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SAP's End Run Around Oracle

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DQI Bureau
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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

PeopleSoft.

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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.

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KAGERMANN He

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

software."

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.

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The Stat Defectors
120

Number of PeopleSoft and JD

Edwards customers now getting product support from SAP subsidiary

TomorrowNow



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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