[ResearchPaper] Thibaut Quignon - 2010

Research Paper M2

Author: Director:
Thibaut QUIGNON Patricia LEVANTI

Graduation: M2IRT-2010
Major M2: IBE Mobility – Seinäjoki (Finland)

Topic: Comparative analysis of software solutions designers’ international
strategy (Microsoft, Oracle, SAP).

Core Issue: What are the different strategies implemented by each market player
(Microsoft, Oracle and SAP) in order to gain global market leadership?

Research Paper - Quignon Thibaut / 2009-2010

Abstract (in English)

Over the past two decades, the computer market and especially that of business applications has
met an unprecedented revolution. Information systems, considered a luxury gadget even ten years
ago have managed to transform themselves and now occupy a bright place in the heart of businesses
of any size.

Just as production tools, enterprise applications are nowadays seen as engines of growth, added-
value creators and participate in strategic decision making.

This major change in the light of the professional software tool has contributed to the explosion of
the industry where three companies are now fighting for market leadership.

In this research paper, we will focus on the strategies implemented by Oracle Corporation, SAP AG
and Microsoft Corporation to increase their market shares and, to impose their solutions in the long
run to most businesses.

To address this key issue, we will go through a five-step process, starting with the industry current
situation, through the analysis of market components and strategies implemented by the three main
actors; we will then make recommendations on possible improvements and conclude on the
strategic outlook of the market change on a long term perspective.

From a methodological perspective, this research paper will also seek the implementation of
strategic analysis and market models such as:

- The Porter’s five forces model: and therefore study the level of competition in the industry
and how it is expressed.
- The SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats): in aim to confront the
three firms.
- The GE / McKinsey matrix: to analyse the Strategic Business Units’ business portfolio of each
player.

Keywords

Oracle Corporation, SAP AG, Microsoft Corporation, Porter’s Five Forces, SWOT Analysis, GE /
McKinsey Matrix, Enterprise Resource Planning, Business Intelligence, Customer Relationship
Management, Middleware, Enterprise Business Applications

Research Paper / Comparative Strategy Analysis Page 2 of 103


Résumé (in French)

Au cours des deux dernières décennies, le marché de l’informatique et plus particulièrement celui
des applications d’entreprise a connu une révolution sans précédent. Les systèmes d’information,
considérés comme un gadget de luxe il y a encore dix ans ont su se transformer pour occuper
aujourd’hui une place prépondérante au cœur des entreprises de toute taille.

Au même titre que les outils de production, les applications d’entreprise sont considérées
aujourd’hui comme moteurs de croissance, créateurs de valeur ajoutée et participent à la prise de
décisions stratégiques.

Ce changement majeur du regard des professionnels sur l’outil informatique a contribué à l’explosion
de l’industrie où trois entreprises se disputent aujourd’hui le leadership du marché.

Au cours de ce mémoire, nous allons nous pencher sur les stratégies mises en œuvre par Oracle
Corporation, SAP AG et Microsoft Corporation dans le but d’augmenter leurs pars de marché et sur
du plus long terme, d’imposer leurs solutions auprès du plus grand nombre.

Afin de répondre à cette problématique, nous suivrons un raisonnement en cinq étapes en
commençant par l’analyse de l’existant de l’industrie, en passant par l’étude du marché et des
stratégies mises en œuvre par les trois acteurs principaux, nous effectuerons des recommandations
sur d’éventuelles améliorations stratégiques et terminerons sur les perspectives de l’évolution du
marché à plus ou moins long terme.

D’un point de vue méthodologique, ce mémoire de recherche a également pour objectif la mise en
œuvre de modèles d’analyse stratégique et de marché tels que :

- Le modèle des cinq forces de Porter : et ainsi étudier le niveau de compétition de l’industrie
et de quelle manière elle s’exprime.
- L’analyse de SWOT (Forces, Faiblesses, Opportunités et Menaces) : dans le but de
confronter les trois entreprises.
- La matrice de GE / McKinsey : afin d’analyser les portefeuilles d'activités des Domaines
d’Activité Stratégique (DAS) de chacune.

Mots clés

Oracle Corporation, SAP AG, Microsoft Corporation, Cinq Forces de Porter, Analyse SWOT, Matrice
GE / McKinsey, Enterprise Resource Planning, Business Intelligence, Customer Relationship
Management, Middleware, Applications d’Entreprises



Thanks

This research paper is dedicated to my family, for their support both moral and financial. Without
them it would have been impossible to follow the ITIN Master’s Degree and complete this piece of
work. This piece of work is also to my friends, who have been a tremendous help and encouragement
throughout the writing of the strategic analysis. Thank you for your patience, advice and care.

Many thanks to Patricia Levanti, my research paper director, for her understanding, her sympathy
and for the invaluable advice she gave me all along the realisation of this document.

Thanks to my company, 3M France, especially all the members of the Front Office department who
had to undergo the pressure of this work on my shoulders and gave me all possible advice and
support that I needed.

Finally, I am grateful to Patrice Carlin, director of 3M SAP deployment in Europe, for the advice and
recommendations he gave me about my work.



