March 22nd, 2007
The lawsuit As barometer: SAP finally scores big with TomorrowNow
Today's announcement that Oracle is suing SAP for allegedly using its TomorrowNow subsidiary to steal software code and other nasties highlights the effectiveness with which TomorrowNow is hitting Oracle where it hurts: right in the old maintenance fee. The lawsuit claims that SAP systematically stole software as part of a concerted effort to beat Oracle, etc. etc. But the real story is that TomorrowNow, which goes around taking over maintenance contracts from PeopleSoft, JDE, and Siebel customers — at 50 cents to the Oracle dollar — has finally gotten under Oracle's skin. Not surprising: cutting maintenance in half can save hundreds of thousands, or even millions, of dollars a year for the company that's not buying into Oracle's Applications Unlimited or Fusion Applications strategy. And, with the lawsuit as a barometer of TomorrowNow's effectiveness, they must be doing a helluva job.
Why would Oracle care? Simple: Maintenance revenue significantly outstrips license revenue in the world of high finance a la Oracle. In the most recent quarter applications license revenue was $1.3 billion, maintenance was $2.3 billion. So you can assume that TomorrowNow is starting to make a dent in these numbers, and that's why Oracle finally filed suit.
Wait, couldn't there be some merit to the suit? After all, Oracle claims it can trace downloads from its servers directly to TomorrowNow computers, and that this theft is an "essential — and illegal — part of SAP's competitive strategy." The suit further claims that this activity "enables SAP to offer cut rate support services…. and to attempt to lure [customers] to SAP".
Two problems with this. The first is that TomorrowNow has been in business as an SAP subsidiary since 2004, and had been successfully offering these 'cut rate" services without the benefit of the alleged theft, which occured last November. Indeed, one wonders what in the allegedly stolen software and documentation could actually let SAP offer better services? If Oracle's own IP can prove that there's a better way to support Oracle's products, then Oracle had better hope this suit never goes to trial: Then everyone could find out whatever secret sauce gives SAP its "edge," and then go out and offer "cut rate" support services for Oracle software as well.
But the real reason I have trouble with "essential" and "part of SAP's competitive strategy" is that SAP has been waiting since 2004 for this lawsuit, and set up a series of virtual and real walls between TomorrowNow and SAP in anticipation of this very kind of suit. If, as the suit alleges, there was some downloading from SAP or TomorrowNow computers, it was a rogue operation that in no way could have been as sanctioned by management. To assume anything else would be more than foolish — it would be just plain wrong. The bottom line is that TomorrowNow doesn't need to steal anything from Oracle to take over its customers' maintenance contracts: the customer are legally entitled to all the software and documentation up to the moment their contract with Oracle is over. In fact, TomorrowNow encourages these customers to get every piece of code and doc they are owed — even software they may have absolutely no intention of ever installing — so that if, by chance, they need to do an install after the Oracle contract is over, TomorrowNow can do it for them. Legally, by the way.
In the end, the lawsuit as barometer shows that the pressure is rising as TomorrowNow's business model continues to take revenues that Oracle desperately needs to realize its business model. It will be interesting to see how this one pans out. At a minimum, it proves that SAP's TomorrowNow strategy is working — and that Oracle will stop at nothing to stop it.
Joshua Greenbaum's opinions on enterprise software have annoyed enough vendors that he now checks under the hood of his PC every morning before he boots up. For disclosures of Joshua's industry affiliations, click here.
