War Escalates Between Oracle and Microsoft - 06 Jan 2000

It's never news that Oracle and Microsoft are at each other's throats in the race to be master of the database kingdom. But let's take a look at several recent events to see why 2000 will be a particularly ugly battle time between Microsoft and Oracle.

• On December 14, 1999, Microsoft and SAP announced that SQL Server will be the "strategic development and production platform for mySAP.com solutions" on Windows platforms (see Carol Tomerlin, "SAP, Microsoft Enhance Global Partnership,"). In fact, SAP plans to replace Oracle with SQL Server 7.0 as the primary database for about 150 internal development and production systems within SAP. SAP also announced that it will migrate its 200 internal training and customer demonstration and presentation systems to SQL Server. SQL Server has already been popular as a database for SAP Windows NT implementations. At the end of third-quarter 1999, more than 50 percent of new SAP U.S. installations on Windows NT have been on SQL Server, with about 2000 NT and SQL Server-based installations worldwide. Does that figure mean that on January 1, SAP Oracle users rushed to migrate to SQL Server and NT? Of course not, but these statistics suggest that SAP and Oracle increasingly see each other as competitors rather than partners. This situation stems from Oracle's growing presence in the enterprise resource planning (ERP) market. SAP's ERP market share stands at approximately 35 percent, with Oracle second at 17 percent, according to Gartner Group's Dataquest.
  
  
• On December 16, 1999, Oracle cut software and support prices by 40 percent for the Oracle8i Standard Edition and 50 percent for the Oracle8i Enterprise Edition. Companies usually set price points that maximize their total revenue. But it doesn't take a rocket scientist to realize that Oracle triggered this price cut not to optimize profits for 2000 but to better compete with Microsoft’s less-expensive SQL Server offerings. In the past, Oracle has avoided price warfare by claiming that its products’ performance was worth the price premium. Recent performance gains by SQL Server (see Brian Moran, "Is the Datacenter Big Enough?," and Michael Otey, "Benchmarking Redux,") demonstrate to customers that they can get great performance at a great price. Oracle now realizes that it needs to compete on a more even price footing.
  
  
• On December 18, 1999, according to a PC Week article, ERP giant Oracle moved to lure customers away from front-office automation software company Siebel Systems. Saying it was reacting to Siebel's inability to execute on promises it made when it bought Scopus Technology in March, Oracle announced that it’s reducing prices by 50 percent on several applications from its Oracle Front Office Applications suite for Scopus customers who switch by February 15.

What does all this fast-breaking Oracle news mean?

• Microsoft and Oracle database engines are beginning to compete on equal terms from a price/feature standpoint, and this trend will accelerate when SQL Server 2000 ships this spring. So Oracle must slash its prices to stay competitive in the database engine market.
  
  
• This price reduction further cuts Oracle's percentage of revenue derived from selling database engine software. I don't have the exact numbers, but with this new price model, Oracle will certainly make less than half its revenue from building and selling databases. This percentage will, of course, drop further as Oracle continues to expand in the customer relationship management (CRM), ERP, and other-packaged-applications world. Soon, we’ll easily be able to argue that Oracle isn't a database company but a consulting and packaged-application software company.
  
  
• As Oracle continues morphing into a non-database company, its traditional partners (such as the big ERP and CRM independent software vendors—ISVs) will continue to view Oracle as a serious competitive threat.
  
  
• Microsoft hates Oracle, and now many ISVs are beginning to hate Oracle, too. As Oracle continues to eat away at its partners’ market share, partners such as SAP will inevitably begin to forge even closer ties with Microsoft because Microsoft has no ERP offerings. In other words, it's good to be friends with the people who hate your enemies.

These realignments are bound to shake up the database world during the next several years. The good news is that all this fighting will keep the big players honest, forcing them to add features while they’re cutting prices. That's a good deal for you and me, regardless of who you want to see come out on top.