SAP’s End Run Around Oracle

Like a lot of companies, Praxair got caught by the wave of consolidation
sweeping the software industry. The $6.6 bn producer of industrial gases, based
in the US ran financial and manufacturing software from JD Edwards and human
resources programs from PeopleSoft. Then, in June, 2003, PeopleSoft announced
plans to buy JD Edwards. Days later, Oracle Corp made a hostile takeover bid for

Now all three companies are rolled into one-and Praxair is plenty worried
about the future of its old software packages. So it has taken a bold step.
Instead of paying Oracle a fee equal to 22% of the value of its software each
year for maintenance and support, Praxair has signed up with a 100-person outfit
in Bryan, Texas, called TomorrowNow, that does the job for half the price.
Praxair’s CIO, Melissa Buckwalter, says the move will give her company
"more control" over its tech investments. No matter how Oracle goes
about weaving together all its programs into a hybrid dubbed Fusion, Praxair can
keep running its old software.

The curious wrinkle is that tiny TomorrowNow has been a wholly owned
subsidiary of German software giant SAP since last January. In other words, SAP
is now in the business of providing post-sales support for software owned by its
fiercest rival. It’s a sly move, emblematic of the bitter battle being waged
by the titans of corporate software. "We saw it as a very clever and cheeky
way for SAP to start going after its competitors’ customer base," says
JPMorgan Chase analyst John M Segrich in London.

Turning on the Charm
The moment is ripe. Oracle’s acquisition binge has upended the old order
because PeopleSoft and JD Edwards programs will be gradually phased out. That’s
prompting some customers to consider switching. To woo them, SAP is turning on
the charm. By supporting Oracle’s acquired packages, for instance, SAP lets
those customers postpone upgrades to newer versions-giving them time to
consider other options. Still, TomorrowNow founder and Chief Executive Andrew J
Nelson insists that his staff doesn’t promote one brand of software over
another. "It’s essential that our customers don’t think we’re there
to push them to SAP," he says. TomorrowNow also siphons off from Oracle
millions of dollars per customer in annual support revenues. "This is a
customer-friendly move with an ulterior motive," says Joshua Greenbaum,
principal for Enterprise Applications Consulting, a Berkeley advisory firm.

wants to make customers "feel comfortable"

Oracle waves off the threat. "It is highly unlikely that SAP will
convert a significant number of customers," says spokesman Bob Wynne.
Oracle clients "aren’t only looking for the best deal" when it comes
to service, he adds. "They want support from the company that develops the

Still, TomorrowNow is on a roll. Since being acquired by SAP, it has nearly
doubled its staff and client base, which now includes Safeway, furniture-maker
Haworth, Brigham Young University, and the cities of Atlanta, Huntsville, Ala.,
and Flint, Mich. SAP CEO Henning Kagermann says TomorrowNow has been
"instrumental" in the success of a program that has already lured
nearly two dozen Oracle customers to SAP. "This has to be done in a way
that makes customers feel comfortable," Kagermann says.

The Stat Defectors

Number of PeopleSoft and JD
Edwards customers now getting product support from SAP subsidiary
Data: company reports

Oracle is taking notice. At a late September users’ conference in San
Francisco, the company unveiled longer support programs for users of old
PeopleSoft and JD Edwards software. And though he hasn’t made any firm
promises yet, Oracle CEO Lawrence J Ellison says his company is considering
allowing future applications to run on non-Oracle databases-a significant
issue for the thousands of PeopleSoft and JD Edwards customers using servers
from IBM and other computer makers. Oracle is sweetening its message. But with
TomorrowNow in its arsenal, SAP has a stealth weapon to fight back.

By Andy Reinhardt in Paris, with Sarah Lacy in San Francisco In New York
in BusinessWeek. Copyright 2005 by The McGraw-Hill Companies, Inc

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