Oracle's "corporate theft" lawsuit against rival SAP will alienate customers, say analysts - and SAP may actually be better off if it loses.
"Clearly it's a very fierce rivalry that just keeps getting ratcheted up," says James Kobielus, principal analyst for data management at Current Analysis. "It's not surprising they'll continue to duke it out with each other through all available channels. ... Oracle has made no bones about the fact that it covets SAP's primary standing in the business application market. SAP clearly feels the threat from Oracle on that front."
Oracle has accused SAP and its TomorrowNow subsidiary of engaging in "systematic, illegal access" to Oracle's computerised customer support systems. TomorrowNow provides third-party maintenance and support in large part for Oracle applications drawn from its PeopleSoft, Siebel and JD Edwards product families.
Oracle's lawsuit defends against TomorrowNow "looking to undercut a major revenue stream by offering half-rate support," writes Martin Schneider, an analyst at 451 Group. But Oracle has done the same in the past, he writes in analysis issued in response to the lawsuit.
"It is interesting that Oracle has been guilty of the same kind of activity with its recent underselling of Red Hat Linux support," Schneider writes. "But since the JDE and PeopleSoft products are under proprietary licences, Oracle has much more legal recourse than Red Hat. But we wonder how much (Oracle) intellectual property SAP did gather that is really hard to come by, since most of the later PeopleSoft bug fixes and patches were built using the open source Eclipse toolkit."
Oracle's lawsuit claims that SAP illegally accessed and downloaded more than 10,000 pieces of Oracle IP off its customer portal, Schneider notes.
Kobielus called the lawsuit a "distressing new development" in the rivalry between the top two players in the applications market.
"It introduces fear, uncertainty and doubt on all sides of the equation, both among Oracle's customers and SAP's customers," he says. "Whether it substantially makes any change in either of the vendors' value propositions or competitiveness in the market, no it doesn't. Vendors sue each other all the time... over various matters."
The impact on customers of the two companies "will vary," says Rich Ptak, a founder and principal analyst with Ptak, Noel & Associates. "I don't think it will be great for either of them."
The charges against SAP, if true, could be "pretty devastating," Ptak writes in an email. "It is rare that you get the accusation. It is even more rare that you would see actual criminal activity."
The lawsuit illustrates the importance of third-party maintenance as a revenue stream, notes Ray Wang, principal analyst with Forrester Research.
"SAP through TomorrowNow [a wholly-owned subsidiary of SAP] has been offering Oracle customers third-party maintenance support," Wang says. "One key thing here is that third-party maintenance is becoming a sensitive topic. As software companies become heavily dependent on recurring services revenue, any success by third-party maintenance providers will give one vendor an advantage over another by cutting off that funding."
A customer that pays US$1 million for software licenses could pay more than $200,000 for third-party maintenance, he says.
Wang says he does not think the lawsuit represents a new level of bitterness in the ongoing rivalry between Oracle and SAP. One surprising aspect of the lawsuit is that SAP could ultimately be better off if it loses, he says, because third-party maintenance is not in the interests of either company. Wang says employees at TomorrowNow have probably looked at Oracle code on behalf of customers for whom they provide third-party maintenance.
"Oddly enough it is in both their interests for third-party maintenance to fail, because then they could get that revenue stream from their customers," Wang says. "Third-party maintenance would threaten both Oracle and SAP revenue streams. It's a weird lawsuit that could benefit SAP to lose ... Maintenance represents one-third or more revenue for the vendor. Oracle may want to stop this third-party maintenance before others begin to offer it as well."
The lawsuit "casts a pall" over SAP's TomorrowNow business, John Rymer, vice president at Forrester Research, writes in an email. "It also is a warning to Oracle customers against willingly or unwillingly using their access to Oracle support systems to help TomorrowNow. The popular term for the dour mood actions like Oracle's complaint create is 'FUD' (fear, uncertainty, doubt)."
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