CASE ANALYSIS

OF
SAP vs ORACLE

BY:
Ankit Garg
Harshit Garg
Prateek Goyal
Rahul Vermani
Rohit 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 cloudcomputing and virtualization capabilities
To simplify its architecture and compete on userfriendliness
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
MARKET SHARE OF ERP VENDORS IN 2010

6%

4% 2%

9%

38%

10%
11%
20%

SAP
ORACLE
SAGE
INFO
MICROSOFT
Kronos
Totvs
Concur

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= mi=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 ERP
Firm 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 Coopetition.
SAPs strategy of partnership and ORACLEs 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

Firm B/Oracle ERP
Low Price
Low Price

Firm A
SAP ERP

High Price

High Price

2,2

5,1

1,5

3,3

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

Firm B/Oracle ERP
User-friendliness
Firm A
SAP ERP

Customizable

User-friendliness

2,3

3,5

Customizable

10,7

4,6

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.
Oracles ability of quick deployment of its application as they dont 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
SAPs 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-softwaremarket-shares

THANKS
&
QUESTIONS ?