Table of content

Abstract (in English)................................................................................................................................. 2
Résumé (in French).................................................................................................................................. 3
Thanks ..................................................................................................................................................... 4
1 Topic Definition ............................................................................................................................... 8
1.1 Definition ................................................................................................................................. 8
1.2 Key issue .................................................................................................................................. 9
1.3 Context .................................................................................................................................... 9
1.4 Research methods used ........................................................................................................ 10
2 Background Analysis ...................................................................................................................... 12
2.1 Evolution of each firm over the last 40 years........................................................................ 12
2.1.1 Historical background .................................................................................................... 12
2.1.2 Companies’ development timeline ............................................................................... 14
2.1.3 Expansion, acquisitions and internationalization .......................................................... 21
2.1.4 Financial performance ................................................................................................... 32
2.1.5 Application portfolio...................................................................................................... 33
2.2 Key challenges to be faced according to the present market situation ................................ 36
3 Strategies analysis ......................................................................................................................... 40
3.1 Area of competitiveness and market shares ......................................................................... 40
3.1.1 Business applications market overview ........................................................................ 40
3.1.2 Business applications market forecast .......................................................................... 41
3.1.3 Applications license, maintenance and subscription revenue evolution ...................... 42
3.1.4 ERP current market ....................................................................................................... 42
3.1.5 CRM current market ...................................................................................................... 43
3.1.6 BI current market .......................................................................................................... 44
3.1.7 Middleware current market .......................................................................................... 44
3.1.8 Database solutions ........................................................................................................ 44
3.2 Current Strategy Axes............................................................................................................ 45
3.2.1 Companies’ visions ........................................................................................................ 45
3.3 SWOT Analysis ....................................................................................................................... 46
3.3.1 Oracle Corporation ........................................................................................................ 46
3.3.2 SAP AG ........................................................................................................................... 48
3.3.3 Microsoft Corporation ................................................................................................... 50
3.3.4 Vendors’ SWOT confrontation ...................................................................................... 52
3.4 Porter’s five forces ................................................................................................................ 54
3.4.1 Competitive Rivalry ....................................................................................................... 55
3.4.2 Threat of new entries .................................................................................................... 56



3.4.3 Threat of substitution .................................................................................................... 58
3.4.4 Buyers’ power................................................................................................................ 59
3.4.5 Suppliers’ power ............................................................................................................ 60
3.4.6 Porter’s Five Forces Conclusion ..................................................................................... 61
3.5 Business Strategy Matrix ....................................................................................................... 61
3.5.1 Methodology ................................................................................................................. 62
3.5.2 Industry attractiveness per sector................................................................................. 64
3.5.3 Strategic Business Units Strengths per company .......................................................... 66
3.5.4 Final GE / McKinsey Business Matrix............................................................................. 70
3.5.5 Strategic Business Units Confrontation ......................................................................... 75
4 Future prospects ........................................................................................................................... 78
4.1 Business model evolution...................................................................................................... 78
4.1.2 SAP AG ........................................................................................................................... 79
4.2 Future strategic evolution ..................................................................................................... 81
4.2.2 SAP AG ........................................................................................................................... 82
5 Recommendations......................................................................................................................... 84
5.1 Oracle Corporation ................................................................................................................ 84
5.2 SAP AG ................................................................................................................................... 85
5.3 Microsoft Corporation ........................................................................................................... 85
6 Result synthesis ............................................................................................................................. 87
7 Work benefits ................................................................................................................................ 88
8 General conclusion ........................................................................................................................ 89
8.1 Short-term development of the global market ..................................................................... 89
8.2 Long-term development of the global market ...................................................................... 89
9 Glossary ......................................................................................................................................... 91
10 Illustrations Table ...................................................................................................................... 92
11 Tables......................................................................................................................................... 93
12 Bibliography............................................................................................................................... 94
12.1 Printed sources ...................................................................................................................... 94
12.2 Online sources ....................................................................................................................... 94
12.2.1 Online books and publications ...................................................................................... 94
12.2.2 Online articles ................................................................................................................ 95
12.2.3 Other online sources ..................................................................................................... 95
13 Appendices ................................................................................................................................ 96



13.1 APPENDIX A: Interview – Philippe Leclerq (SOA People) ...................................................... 96
13.2 APPENDIX B: Interview – Timo Elliot (Business Objects) ....................................................... 97
13.3 APPENDIX C: Open-Letter to SAP’s former CEO Hasso Plattner............................................ 98



1 Topic Definition

1.1 Definition
SAP business started back to the 1970’s with the vision of five former IBM employees, willing to
develop standard application software for real-time business processes. The Enterprise Resource
1
Planning (ERP) concept was born when SAP released the first version of the software (known as R/1)
with the first financial accounting software standing as the basis of other software components
addition.

The 80’s were following a rapid growth in the company internationalization and profits. More and
more improvements were brought by the German manufacturer to its product to end up with SAP
R/3, the solution that transformed SAP from an efficient player to the top of the Business
Management Application Software on the market.

On its side, Oracle was following a different but nevertheless successful strategy. Indeed, Oracle
started its business with Database Management System in the early 1980’s to become now the
leader on the database market thanks to state of the art technology, reliability and cost efficiency of
its solutions.

In 2004, Larry Ellison (Oracle’s CEO) decided to radically change the strategy of its firm by extending
its application portfolio from database management system to vertical solution (PeopleSoft
acquisition) in order to better fulfil Oracle consumers’ expectations. To do so, the board of directors
decided to start acquiring strategic companies to be able to provide an end-to-end solution to its
customers.

As regards Microsoft, analysts all agree in defining the firm of Redmond as a new entrant in the
Business Application market. Despite its relative low recognition in this area, Microsoft relies on the
leadership of its operating system and office solutions all over the world. This competitive advantage
makes Microsoft a serious rival to Oracle and SAP with the full integration potential of its offer.

This graduation work will focus on analyzing and comparing the strategies of the three market
leaders in the competition towards global leadership. How will SAP deal with its market shares
losses? Will Oracle manage to perfectly integrate in a single and understandable offer its acquired
solutions? How Microsoft will manage to build a vertical solution from its operating system and office
solution?

In addition to these questions, the following issues will be addressed:

In order to be effectively implemented in firms, business applications are based on standards. The
current situation is much disorganized with all the manufacturers trying to impose their own
standards and there is a substantial need of standardization. Will common standards be used in a
close future? Which company will impose its own vision?

From a long-term point of view, we should consider a total reorganization of the market because of
the high competition. Will alliances or cooperation be made? What will be the outcomes of an
inefficient strategy for one of the leader? How many players will be left of the market?

1
Enterprise Resource Planning (ERP): a business management system that integrates all facets of the business,
including planning, manufacturing, sales, and marketing.



1.2 Key issue

What are the different strategies implemented by each market player (Microsoft, Oracle and SAP) in
order to gain market leadership?

At the dawn of the global economy’s revival, mastodons of the IT industry as Microsoft, Oracle or SAP
have seriously suffered from the financial crisis consequences. While trying to minimize their profits
losses by adapting themselves to the conditions of a world paralyzed by the lack of liquidity, tenors of
IT have worked very hard to prepare the economic upturn.

Microsoft with the launching of its new operating system Windows 7, in October 2009, meant to live
down the Windows Vista fiasco, has opted for the renewal of its commercial offer as primary course
of action.

In the meantime, the firm of Redmond for the last few years has made tremendous efforts to
develop its professional offer by providing an integrated end-to-end software suite from Office 2007
(2010 soon) to SQL Server 2008 through SharePoint 2007 and BizTalk Server 2009.

As for the strategy of Oracle and its CEO Larry Ellison, seems to remain unchanged. Indeed, the latest
move of the historic database software manufacturer was to choose to maintain its acquisition
frenzy, whose latest (Sun Microsystems, not finalized yet due to European Commission reserves) may
shattered the current hierarchy; where IBM was reigning supreme over the integrated vertical
solutions market from now.

The future acquisitions of Oracle are not clearly defined at this time and neither is their strategy: will
they keep on purchasing companies to complete their offer, or will they now focus their activities on
software integration to provide the best vertical solutions to their customers?

On its side, SAP, the historic leader on the ERP market is increasingly losing market shares due to an
intense competition and an aging and inadequate offer. The financial crisis has frozen the budgets of
multinational firms’ IT departments, thus this situation has led to heavy losses for the German
company.

During the last few years, according to its most devoted customers, SAP was putting more efforts
into preventing Oracle to gain its market share than providing real innovations to its existing
products range. This strategy has conducted SAP to a huge loss of goodwill from its consumers. SAP
Headquarters in Germany promised during the last SAP TechEd event in October 2009 that the
company will release significant products innovations in mid 2010 while keeping on working on
customer relationship sticking to their three decades strategy.

1.3 Context
The market of business applications is one of the most competitive nowadays. Companies which are
willing to succeed in it need to perform in the following areas:
2
Enterprise Resource Planning software: ERP, mainly implemented in MNC s, are the biggest source
of profit for companies like SAP and Oracle. Usually associated with high costs of implementation and
very low return on investment for the first ten years, the leaders have to put tremendous efforts to
change this bad image.

2
MNC: Multinational Corporation



Customer Relationship Management3: CRM solutions turn out to be the companies’ new favourite
activity. The software manufacturer which will manage to provide the best offer integrated inside its
business suite will get a certain competitive advantage over the others.

Business Intelligence4: BI solutions and CRM were following the same growth rate in companies for
the last few years. Providing an easy integration inside the firms’ architecture while allowing users to
rapidly build advanced and comprehensive reports is the current trend of the market.

Business Process Management5: BPM attempts to improve processes continuously. This kind of tool
aims to promote businesses effectiveness and efficiency and ability to deal with change. Although
this holistic approach was not so common in the past, new technology improvements in this area
have changed the rules of the game.

Vertical integration: Due to the current economic situation, Chief Information Officers (CIOs) are
now reluctant to the multiplication of different vendors’ software solutions. High integration and
interoperability cost is the main factor explaining this new strategy. The company who will be able to
provide fully integrated business solution will take over its competitors with the best competitive
advantage in the eyes of the consumers.

Small and Medium Business affordable offer: Oracle, SAP and Microsoft finally realized that the
6
MNC market was saturated. The current profit-making area is situated in the SMB market, and
theses leaders are doing their best to get into it. So as to succeed, we have seen recently SMB
focused offers emerging in their respective portfolio. The next step for the software manufacturers
will be to get recognition from SMB customers and to build long-term relationships with them.

1.4 Research methods used

The Internet will be used to stay posted with the tireless news of the market leaders: acquisition,
technology breakthrough, products release, experts and customers interviews.

Academic sources such as Research papers and books will be an invaluable source of information on
how to conduct strategic studies and to learn more about the business application software history.

As strategic analysis tools, the following methods will be used:

- SWOT Analysis
- Porter’s five forces
- Business Strategy Matrix

During this study, the previously mentioned methods will be applied to the three companies
and the results will be confronted in order to:

- Underline the leaders respective strategies
- Forecast scenarios of the future strategies and future development on the global market
- Analyze their business model and make recommendations for future strategic decisions

3
Customer Relationship Management: CRM information system entails all aspects of interaction a company
has with its customer, whether it is sales or service related.
4
Business Intelligence: refers to computer-based techniques used in spotting, digging-out, and analyzing
business data, such as sales revenue by products and/or departments or associated costs and incomes.
5
Business Process Management: Business process management (BPM) is a set of management and analytic
processes that enable the performance of an organisation to be managed with a view to achieving one or more
pre-selected goals.
6
SMB: Small and Medium-sized Businesses



I will also attend tradeshow and professional events related to the area of business
applications, public corporate events such as Microsoft TechDays (February 2010).

