Eye on Oracle

Mar 23 2007   11:34AM GMT

Oracle sues SAP: Analysts say charges are serious

Derek Kuhr Derek Kuhr Profile: Derek Kuhr

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

7  Comments on this Post

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  • CG Houston
    The allegations, if true, demonstrate a level of desperation (and outright stupidity) by SAP. It will be difficult for SAP to excuse these wholesale thefts as acts of rogue employees that upper management did not sanction and was unaware. Let's see what happens if/when SAP fires those responsible for the thefts -- and what the alleged thieves have to say about whether they acted on their own or at the behest of SAP management. Also, the worst case scenario is not just a large fine/punitive damages as some commentators have suggested. Oracle has demanded an accounting, which will throw open SAP TN's books, and as you suggest, it will be the death knell of TomorrowNow, and a public relations disaster for SAP.
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  • Guardianangel
    If in contrary the allegation prove wrong, it will show the desparation of Oracle trying to prove their buying spree really is successful...
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  • Gary Wollman
    I a big firm like Oracle can be breached. Assuming that they use their own software, where does that leave their clients who relie on Oracle Applications to provide state of the art security for our applications?
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  • R. Vanhecke
    Don't think that SAP knowingly broke into Oracle's machines. Most likely what happened was that a customer who used to have Oracle support passed the old (and still functioning) user and password to the tech people at TomorrowNow, who were stupied enough to use it.
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  • Larry Cumber
    Surprisingly enough if SAP knowingly breaked into Oracle's Password Protected Customer Support systems, then that is a Serious Security Breach. But The Question to ask is "If SAP had not done what it did, if its proven to be true,then,would they have gotten to were they are now"? So, Let SAP prove Oracle wrong..
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  • Chistopher Evans
    It seems that Oracle never expected such fierce competition from SAP. Now Oracle fears it will lose in the lucrative third-party enterprise software maintenance market, and in a desperate and dishonest attempt (one of the many Oracle stratagems to damage competition), it decides that the best plan is to come out with this suit. A common sense question to ask oneself: Had SAP wanted to gather some industry intelligence on its strongest competitor, would it have resorted to do so through a wholly-owned subsidiary? There would be more "intelligent" ways to do so, wouldn't there? And now considering that SAP is Europe's largest software corporation?
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  • Jeff Jacobson
    Any third-party support company would be better named YesterdayForever rather than TommorrowNow. Beyond that, SAP made the aquisition to be a thorn to Oracle, and it appears to have become SAP's transiant annoyance. It seems to me that people call them "big bad Oracle" or "big bad SAP," but this issue probably happened at a very low level in the offices in Texas. I would assume that there is a good deal of autonomy for how they conduct operations there. SAP as a whole does not really aquire a competative advantage out of this, and I doubt they would sanction such activities. It is more the act of a bunch of hackers and hacks who have never learned any discipline in a larger corperate environment than any grandeous plot. I can understand the bad feelings at the Oracle side when an arm of an arch rival is doing something of this ilk, and I can understand the desire to respond, but like so many cases before it, the gauntlet being tossed is the biggest wave that will be felt.
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