SAP and Oracle continue to hold sway as the two leading solutions worldwide for large corporate Enterprise Resource Planning (ERP) applications. Both have based many years of business success on the licensed software model, tying up big deals for onsite hardware and software with years of follow-on revenues from maintenance and services. In the corporate software realm, the competition between the two is sometimes referred to (based on logo colors) as the battle between red and blue.
SAP’s planned acquisition of Ariba, the global scollaborative sourcing application, is another step in that competition, but also reflects a different view of the battle for the heart of the enterprise, “enterprise versus cloud.” The introduction of Software-as-a-Service (SAAS) or cloud-based applications was originally focused on smaller firms. Using tools like the oh-so-famous cloud-based Salesforce.com, and paying only for usage, smaller firms could access and deploy very sophisticated functionality. However, several years of economic belt-tightening have begun to convince even much larger firms that cloud-based solutions offer both economy and agility.
According to Bloomberg:
SAP’s acquisition of Ariba would be the largest enterprise software deal since Hewlett-Packard Co. bought Autonomy Corp. for more than $10 billion last year, according to data compiled by Bloomberg. There have been almost 1,200 of those transactions globally over the past decade, with a value topping $80 billion.
While Oracle has snapped up rivals, SAP had traditionally shied away from large deals, with past CEO Leo Apotheker telling investors in 2009 that the company’s home-grown software was superior to Oracle’s. McDermott and co-CEO Jim Hagemann Snabe have changed that strategy as they race to snatch business from Oracle and other companies such as Salesforce.com Inc. and Workday Inc. in the cloud.
As the cloud gains enterprise-scale credibility, both Oracle and SAP will have to adjust the way they talk with customers about return on investment and payback periods. Both have already commenced their own series of acquisitions in the SAAS space, particularly supplementing HR functionality. Ariba is another step forward for SAP, reflecting the importance of supply chain management within the enterprise IT model, as well as attempting to add SAAS flexibility that integrates functions among corporations, not just within corporations.
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