Oracle sues SAP: Analysts say charges are serious

Big software companies like Oracle, SAP, IBM, Hewlett-Packard, Microsoft and others like to file lawsuits. It’s just a fact of the IT world. And oftentimes the lawsuits quickly fade away from the media spotlight, leaving folks to question whether they were frivolous, designed only to create negative PR for competitors. 

But despite that tendency, IT industry analysts are saying that there’s actually some meat to Oracle’s lawsuit against SAP.

In the lawsuit filed in U.S. District Court in San Francisco this week, Oracle charged SAP with “corporate theft on a grand scale,” alleging that the German ERP giant stole a laundry list of Oracle’s copyrighted software and other proprietary information.

The 44-page complaint states that SAP wrongfully gained access to Oracle’s password-protected customer support systems and stole software products and other confidential materials, presumably, according to analysts, so that SAP could use the information to enhance the discounted support it provides to Oracle customers through its TomorrowNow arm. (SAP acquired third-party PeopleSoft support provider TomorrowNow following Oracle’s acquisition of PeopleSoft.)

Michael Doane, founder and chief intelligence officer of Performance Monitor in Peachtree City, Georgia, read the complaint and says he believes the charges are substantive, believable and serious.

“There’s more smoking gun in here than I even would have dreamed when I opened the brief,” Doane said. “What it’s definitely going to do is be an enormous blow to the SAP brand, because this complaint is so substantive. It’s going to be a death blow to TomorrowNow. They’ll stay in business for now, but talk about crippled.”

The case against SAP is particularly unique because SAP’s alleged actions go way beyond the typical intelligence-gathering practices of major software competitors, said Martin Schneider, senior enterprise software analyst with The 451 Group in New York City.

“The fact that [Oracle claims] to have the IP addresses and the data coming from the Bryant, Texas, offices of TomorrowNow shows the charges have merit,” Schneider said. “If it’s something they are bringing up in a document I imagine it’s something they can furnish in court.”

Oracle’s lawsuit against SAP also shines a light on the fact that third-party maintenance is becoming a sensitive topic, says Ray Wang, a business applications analyst with Cambridge, Mass.-based Forrester Research Inc. The reason, Wang said, is because any success by third-party maintenance providers gives one vendor an advantage over another by cutting off lucrative maintenance contracts — contracts that are becoming increasingly important to the likes of Oracle.

“Typically, the profit margins on third-party maintenance are in the 40% to 60% range towards the later years of the software lifecycle,” Wang explained. “We are in the same situation as the 1970s when IBM had a lock on all maintenance contracts for hardware.  Software companies are trying to do the same thing at the expense of customers who need to free up budgets to innovate.”

Wang added that SAP is having better luck at moving Oracle customers onto third-party maintenance contracts than Oracle is at moving SAP customers. (Oracle partnered with Systime for third-party SAP support.)

We want to know what you think about Oracle’s case against SAP. Is it as serious as Doane and Schneider say it is? Or is it just another of those cases that will fade from our minds with the next passing news cycle? And what do you think of third-party support vendors? Do they offer the same level of service as the initial software provider? Post your comments here and we’ll use them in upcoming SearchOracle.com and SearchSAP.com coverage of Oracle’s lawsuit against SAP. Let’s get a discussion going as this thing heats up.

– Mark Brunelli and Jon Franke, News Editors