SAP Still King of the Hill

Jun 13, 2003

Thor Olavsrud

With the fate of some of the biggest players in the enterprise resource planning (ERP) application market in doubt in recent days, the only certain bet is that Germany's SAP is likely to remain king of the hill, analysts say.

A consolidation hornet's nest in the market for applications that manage accounting, manufacturing and human resources has been roused since third-place player PeopleSoft launched its June 2, $1.7 billion bid for J.D. Edwards, leading second-place Oracle to ante up with its own $5.1 billion hostile play for PeopleSoft. The imbroglio has resulted in J.D. Edwards blasting Oracle with a $1.7 billion lawsuit.

Meanwhile, SAP prefers to stay quiet about the dealings, Herbert Heitmann, senior vice president for global communications at SAP, told But that hasn't prevented it from rolling out a new marketing and field campaign, offering customers of its beleaguered competitors a "word of comfort."

"Their customers are highly irritated and nervous about their future," Heitmann said. However, he pointed out that the effort is not an effort to steal customers. "It's about offering customers who feel uncertain a safe harbor," he said.

Forrester Research analyst Paul Hamerman saw the move as less altruistic. "SAP benefits from this," Hamerman said Wednesday. "They just came out with their own marketing campaign to lure customers from PeopleSoft and J.D. Edwards, where they're saying, 'we're the strongest.'"

The strategy may work, according to AMR Research. In a research note, AMR analysts noted that Oracle CEO Larry Ellison said in a conference call on June 6 that Oracle would support PeopleSoft customers but kill the product.

"So the strategy is to upgrade PeopleSoft customers to the next release of Oracle, a task that isn't nearly as easy or painless as Oracle is trying to make it sound," the analysts said. "If I'm SAP, I love this because it puts every PeopleSoft customer back in play."

But Albert Pang, research manager for ERP Applications at research firm IDC, said it will take more than an advertising campaign to win those customers. "It's a very opportunistic move and probably time will tell whether they are going to succeed or not," he said. "If they can lure some people who are sitting on the sidelines, sure, that will help them." However, he noted that ERP applications require heavy customization to fit the needs of a customer, and purchasers will put prospective solutions through thorough investigation by their IT departments, HR departments and finance departments.

"You're not really just going to pick someone because of an advertising campaign," Pang said.

However you slice the ERP market, SAP maintains a healthy lead in share, though it is less dominant when you focus in on the North American market.

Unlike many other research firms, when IDC analyzes the ERP application market it looks at firms with horizontal offerings and firms with vertical offerings together. According to Albert Pang, research manager for ERP Applications at IDC, the firm looks at it this way because of the heavy customization needed to implement ERP applications; firms that ostensibly have a horizontal approach -- like SAP, Oracle and PeopleSoft -- essentially have multiple vertical markets.

"It's a somewhat bigger universe than many people think," said Henry Morris, group vice president of IDC's Enterprise Applications unit.

The bigger players are those which have deep vertical functionality in multiple industries, and here SAP, which got its start providing solutions for the chemical industry, is unmatched, Morris said.

"They're very good at specializing in one industry and then grabbing another industry, and another industry and another one..." he said. "SAP has very deep vertical functionality in over 20 industries."

Under IDC's definition, SAP leads the pack with 18.1 percent of the ERP applications market worldwide in 2002. Oracle and PeopleSoft each had about 5.4 percent of the market in 2002. Pang said "J.D. Edwards is really way behind with about 2 percent of the market. If PeopleSoft can pull off its acquisition of J.D. Edwards, it will catapult into second-place ahead of Oracle and would also take first place in North America, with 11.7 percent of the market, Morris said. But if Oracle is successful in its bid to acquire PeopleSoft, it will strengthen its second place position.

"SAP would still be almost double that combined entity," Morris said.

Any way the consolidation shakes out, the new company that emerges will hope to use its acquisition to take the game to SAP.

"Competing with SAP. This is the primary motivation for Oracle buying PeopleSoft," said Yankee Group analyst Kosin Huang. "Oracle has been in talks with PeopleSoft for the past year and has been looking for ways to propel itself to the top spot and beat out SAP. The ERP market is consolidating and one way for Oracle to dominate the enterprise applications market is by combining its business with PeopleSoft."

Meanwhile, AMR Research's Jim Shepherd suggested PeopleSoft's deal with J.D. Edwards pursued much the same logic. "The deal also clearly places the combined company as the second largest enterprise application company in the world, second only to Germany's SAP; Oracle, which PeopleSoft has vied for second place with for years, slips to a solid third," Shepherd said. "J.D. Edwards had held the fourth slot. And this is one of the main reasons for the combination. Both companies were finding it increasingly hard to compete globally and domestically against mammoth SAP in such a depressed technology economy."

He added that while both companies have seen declines in past quarters, a merger will put them on solid footing against SAP.

"The combined forces should give the new company strength, particularly in Europe, Asia-Pacific, and other overseas markets," Shepherd said. "Neither company had enough people on the ground to be effective in many of these global offices; now they will have twice as many people and gain a lot of credibility in the regions. The combination should give PeopleSoft a particular boost in Europe, where it has had a problem convincing Europeans it was anything but an HR company. Not having a viable manufacturing product in Europe hurt it a lot, but J.D. Edwards has a pretty strong European presence, giving PeopleSoft the credibility it needed."


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