This attendance will be an excellent opportunity to interview the IT decision maker, the Oracle, SAP
and Microsoft executives and the end-users. These interviews will enable me whether to support my
strategy analysis or to highlight my mistakes.

Finally, I will also use my company (3M France) resources and contact to obtain as much
information as possible about the topic and to use the knowledge of our strategy decision-
makers.



2 Background Analysis

Back to the 70’s, and the early beginning of computer science, one company: IBM (International
Business Machine) was already dominating the computing market. IBM’s business products were at
this time considered as industry de facto standards. In the meantime, three other companies have
felt the emerging needs in terms of hardware and software for both companies and general public,
and even though they are now competing on the same market, their former activities were radically
different.

The following section will cover SAP, Oracle and Microsoft respective evolution over the last forty
years, will then provide a general overview of their business-oriented current activities to end up
with the key challenges to be faced according to the present market.

2.1 Evolution of each firm over the last 40 years

2.1.1 Historical background

2.1.1.1 SAP AG
SAP’s history started in 1972, with the collaboration of five former IBM employees willing to develop
standard application software for real-time business processing. From this revolutionary concept, the
five German software engineers launched a company called System Applications and Products in
data processing with its headquarters based in Manheim (Germany).

One year later, SAP developed financial accounting software which brick-based foundations will give
birth to the concept of Enterprise Resource Planning (ERP) and the possibility to integrate additional
software components to the architecture.

With this first release (called SAP R/1), SAP’s strategy was very clear: to cover the business field,
suffering from the biggest lack of automation while keeping the opportunity to extend the
automation to the rest of the company activities (from stock management to human resources).

The 1980’s were a period of rapid growth for SAP, especially the beginning of the decade with the
release of SAP R/2. Following SAP R/1 and its strong foundations, R/2 was the first integrated,
enterprise-wide package and was an immediate success, mainly in Germany were fifty out of the 100
largest industrial firms were running SAP products.

Even if for years SAP stayed within the German borders, the company’s executives were keeping in
mind the multinational potential, thus, R/2 was designed to handle different languages and
currencies.

Towards the end of the 80's, client-server architecture became popular and SAP responded by
unleashing the release of SAP R/3 (in 1992). With the uniformity of its graphic interfaces, consistent
use of relational database, and the ability to run on computers from different vendors, made R/3 as a
killer app for SAP, especially in the North American region into which SAP expanded in 1988.

During the 1990’s, SAP was performing its expansion on the international market and for the first
time in 1995, their business outside Germany exceeded 50 percent of total sales: R/3 had been
installed on more than 9,000 systems worldwide.

The new millennium stands for innovation from SAP point of view, starting with mySAP.com using
state of the art Web technology to link e-commerce solutions to existing ERP applications. Nowadays,
SAP owns a portfolio of 12 million users distributed among 140,000 installations over more than
75,000 customers in 120 countries.



2.1.1.2 Oracle Corporation
Oracle’s birth came from a research paper written by an IBM employee describing a working
prototype for a relational database management system (RDBMS). Larry Ellison (current CEO) and
the two other founders (Bob Miner and Ed Oates) realized the tremendous business potential of the
concept supported by the fact that no company was commercializing this technology.

In 1979, Software Development Laboratories (SDL, the precursor of Oracle) released the first
commercial SQL relational database management system called Oracle version 2 (the first version
was never officially put on the market). A revolution in enterprise computing was on its way, SDL
defied conventional wisdom that technology would never scale to large amounts of data or extensive
number of users.

Right after the crazy innovation decade of the early software industry, the Information Age dawned
and the demand for large and secure business data management obliged the young company (SDL
was renamed to RSI, Relational Software Inc.) to expand and mature.

Oracle greatly faced this challenge by offering its customers innovative products, simplifying business
data management, building solutions for emerging computing platforms and increasing system
interoperability for data synchronization and migration.

Oracle’s expansion was real and by the mid 1980’s, the company became the leading RBMS vendor
and the company was thrown into new markets for development tools, business applications and
services. In the meantime, this success attracted the attention of the industry’s major players such as
Microsoft, Sun Microsystems through Initial Public Offering (IPO, shares offering to increase a
company capital).

After a decade of explosive growth and wild success, Oracle was able to heavily invest in innovation
thanks to the “war chest” piled up. Almost five years before its competitors, the company put a lot of
capital in Research and Development of Internet Technologies, ahead on customer demand.

Thanks to this ambitious investment, Oracle was able to lead the market with advanced internet-
powered software solutions and became a standard for enterprise computing.

With its privileged position among its customers, Oracle continued to deliver innovation and results
despite a downturn in enterprise IT investment during the 2000’s.

2.1.1.3 Microsoft Corporation
Microsoft Corporation’s began in 1974 when William Henry Gates III (now known as Bill Gates)
demonstrated one of the first implementation of the BASIC programming language (Altair BASIC) to
the developers team of a company called MITS (Micro Instrumentation and Telemetry Systems)
which agreed to distribute the language on the business market.

After this “soft-beginning” compared to its current competitors, Microsoft made a giant leap forward
in purchasing an operating system from Seattle Computers Products in order to outfit the fleet of
IBM personal computers widespread in the business market: MS-DOS was born and Microsoft
Corporation rose from a small player to one of the major software vendors in the home computer
industry.

In 1985, IBM and Microsoft made collaboration with the development of an alternative operating
system called OS/2. In the meantime Microsoft launched the first version of Windows as a graphical
extension of MS-DOS. Like Oracle, the company went public in 1986 (through an IPO with a starting
price of $21.00). 1989 marked the first appearance of Microsoft Office Suite with software bundled
with application such as Microsoft Word and Microsoft Excel. Few years later, Office turned out to be



a “killer-app” for the company and started the situation of monopole among business suites
applications.

Both public and business markets were shaken up in two years with the release of Windows NT 3.1 in
1993 and Windows 95 in 1995. Whereas Windows NT brought to companies a high scalability and
performance, Windows 95 redefined the way people were using personal computers in bringing to
their home the brand new World Wide Web thanks to Internet Explorer.

From 1998 to 2009, none less than seven release of its public operating system were deployed on the
market to achieve a market share of 95% in January 2010. In the meantime, following Windows NT
3.1, three major business operating systems were released from Windows Server 2003 to Windows
Server 2008 Server.

Thanks to this market penetration, Microsoft decided in 2001 to launch the Business Division to
devote more time into the development of financial and business development software for
companies.

2.1.2 Companies’ development timeline

The following sections will enlighten the companies’ development timeline from their creation to
their current activities and insist on their most important development steps.

2.1.2.1 Oracle Corporation
See next page.


Client/Server Revolution 2

Internet Technology First
Client/Server Revolution

East-Europe Challenge
First RDBMS Release

Business Application
Oracle's Foundation

First Manufacturing
Oracle Corporation

Business Oriented

Division Creation
Portability Focus

Technologies

Application
Creation

Move
1977 1979 1982 1983 1984 1985 1987 1989 1990 1993 1995
Larry Ellison, The first SDL, then Written in C Data The first In The first With the $177 The
Bob Miner, Relational RSI programming consistency is RDBMS response manufacturing removal of millions are product
and Ed Oates Database following a language, added to operating in to application is the soviet invested in strategy is
found Management double- Oracle Oracle Client/Server customer's designed and trade R&D to redirected
Software System is digit database database, mode is demand is used by barriers, rewrite the by its CEO
Development shipped to growth now runs on e.g. money released created to Oracle itself as Oracle business Larry
Laboratories the market becomes several calculation in through integrate a proof of forms a application Ellison
(SDL) and although the Oracle platforms. the banking Oracle closely concept. subsidiary portfolio in leading
design their acceptance Corporation This is the application Version 5. with its to serve client/server the
first product of this to match its first will not be existing countries mode and company
within the breakthrough popular technology miscomputed database such as to expand to
year. technology and move leading anymore. solutions Bulgaria, the role of internet-
by uniquely to today's meeting Hungary Oracle centric
companies is named open essentials or Poland. database. business.
quite slow. database. architecture business
IT systems. activities.


Oracle Applications Release

Oracle 9i and Web services
Oracle Business Models

PeopleSoft Acquisition
Expansion to China
Oracle On Demand

Sun Microsystems
Complete Vertical
Siebel Acquisition
Oracle Fusion

Acquisition
Integration
1997 1998 1999 2001 2002 2003 2005 2006 2008 2010
Featuring 12 years OBM is a Oracle takes Oracle opens Oracle's Oracle Oracle Based on After facing
more than 35 before powerful advantage its first acquisition acquisition becomes the industry several legal
business everyone, tool of industry development strategy strengthen undisputed standards, issues with
applications, Oracle containing standards centre in begins in Oracle’s leader in Oracle's offer Europe
including invented word-class Java and China 2003 with product customer covers now Commission,
financials, the business XML to building the offering and relationship almost all Oracle finally
payroll or concept of practices create a strong takeover a the project management business area closes the
supply-chain Cloud and personalized partnerships rival on Fusion brings a software with high deal of Sun
management, Computing processes and with the ERP comprehensive thanks to level of Microsystems
Oracle thanks to helping independent government market. offer for their Siebel integration acquisition. It
Applications Oracle on companies e-business and local customers. Acquisition. among reinforces its
contributes Demand a to realize platform. companies. The already leader
to Oracle's remote high return application existing position on
growth ERP on portfolio is infrastructure. several
system for investment becoming activity areas.
its on more and
customers. corporate more
applications. complete.



2.1.2.2 SAP AG

SAP R/2 becomes an ERP

International Expansion
SAP becomes SAP AG
Internationalization

International sales
SAP's Foundation

SAP R/3 Release
SAP R/1 Release

SAP R/2 Release

Beginning of

importance

SAP ITS
1972 1973 1979 1985 1988 1988 1990 1992 1993 1996
Five former The first SAP R/2 The first sales Thanks to 10 SAP By the end SAP R/2 For the first SAP Internet
IBM financial handled organization years of R&D, appeals of the moves time in Transaction
employees accounting different outside of Germany R/2 now covers to an IPO 1980's, SAP towards the SAP's Services is
founded SAP software is languages is deployed in all the and sells own Client/Server history, released from
(System finalized and Austria. companies' 1.2 subsidiaries technology sales the labs and
Analysis and and currencies. critical systems million in Denmark, with SAP R/3 outside of brings Internet
Program brought to 50 over (Manufacturing, shares on Sweden, (3 stands for Germany communication
Development). the 100 Finance and the Italy and 3 tiers). exceed to the product.
market as largest HR). Frankfurt the US. 50%.
SAP R/1. German and
firms were Stuttgart
running stock
SAP. exchange.



SAP Business By Design
Dow-Jones appearance

Sybase Acquisition
Business Objects
Oracle sues SAP
mySAP.com

Acquisition
SAP CRM
1997 2000 2003 2007 2007 2007 2010
SAP became Four years SAP became With SAP Business SAP
a pioneer in after SAP one of the 50 Intelligence acquires By Design realizes its
the ITS, a full biggest Property Business is the second
Customer web based market Violation Object, a Software biggest
Relationship solution capitalizations as a French As A acquisition
Management called in the US and pretext, company Service with
area thanks mySAP is integrated Oracle leader on offer of Sybase.
to this new available the Dow- brings SAP the Business SAP Mobility,
module. on the Jones stock in front of Intelligence targeting Business
market. exchange. the US applications. Small and Intelligence
Court. Medium and Cloud
companies Computing
are the
three main
axes.



