Sap vs oracle

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Cooptation (Cooperation + Competition) among SAP and Oracle

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Sap vs oracle

  1. 1. CASE ANALYSIS OF SAP vs ORACLE BY: Ankit Garg Harshit Garg Prateek Goyal Rahul Vermani Rohit Sindhwani
  2. 2. 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
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. Herfindahl Index MARKET SHARE OF ERP VENDORS IN 2010 4% 2% 6% 9% 38% SAP ORACLE SAGE 10% INFO MICROSOFT 11% 20% 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
  7. 7. 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
  8. 8. