As Oracle and SAP vie for unsettled PeopleSoft users,
what does the future hold? asks Bruce Richardson
There is a lot more to buying software than just paying
for the licences. The real catch for many long-time enterprise
resource planning customers is the continuing cost of
upgrades.
One of AMR's clients is looking at upgrading its ERP system. The
initial assessment is that the upgrade will provide a 10-times
return on the cost of licensing new software. That sounds great,
until you consider that the cost of doing the upgrade is more than
75 times the software licence cost.
Another client said the high cost of ongoing ERP upgrades has
persuaded the executive team to switch to business process
outsourcing. In this case, the client lets the offshore supplier
worry about the upgrades.
A third client complained about the size of the ERP software and
the complexities of upgrading. He said it takes his ERP supplier a
year to make the new release stable, another year to plan the
implementation of the new release, and a third year to install and
go live. Although there may be some hyperbole here, this ends up as
a two to three-year cycle, which limits innovation.
So, if you are working with a hybrid SAP/PeopleSoft or SAP/JD
Edwards system, do not let emotion make your decision. Do the maths
and factor in the lifecycle costs.
I would wager that SAP's acquisition in January of TomorrowNow, the
support provider for firms using JDEdwards software, will have
minimal effect on revenue in 2005. (SAP will be somewhere in the
£4.7bn to £5.2bn revenue mark this year.)
I recently ran into someone who works for a professional services
firm with an existing investment in PeopleSoft. In his first
meeting with his new Oracle sales team, he was informed that his
maintenance would be going up and that the increase covered support
and "innovation". When he asked about innovation, he was told this
would cover new actuarial software being developed. His firm had no
need for that function.
He would be a logical candidate for TomorrowNow's services. In some
ways, software maintenance becomes analogous to car insurance. You
get a bill with a hefty increase and the logical response is to
shop for comparable coverage at a lower price.
Will SAP really be cheaper? It will depend on the individual
account. But no doubt SAP will be capturing all the data on every
prospect calling for a quote. It will want to know what
applications and release levels they are running, when they bought
their software, the number of current and planned users and their
level of satisfaction with the software and service. You cannot put
a price on that data.
Some time later this decade, it is probable that service-oriented
architectures will move from Powerpoint and statements of direction
to reality. On one side we have Oracle and Project Fusion. Across
the ring stands SAP and enterprise services architecture. To be
successful, both heavyweights will have to recruit partners for
their respective corners. The first two that come to mind are IBM
and BEA.
IBM is an obvious choice. If you are competing for future hearts
and minds, you want to leverage IBM's consulting and infrastructure
expertise and customer base. Support from Hewlett-Packard and Sun
is important too, but IBM remains the first pick.
But BEA will probably have a working service-oriented architecture
product set ahead of Oracle and SAP. It does extremely well in
financial services, one of the few vertical sectors not dependent
on an ERP backbone. Many of the early adopters of service-oriented
architectures will come from this sector.
At the Netweaver launch a few years ago, a SAP executive
acknowledged that one of the intentions of Netweaver was to
function as "the BEA-killer".
Oracle chief executive Larry Ellison has long expressed interest in
either acquiring BEA or eliminating it. Now, BEA's products and
growing developer community are critical weapons.
The reality is that BEA assumes a more strategic position in the
next generation of web service-based, heterogeneous computing. This
is especially true if users follow through on threats to reconsider
best-of-breed as an alternative to three upgrade cycles and costly
complexity.
Microsoft's role in the enterprise service-oriented architecture
market is unclear. It is hard to imagine Oracle embracing Windows
as an alternative user interface to its plans for dynamic HTML, but
this may be worth hundreds of billions of dollars.
It is also too early to say what role Accenture and the offshoring
companies will play in the service-oriented architecture market. If
I were running Oracle or SAP, I would want to make sure my
executives had been to India by the end of this year.
Bruce Richardson is an analyst at AMR Research
