi in the lesser position of president of the Product and Technology Group for another two years. SAP shares fell after the resignation of Shai Agassi.

The third problem is SAP missing its profit-target. SAP’s 2006 software license sales, an indicator of future revenue, missed analysts’ estimates and the company’s own forecast. The company in January forecast its profit margin will decline for the first time in seven years because of spending to push sales to smaller companies.

Missing the target profit and the resignation of Agassi is SAPs marketing and company decision problem. Let us focus on the lawsuit filed by Oracle.

Why is Oracle filing the case and how will this affect SAP?

It is a common knowledge that Oracle bought companies left and right to enter the business application market where SAP is clearly the leader. Oracle bought almost 30 companies, to buy their technology as Oracle claimed but the real reason is of course to buy the client base. Clients who are SAP users or SAP partners.

The lawsuit obviously is not about protecting intellectual property, this is about market control and leadership. Oracle’s past ten years of research and development efforts have been so dismal that the company had to resort to many acquisitions to fill the gap. It is certainly making in-roads compared to SAP in the applications business, but it is still in a distant second place. Another factor hurting Oracle (and other companies for that matter) are third-party companies like TomorrowNow who provides maintenance to companies. These third-party maintenance companies will hurt vendors like Oracle and SAP in maintenance rates, and maintenance represents one-third or more revenue for the vendor. And TomorrowNow is a subsidiary of SAP.

While this is more of a business move for Oracle, this does not exonerate SAP from the possibiliy that indeed SAP TN downloaded materials from Oracle websites. Downloading patches and documentation is not an unusual practice especially to system integrators who provide services to companies. Perhaps what SAP TN did was to download the materials all at the same time. SAP and its partners should be more careful next time in doing these things not only to Oracle but to other companies.

So what will be the affect of this case? Nothing much except it may create fears, doubts and uncertainties among customers and system integrators, of both Oracle and SAP. If found guilty, SAP will be in a big and deep trouble.

Who will win in this battle? Let us see.

*****

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