Stalemate

Oracle's acquisition spree shows no sign of relenting or even slowing down-the
run which started with the contentious takeover of PopleSoft last year had only
gained momentum with Retek, ProfitLogic, i-flex and now Siebel coming into its
kitty. Ostentatiously, this inorganic growth strategy is targeted towards making
Oracle the world's leading enterprise application vendor-having already
clinched the crown of database king, Larry Ellison dreams of displacing SAP from
this position. The latest Siebel salvo, the $5.8 bn takeover, is apparently a
part of this strategy to gain the top position in the CRM market where SAP
currently rules the roost.

Apparently, the strategy looks sound enough-according to IDC, Oracle's
purchase of Siebel, on top of its PeopleSoft acquisition earlier this year, will
make it the top vendor in the packaged CRM application business, with 17% market
share, while SAP, the leader in overall enterprise applications, will be left
with only a 6.7% market share in CRM applications. Even in India, the situation
would not be too much different-though SAP currently enjoys a leading 21%
market share in the CRM space, an Oracle-Siebel combo would surely top it by a
few percentage points.

"Siebel's 4,000 applications customers and 3,400,000 CRM users
strengthen our number one position in applications in North America and move us
closer to the number one position in applications globally," said Larry
Ellison, during the announcement of the Siebel acquisition. Even Oracle
president & CFO Greg Maffei sounded upbeat and optimistic. "We expect
this transaction to be additive to Oracle's earnings on a non-GAAP basis in
its first full year (FY '07). Longer term, Siebel will contribute to Oracle's
stated goal of 20% annual earnings growth. Given the size of our existing
R&D investment, scale of our global support infrastructure, and similarity
of our back office requirements, we will recognize substantial efficiencies from
combining our two businesses."

What was heartening was that Siebel was a much smoother takeover compared to
the hostilities and bad blood witnessed during the PeopleSoft acquisition. The
fact that Siebel had been incurring losses continuously for the last few
quarters seemed to have played it straight into Oracle's hands. Siebel will
also be, in all probability, an easier acquisition to swallow, since it already
has packaged integration into Oracle ERP and given that, there is considerable
overlap between Oracle's and Siebel's customer bases. And unlike the
PeopleSoft acquisition, this one is friendly, minimizing any cultural strain of
synthesis.

However, if all this seems to project that Siebel would enable Oracle to run
over SAP in the CRM space nothing could be further from the truth. A JP Morgan
report with Dataquest clearly states that it does not believe the deal makes
Oracle a stronger competitor to SAP. At this point, Oracle and SAP represent an
effective duopoly in the enterprise software market and JP Morgan believes that
this could begin to result in a more benign pricing environment as Oracle
attempts to demonstrate growth in its applications business (many of its
acquisitions were aggressive in pricing deals).

However, this could cause more confusion in the market with regard to Oracle's
eventual strategy of integrating all of these components (JD Edwards, PeopleSoft,
Retek, i-flex, and now Siebel) into Project Fusion. Besides challenges in
integration from a product point of view, there is the eventual sales
integration that needs to occur from the current "buffet" model at
Oracle. This is in sharp contrast to the roadmap that SAP has in place to
deliver its next generation application in 2007, claims Nagaraj Bharagava,
Director—Marketing, Alliances and Sales Operations, SAP India.

SAP is also likely to extend its "Safe Passage" program to
encompass Siebel customers, just as it has for every other acquisition, mainly
JD Edwards and PeopleSoft. In this regard, SAP would become the safe purchase
for IT managers, claims Bhargava. "In fact we feel that the announcement is
an affirmation of SAP's strategy to focus on Customers end-to end business
process-delivering value through an integrated suite of applications, not
best-of-breed products."

The fact that Oracle cannot rest on its laurels following the acquisition
becomes clear considering that even the numbers about market leadership itself
are hotly disputed. Despite claims by Siebel and Oracle that the battleground is
on total revenues, or in number of users, the most widely accepted barometer of
market leadership, many analysts feel, is in new license revenue. New license
revenue allows the market to clearly see the momentum and customer investment.
And Siebel badly falters on this count-its license revenue for the first half
of 2005 declined by 30% compared to the first half of last year.

However, there is always the possibility that many enterprises using SAP ERP
and Siebel CRM might shift to Oracle now. While this might be true in isolated
cases, most CIOs we spoke to feel this is unlikely to happen right now. This is
because many of them feel that there is no clear roadmap for what will happen to
these products. "How will customers cope with the complexity of the
combined Oracle/PeopleSoft/JD Edwards portfolio? It includes competing offerings
for CRM HR and others, built on different technologies and to different designs-but
which solutions will be continued? And what will be the migration path from one
to the other? Who will take care of the maintenance issues with discontinued
products?"

All these questions are critical for customers and as long as CIOs do not see
a clear answer, the migration from SAP to Oracle would not take place. Take Tata
Motors for instance: it uses SAP ERP and Siebel CRM and is expected to continue
to be on both platforms (It is premature to think that any company would
announce the shift over based on this) ; rather it is touted as one of SAP's
showcase clients in India. In fact, Bhargava claims that this uncertainty, at
the very least, it is strengthening SAP's position. "There is no
uncertainty around SAP. If you follow us, you can see that we make promises and
then deliver. We are executing on a transparent roadmap, and our customers
appreciate this."

Bottomline: the Siebel acquisition has definitely given Oracle a lot of
brownie points now, but for this to translate into actual business benefits
would require complex integration of a host of different products. And the
uncertainty of integration can wean away CIOs to SAP; once the euphoria over the
deal dies down, it's apparent there is stalemate between Oracle and SAP after
this round.

Rajneesh De