Watch Out SAP: Oracle’s SaaS Play Could Be a Trap

For the better part of 30 years, Bruce Richardson, chief research officer at AMR Research, has been analyzing the enterprise software industry. He’s watched SAP’s every move for almost 20 years. He knows ERP and supply chain inside and out. The man can spot a trend.

Richardson recently blogged this juicy piece of analysis: Is Oracle setting a SaaS trap for SAP?

As he points out, Oracle and SAP have been “making a lot of noise” about their strategies for furthering their SaaS or on-demand offerings.

What should concern SAP, Richardson opines, is that this is not a fair fight: Oracle could be suckering SAP into a market where the German software giant might not want to have a huge presence. As I’ve mentioned before, SaaS is not even in the same hemisphere as on-premise software when it comes to profitability.

Look at the numbers: Oracle receives less than 10 percent of its revenue from new software application licenses, and maintenance adds nearly 20 percent, Richardson points out. “The database and middleware businesses are far larger and more profitable,” he writes.

SAP, however, generates nearly 100 percent of its revenue from enterprise software applications and maintenance, Richardson notes.

“Oracle is comfortable selling standalone pieces and parts. SAP dominates the suite sales space,” he adds. “At the end of their respective fiscal years, Oracle had $12.6 billion in cash and investments. This is six times higher than SAP reported at the end of its fiscal year.”

Which all leads to Richardson’s pointed question: “If Oracle decided to heavily promote sales of software as a service, could SAP match it? Can it afford to shift to software as a service?”

To which I would respond: No freakin’ way.

Recently, I questioned just how much SAP actually wanted to succeed with its nascent on-demand product offering, Business ByDesign. To me, SAP’s strategy with Business ByDesign has been a riddle, wrapped in a mystery, inside an enigma.

Some financial analysts have been less than thrilled with SAP’s future plans. And a massive Business ByDesign offering just doesn’t make a whole lot of financial sense for SAP. For starters, SAP’s own CTO told me that SaaS simply can’t scale to meet the needs of all of its customers. Getting SaaS to scale, of course, would be prohibitively expensive for all concerned, most notably SAP.

In a recent blog I noted that Oracle had been drinking too much of its own Kool-Aid: Leader Larry Ellison and his cohorts are drunk with power and loving every minute of it, making business moves that are delighting shareholders but confounding budget-conscious customers yearning for product roadmaps.

With Richardson’s scenario in mind, it’s once again hard to tell if Oracle’s SaaS strategy is more about helping its customers—or tormenting archrival SAP.

Do you Tweet? Follow me on Twitter @twailgum. Follow everything from CIO.com on Twitter @CIOonline.