2.1.2.3 Microsoft Corporation

MS-DOS lift-off
ation First Step
Internationaliz

Development
First Business

International

International
Corporation

Application
Foundation

The Europe
Microsoft's

Customers

Expansion
Extension
Microsoft

Conquest

Business

Growth
Focus
Birth
1975 1976 1977 1978 1979 1981 1982 1982 1983
Bill Gates and Microsoft Bill Gates The first A new sales Microsoft While With the Subsidiaries
Paul Allen join tunes and became international sales representative authorizes promoting introduction are opened
MITS (Micro enhances president office is is added in the IBM to and of Multiplan, in three
Instrumentation BASIC and and Paul established in Europe. Vector distribute enhancing an electronic major
and Telemetry gain their Allen vice- Japan. ASCII Microsoft , of MS-DOS with MS-DOS to spreadsheet European
Systems) and first renown president of Microsoft, located Belgium, will the new IBM compel it as software, markets:
formed an customers: Microsoft in Tokyo was the have the PC. This an industry Microsoft France,
informal DTC Corporation exclusive sales responsibility to agreement standard, makes it first Germany and
partnership (Diamond agent for the "Far provide set-up the Microsoft move into United
called Micro- Trading East" business advanced supremacy of opens the business Kingdom.
Soft and release Company), area. services to the company Microsoft Ltd application APAC
the first version General companies such on the in England, realm. Microsoft
of the BASIC Electric, NCR as ICL, Phillips, Operating becoming Division
language. (National R2E and several Systems the first truly (Asia-Pacific)
Cash others OEM area. global is created to
Register) and (Original personal provide
CityBank. Equipment computer direct access
Manufacturers). software to the
company. region. At
this time
Microsoft
owns 42
international
subsidiaries.



the ERP Market

Vista and other
Reorganization
First Microsoft
Office Release

First Step into
Web services
International

International

Technologies
Windows 95

Applications
prominence

appearance

Application
Server Side
Operations

Operations

transitions
Extension
Business

Business

Strategy
1988 1989 1991 1995 1996 2000 2003 2005 2007-2008 2010
48% of The first Europe is now Microsoft Windows NT Microsoft Windows The first ERP The biggest The business
Microsoft version of divided in three announces and the outlines its Server 2003 product of Microsoft’s applications
annual sales the best in regions and the the family of strategy for is released Microsoft is Operating strategy is
are done class rest of the world availability of BackOffice web services aiming to be released: System clearly
outside of Microsoft in four (Far East, Windows 95 applications through at the heart Microsoft failure - defined: ERP
America. application is Intercontinental, worldwide. arrive into .NET. New of Dynamics Windows solutions
unleashed on Latin America New features the market Internet companies' NAV, Vista - is (Microsoft
both and Asia, India & "plug and for the most protocols server following the released in Dynamics),
standard Middle East. play" and demanding and strategy. acquisition of 2007. In Productivity
disks and CD- improved business standards Windows Navision in 2008, applications
ROM. performances rules: SQL are emerging Server 2002. Windows (Microsoft
is pointed up Server 6.5 to provide System Server 2008; Office),
to the appears to easier, more supplants Visual Studio Cloud
customers. fulfil the personalized .NET 2008, Office computing
demand in and more Enterprise 2007 and offer
term of built- productive Servers and SQL Server (Windows
in Internet Internet becomes the 2008 are Azure) are
applications. experiences. first official released and contributing
business are standing to gain the
application nowadays as leadership of
portfolio of a real the market.
the success.
company.


2.1.3 Expansion, acquisitions and internationalization

Before moving to the current business market analysis, it is important to gather data about the
companies’ evolution for the past fifteen years.

Three evolution’s axes are being emphasized to support this study:

- Expansion: in terms of employees’ growth, Research & Development expenditures and
amount of sales over the past fifteen years.
- Acquisitions: the number and evolution per year paired with the most critical companies
acquired to support the strategy analysis.
- Internationalization: international workforce, number of international sales offices and
international sales will be underlined in this section.

2.1.3.1 Expansion
2.1.3.1.1 Workforce expansion

The bar chart on the right represents
100,000
the total workforce evolution of the 80,000
firms since 1995. The hiring process has 60,000
been following three major phases 40,000
since 1995: 20,000
0
- 1995-2000: as almost all IT

SAP

SAP
SAP

SAP
MSFT

MSFT

MSFT

MSFT
ORCL
ORCL

ORCL

ORCL
companies at this time, our
three key players took
advantage from the sudden IT 1995 2000 2005 2009
market expansion and were
massively recruiting talents 2000 ORCL
ORCL SAP
2000 SAP 2005 MSFT
MSFT
(mostly graduate students) in
order to fulfil the demand burst Figure 1: Number of employees per company since 1995
in terms of services, software
production and consulting.
- 2000-2005: the explosion of the speculative “dot-com bubble” affected the recruitment
strategy, even though the number of employees was still growing mainly because of the
companies’ acquisitions.
- 2005-2009: This period was supposed to be a recovery period following the difficult previous
one, but the financial crisis, with the fall of the investments bank Lehman Brothers in 2008,
obliged Oracle, SAP and Microsoft to refine their development strategy. With most of their
customers’ IT budgets being cut down, they have decided to capitalize on the recovery
period by continuing their workforce’s extension to better serve their customers at the
recovery dawn.

