CASE ANALYSIS OF SAP vs ORACLE

BY:Ankit GargHarshit GargPrateek GoyalRahul VermaniRohit Sindhwani

ERP SECTOR ANALYSIS IN 2010

•ERP sector highly radical, competitive and changing at a very fast pace

•Led by two main companies SAP and ORACLE.

•Focus to provide best products and services to their customers

•Quality, customizable and easy-to-use applications at a low and reasonable price

•Entry barriers due to economies of scale and learning curve of current firms

SAP Strategy• To continue expanding into the small and mid-

sized business market• To focus on partnering with companies instead of

acquiring e.g. Partnership with Oracle• Great customer service and support• Training students at colleges and universities

and making them aware of the varying jobs and career in the ERP market

• To enhance its technology solutions for ERP systems – ERP applications on cell phones

ORACLE Strategy• To acquire companies with expertise in specific

industry areas• Acquisition of Sun Microsystems - better cloud-

computing and virtualization capabilities• To simplify its architecture and compete on

user-friendliness• To develop applications that require less training

and lower priced than competitors• Focus on customer service and support• To enhance its technology solutions for ERP

systems

Oligopoly• An oligopoly is a market form in which

a market is dominated by a small number of sellers

• Here SAP and ORACLE are two major firms competing against each other

• Oligopolies can result in collusion which reduce competition and lead to higher costs for consumers

• Decisions of one firm therefore influence and are influenced by the decisions of other firms

Herfindahl Index

38%

20%11%

10%

9% 6%

4% 2%

MARKET SHARE OF ERP VENDORS IN 2010

SAPORACLESAGEINFOMICROSOFTKronosTotvsConcur

H Index = (38)^2 + (20)^2 + (11)^2 + (10)^2 + (9)^2 + (6)^2 + (4)^2 + (2)^2 = 1444 + 400 + 121 + 100 + 81 + 36 + 16 + 4 H Index = 2202

Concentration Ratio• ERP system industry dominated by few large firms.

CRm= Σmi=1 si

CRm = s1 + s2 + .... + sm 

where si is the market share and m defines the ith firm

CR4= 38 + 20 + 11 + 10= 79%• Four large firms SAP, ORACLE, SAGE and INFO

comprise of 79% of the market share.• There is Medium concentration in ERP system

industry• ERP Industry evolved into oligopolistic industry

Pricing Model•The Cournot Model

Firm A : SAP ERPFirm B : Oracle ERP

Note: Prices taken here are indicative and are not actual

Kinked Demand Curve Model•Kinked Demand

Curve Model explains Price Rigidity in this Oligopolistic Model▫Demand curve has a

kink at prevailing price

▫Highly elastic for price increase

▫Much less elastic for price cuts.

Pricing Strategy

• POSTIVE SUM GAME ▫Both companies professional enough to handle Co-

opetition.▫SAP’s strategy of partnership and ORACLE’s

strategy of competing on user-friendliness.▫Enhancing technology solutions for ERP systems. ▫Focusing on customer service and support.▫Partnering with each other in a professional

manner. SAP and Oracle competing on the basis of Product Differentiation, Advertising and Service rather than price.

Payoff Matrix for a Price Game

2,2 5,1

1,5 3,3

High Price

Low Price

High Price

Firm ASAP ERP

Firm B/Oracle ERP

Low Price

• Dominant Strategy of both firms will be to charge low price.

• To overcome this prisoners’ dilemma, the two firms can only charge higher price if both the firms co-operate with each other.

Payoff Matrix on Differentiation

2,3 3,5

10,7 4,6

Customizable

User-friendliness

Customizable

Firm ASAP ERP

Firm B/Oracle ERP

User-friendliness

Note : Values in Matrix correspond to market penetration

SAP vs ORACLE• Companies prefer SAP because they believes that:

SAP is committed to research and design SAP provides high level of customer service and functionality with a

high degree of application customization. SAP is capable of operating with other products such as databases. SAP is able to deliver better vision and proposal for its application by

not relying on other companies as much.

• Those in favour of Oracle believes that: Oracle is easy to use and more flexible. Oracle’s ability of quick deployment of its application as they don’t

stress on customization. The above two reason make positive ROI to occur fater. SAP requires four times more internal resources and twice the

spending on training than oracle. As oracle is coming up with its Fusion Applications it would prove

beneficial to be used with its own database.

Analysis• SAP’s focus on small and mid sized businesses and on partnering instead of

acquiring has helped it gain the edge over Oracle.

• Its policy of great customer service and support has paid off for the company.

• Due to the higher complexity and degree of customization SAP proves to be a costlier affair than oracle which goes in favour of oracle.

• Oracle with the launch of its fusion application can penetrate in the ERP market.

• Even though these two companies are fierce competitors in the ERP domain, they co-operate each other when it comes to customer service and support for their complimentary products.

• They compete on product differentiation and services rather than prices.

Reference

•http://visual.ly/worldwide-erp-software-market-shares

THANKS &

QUESTIONS ?