SAP to compete more directly in database market

Looking to kill two birds with one stone, enterprise resource planning (ERP) vendor SAP in Q3 will extend its reach into the database market, strengthening its position with midsize customers while possibly slowing the flow of SAP-related database sales to ERP -- and now database -- rival Oracle.

According to an SAP representative, the company earlier this month acquired the rights to German database vendor Software AG's Adabas D database and will begin selling the database this coming fall under a different name. SAP has been selling the database since 1994, but in the past two years has only been selling it to existing SAP customers in an effort to keep the technology alive.

"The goal is for SAP customers to be able to benefit from a more competitive database offering in the R/3 environment," said the SAP representative. "SAP is not trying to become a database vendor; it is selling the database only with its software, not independently."

According to Joshua Greenbaum, head of Enterprise Applications Consulting, in Berkeley, California, the most important aspect of the move for SAP is Adabas' appeal with midmarket customers, which SAP and other ERP companies are trying to woo. The move, Greenbaum pointed out, is most likely to challenge Microsoft and its SQL Server 7.0 database than Oracle on the high end.

Despite this fact and SAP's claim that it is not set on joining the ranks of database vendors, the move does signal a more aggressive approach to selling beyond the company's traditional strengths. By purchasing the rights to the technology, SAP will now be able to package the Adabas D technology with its ERP software, offering customers a complete solution that would leave Oracle or other database vendors out of the equation.

"The strategy to unseat Oracle was supposed to be SAP working with Microsoft, integrating with SQL Server, but that's not what customers are buying," said Ken Jacobs, vice president of product management in Oracle's data server division. "Its surprising, but it doesn't change the reality that customers are demanding Oracle."

As a matter of fact, just more than 700 of SAP's more than 20,000 customers are using the Adabas D software, while Oracle database technology is currently working behind 75 percent of SAP installations. As the cooperative and competitive lines between the two companies begin to blur, revenue from database sales to SAP customers could be a key in fueling Oracle's capability to develop applications that compete directly with SAP's core business.

"I think SAP is beginning to feel a little vulnerable," Jacobs said. "They see Oracle offering customer-relationship management and other applications where SAP is weak, and they don't want us anywhere near their accounts."

Even more importantly, notes Jacobs, SAP's move validates Oracle's business rather than threatening to chip away at it.

"It really underlines the importance of the database business," Jacobs said. "People thought ERP was the center of the world for about 10 months, but now customers are realising that the database is one of those core technologies that is vital."

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