100,000 Regarding the line chart on the left, a first
80,000 hierarchy is appearing here. Indeed,
Microsoft has always been the biggest
60,000
company in term of workforce resources
40,000 and the current trend is not going to
20,000 change soon, even if Oracle has been
growing faster since 2008 (due to its
0
acquisitions).
1995 2000 2005 2009
Oracle Total SAP Total Microsoft Total But this ranking is nonetheless not
surprising as regards the firms’ history.
Figure 2: Employees total growth per company since 1995 Microsoft’s growth was actually faster


than Oracle and SAP because of its first activities (operating systems) targeting the general public
market, a much wider segment than business applications. The fact that Oracle is getting nearer can
be explained with the diversification of its activities (from a database software manufacturer to
vertical enterprise solutions). For SAP, the situation is different since the firm has been focusing on
one product: ERP software and did not choose to acquire as many companies as the others so its
workforce growth can be characterized as “standard”.

2.1.3.1.2 Evolution of Research and Development expenses

1995 2000 2005 2009
ORCL - % of Revenue 9% 5% 13% 12%
SAP - % of Revenue 25% 14% 13% 15%
MSFT - % of Revenue 15% 16% 16% 15%

Table 1: R&D percentage of total revenues per company since 1995

Research and Development has always been a key performance indicator for companies’ business
expansion, especially in the IT area. Generally, most companies only spend 5% of their revenue on
R&D, but belonging to the range of fast-moving industries, Oracle, Microsoft and SAP have the
obligation to spend a large amount of money in their research and development activity since it
literally determines the future of their business.

Three trends are emerging from the table above:

1- Besides its capacity to innovate, Oracle’s percentage of revenue in R&D has always been
below its competitors. Oracle’s acquisitions leverage two important factors closely linked to
R&D but not part of its budget. They bring new technologies to the firm that can be
transformed into an innovative product when the integration is a success. They also bring,
the R&D past of the company, with its talented engineers and “still in the lab” very close to
be released without a lot of expenses. Thus, thanks to its integration capacity and its gifted
workforce, Oracle does not need to invest more than its competitors in research and
development.
2- SAP devoted a huge amount of its revenue in 1995 (25%), to prepare the internet ordination
few years later. The arrival of my SAP ITS (1996) and mySAP (2000), which, back then, were
revolutionary products benefited from SAP’s R&D efforts in the 1990’s.
3- Historically, Microsoft has always been a big R&D spender, probably the biggest company of
the world in terms of cumulated investments since its creation. But the company has been
mainly criticized because these investments are not generating a large return on investment.
In comparison, Microsoft has been investing 252% more than Oracle but despite this
discrepancy, it is difficult to name innovations associated to Microsoft.



30%
25%
20%
15%
10%
5%
0%
1995 2000 2005 2009
ORCL - % of Rev SAP - % of Rev MSFT - % of Rev

Figure 3: R&D percentage of revenue per company since 1995

2.1.3.1.3 Evolution of total revenues

1995 2000 2005 2009
ORCL – Total Revenues 2,889 20,180 11,715 23,058
SAP – Total Revenues 1,752 6,121 8,377 10,667
MSFT – Total Revenues 5,733 23,625 38,625 60,000
Table 2: Total revenues per company since 1995 (in billions of $)

As per the table above and the
70,000
chart of the right, Microsoft seems
to be the fastest growing 60,000
companies, at least in term of total 50,000
revenue. 40,000 ORCL
Even though this assertion is true, 30,000 SAP
we cannot draw any conclusion at 20,000 MSFT
first glance and we need to analyse 10,000
in detail each companies’ revenue
0
distribution (by core activities).
1995 2000 2005 2009

Figure 4: Total revenues evolution per company since 1995 (in billions of $)



2.1.3.1.4 Companies’ revenue distribution

The figure below represents the revenue distribution for Oracle Corporation:

New software
licenses
License updates and
product support
Consulting

On Demand

Education

Figure 5: Oracle Corporation’s 2009 revenue distribution

Oracle Corporation’s revenues can be divided into two segments:

- Software licenses & Product support: Oracle’s applications licenses, lifetime support policy
and product enhancements and upgrades are consolidated within this activity Oracle Support
Software license updates are billed on a percentage of new software license fees.
- Business Services: Consulting (application deployment, IT strategy alignments, business
process simplification, etc.), On Demand (multi-featured software deployment), Education
(customers training) are the three major components of the business services activities.

The figure below represents the revenue distribution for SAP AG:

Software revenue

Support revenue

Subscription and other software-
related service revenue
Consulting revenue

Training revenue

Other service revenue

Figure 6: SAP AG’s 2009 revenue distribution

Software related activities (blue gradation) and Software related service activities (red gradation)
account for the larger amount of SAP AG sales.

The first represents fees earned from the sale of software license to customers, support revenue
includes fees related to software updates, upgrades and technical product support while subscription
and other software-related service revenue combines rental arrangements and customized solutions.

The latter activity resides in implementation support contract (consulting) and educational services
to customers and partners regarding the use of SAP software products.



The figure below represents the revenue distribution for Microsoft Corporation:

Client

Server & Tools

Online Services Business

Microsoft Business
Division
Entertainment and
Devices Division

Figure 7: Microsoft Corporation’s 2009 revenue distribution

Compared to its two competitors, Microsoft performs business in five different areas:

- Client: this business division is mainly in charge of Microsoft’s operating system (currently
Windows 7). It includes Windows 7 box sales (directly in the stores’ shelves) and OEM
(Original Equipment Manufacturers) sales which are Windows version sold directly to the PC
manufacturers for a default installation on the computers.
- Server & Tools: targeting IT technology professionals with several server oriented products
such as Windows Server or SQL Server.
- Online Services Business (OSB): personal communication services (email, instant messaging),
and advertising platforms belongs to the OSB division.
- Microsoft Business Division (MBD): the most important division for our competitive analysis
includes Microsoft Office (Productivity) and Dynamics (ERP) and other business application
solutions.
- Entertainment and Devices Division: includes Xbox 360 platform and related video games.

