Oracle’s Fusion Apps Opens an Opportunity for SAP

Implications: Requiring existing customers to completely re-write all existing Oracle applications customizations is a massive barrier to adoption. “Exponential” database growth and reduced performance will be just the icing on the cake, not to mention the inevitable bugs in a totally new software release.  SAP may be able to steal some Oracle customers!

Analysis:

When Oracle announced the Fusion program to integrate the code from their various acquisitions, with an aggressive release date of 2008, many people were skeptical that they would actually be able to meet that date.  The attached article is one of the first pieces of solid information about Oracle Fusion applications.  The good news is that Oracle seems on track to make the 2008 delivery date for Fusion applications, at least with a token release.  The actual production release will likely be in 2009, but that’s still surprisingly quick, given the magnitude of the effort.

The bad news for Oracle is that the end result may not be a happy place for them or their customers.  It is laudable to complete a difficult journey reasonably on time, but in this case the destination may not be where anyone wants to be!  If Fusion is delivered as described in this article it is likely to encounter major customer resistance.  The predicted performance problems will likely require customers to significantly increase their server power just to maintain the current levels of responsiveness.  With the rapid increases in server performance underway this will be doable at a reasonable cost, but nonetheless it will be a bitter pill to swallow for many.

A bigger problem is the predicted “exponential” growth in database size.  Storage is already a problem for many enterprise installations, and having that grow exponentially without any commensurate gains anywhere else will not be well received.  The implications of database growth are more than just the additional cost of storage.  More data requires higher performance networks, more powerful servers, and generally more load throughout the environment.

The biggest problem of all, however, is the requirement to completely re-do customizations.  While the installations that are relatively vanilla and have few customizations will not see this as a major problem, the vast majority of eBusiness Suite installations have a significant number of customizations, and some are heavily customized.  Upgrading to Fusion will be prohibitive in terms of time and money for these customers.  The benefits of an integrated code base will be huge for Oracle, but enterprise customers will have difficulty showing solid business returns simply because their apps are now “Fusion”. 

CIOs have always needed to show solid ROI for projects, and the projected economic conditions for the next couple of years are only going to make that more of an issue.  Now instead of CIOs needing to justify perhaps $5-800K for adding in new functionality with a new Oracle module, the upgrade to Fusion will change that to justifying perhaps $2-3M, with essentially the same result.  This is a challenge few CIOs will face happily.

If CIOs have to completely re-implement their entire ERP system, with all the costs and time that requires, this opens a window of opportunity for SAP to sell into that market.  The cost of implementing a new SAP system will be little or no more than migrating to Oracle Fusion, and possibly even less.  Oracle can offer discounts to ease the pain for customers, but that will both impact their margins and still may not sway the customers, since the license cost is typically only a small percentage of the overall project cost.

Ironically, the more successful Oracle is with delivering Fusion apps early, the greater the opportunity this will present for SAP.