As 2012 comes to a close, the ERP software market's biggest players, Oracle and SAP, are seeing their long rivalry become a stalemate, while they face a common set of enemies in the form of upstart ERP vendors based in the cloud, such as NetSuite and Workday.
"The old battle between SAP and Oracle is kind of being fought to a draw," says analyst Frank Scavo, president of consulting firm Strativa. "The real battle is the old guys vs. the new guys, and every indication is the new guys are winning."
While newer ERP companies' revenues remain much smaller than those of SAP and Oracle, they are growing at much faster percentage rates, Scavo says.
Oracle and SAP, as well as other large players such as Infor, Epicor and Microsoft Dynamics, have moved to offer customers some cloud deployment options for ERP.
Amid all this a debate has emerged among ERP customers, says Forrester Research analyst China Martens: "Do I stay put, and put up with all the stuff that makes me unhappy, or do I move?"
While SAP and Oracle's products have the benefit of decades of product development, resulting in deep functionality that cuts across many industries, cloud ERP vendors can offer faster implementations, the promise of painless upgrades and patching, as well as a fresher overall take on the software through features such as social collaboration and analytics.
SAP is positioning its main Business Suite for large enterprises as an on-premises core ERP system, while offering add-on SaaS applications as well as the Business ByDesign suite for midsized companies and divisions of larger ones. Oracle, meanwhile, has highlighted the cloud deployment option for its new Fusion Applications while emphasizing that customers can take an incremental approach to adopting Fusion.
In either case, the strategy runs a certain risk, according to Martens. "As you start encouraging your customers to look at complementary software, that also opens you up to competition from other vendors."
But those who decide to go all-in with ERP in the cloud may face a new conundrum moving forward, namely whether to go with a single vendor or stitch together a suite from "best-of-breed" SaaS components, Martens says.
Still, some customers will always prefer to keep certain components of ERP, such as the general ledger, inside their own data centers, while choosing to switch to Workday for HCM (human capital management), for example.
Overall, it seems clear that incumbent ERP vendors are on red alert, according to Scavo. "You can tell who Larry Ellison is concerned about by who he criticizes during his keynotes," he says. The Oracle CEO has long taken potshots at CRM giant Salesforce.com, but more recently delivered stinging criticisms of Workday.
While he may never admit it, Ellison could be kicking himself these days. "Workday would not exist if Larry Ellison had not bought PeopleSoft," Scavo says. That move did two things, namely give Workday's co-founder, former PeopleSoft CEO Dave Duffield, "a ton of money and a clean sheet of paper," Scavo adds. "Now the main threat to Larry Ellison's PeopleSoft franchise is Workday."
It remains to be seen whether Salesforce.com will make a big leap into ERP itself. While Salesforce.com recently introduced an employee performance management application called Work.com, the company has left more central ERP functionality up to partners such as Workday.
Salesforce.com has also made an investment in Infor, which is mostly known for its on-premises ERP software but has been moving quickly to the cloud.
At roughly $3 billion in revenue, Infor is the industry's largest ERP vendor after SAP and Oracle. While there's no indication Salesforce.com wants to turn its investment into a full-blown purchase of Infor, such a development would create a third ERP mega-vendor as well as blur the lines between the new and old guard.