As opposed to its competitors, Microsoft is very active on the general public market through its client
& EDD businesses. But the combination of the Server & Tools and MBD represents almost 70% of
Microsoft’s total revenues, an important factor for our business applications war analysis.

As a conclusion of the total revenue analysis, it is obvious that the companies are making profits
through their software related sales: new licenses and product support. This observation highlights
the necessity to offer innovative products to their clients thanks to high research and development
investments, this assertion will be confirmed in the current strategy analysis (part three).

Oracle and SAP, two historical business applications manufacturers, are following the same revenue
distribution, in opposition to Microsoft’s extremely diversified activities. Even if such a diversification
can be seen as a drawback in regards of business applications focus, Microsoft is taking advantage of
it by using its other activities experience and revenue to increase its Business Division market shares.

2.1.3.2 Acquisitions
Acquisitions are a major driver of a company’s development strategy for the following reasons:

- It testifies the financial health of a firm, indeed acquisitions are often very costly and only
wealthy company with an important cash flow can afford such expenses.
- Acquisitions can bring a new expertise to the buyer to complete its existing offer and provide
new innovations to the customers, this is called a synergy.
- Acquisitions can help companies to penetrate a new market, impossible to reach before
because of a lack of knowledge in the area.



- Acquisitions can call a competitor leadership into question when a company takes over a
company related to its competitor’s core activity.

120

100

80

60

40

20

0

Oracle Cumulated SAP Cumulated Microsoft Cumulated

Figure 8: Companies’ acquisitions evolution since 1995

The above chart represents the number of acquisitions per company since 1995. Three firms, three
different strategies to be explained:

- Oracle Corporation: Before 2002, Oracle’s had no real acquisition strategy. Oracle was
focusing on internal (organic) growth and its flagship database solutions. PeopleSoft
acquisition (2004) was the first move made by Larry Ellison (Oracle’s CEO) to move from a
database manufacturer to an enterprise solutions manufacturer.
Larry Ellison rapidly understood that the power of its database products used by all
enterprise solutions manufacturer (eg. SAP, PeopleSoft, JD Edwards) was an amazing
foundation for his company to provide fully integrated solutions to its customers (from the
database to the end-customer software).
Starting from scratch in this market was unthinkable because of its potential competitors’
large experience in this area, which is where Oracle’s Corporation frenzy begins.
- SAP AG: Although SAP has not been an intensive buyer compared to its competitors, it has
nonetheless been active since 2007 (Business Object acquisition). SAP’s core activity is
enterprise applications and he has always been the leader (see section 3.1.4 ERP current
market). Historically focused on internal growth, SAP’s acquisitions only occur to add a
missing brick to its enterprise solution.
- Microsoft Corporation: Microsoft has been the biggest purchaser since 1995. Its acquisitions
did not generate the same type of buzz as Oracle and SAP’s big moves but were critical to the
success of its current product line. The firm of Redmond has been facing dozen of criticisms
from its detractor for ages. Their credo was the fact that Microsoft’s “supposed innovation”
is not a real one since it comes from mergers. Literally, these criticisms are well-founded
since Microsoft has not invented anything, but the success of the firm is to be able to
integrate the acquired products into their existing product line to provide a better
experience to their customers.

The next part lists the most strategic acquisitions of the three key players, and quotes the high-level
management declarations to the press right after the financial operation completed.



2.1.3.2.1 Oracle Corporation’s strategic acquisitions

Oracle’s acquisitions strategy is a secret for no one in the business applications industry. Instead of
growing from within, Larry Ellison have decided since 2002 (60 acquisitions until now) to extend
Oracle’s market shares thanks to strategic firms’ acquisitions we are identifying below.

ERP market

"Today we announced both a great quarter and the agreement to acquire
PeopleSoft. This merger gives Oracle even more scale and momentum. The real
highlight of our most recent quarter was the 57 percent growth in our
PeopleSoft applications business, and this merger is going to make that applications
(2004) business bigger and stronger." – Larry Ellison (Oracle’s CEO, 2004)

CRM

"Oracle is now the undisputed leader in Customer Relationship Management
software. Oracle's focus on modern, standards-based applications and
middleware is moving us into a leadership position in applications and on-
Siebel demand services. Siebel accelerates that move." – Larry Ellison (Oracle’s CEO,
(2006) 2006)

Retail Applications

“Oracle has the largest applications business in North America, and we intend
to expand that leadership position. Combining Oracle with Retek is an
Retek important step in that direction, and it strengthens our position in the retail
(2005) applications market globally." – Larry Ellison (Oracle’s CEO, 2005)

Business Intelligence

"The acquisition of Hyperion makes Oracle the category leader in the high
growth enterprise performance management market, Hyperion's EPM software
coupled with Oracle's Business Intelligence (BI) tools and analytic applications
Hyperion form an end-to-end performance management system." – Larry Ellison
(2007) (Oracle’s CEO, 2007)

Middleware

"The addition of BEA will accelerate innovation by bringing together two
companies with a common vision of a modern service-oriented architecture
(SOA) infrastructure, the addition of BEA products and technology will
BEA Systems significantly enhance and extend Oracle's Fusion middleware software suite."–
(2008) Charles Phillips (Oracle’s President, 2009)


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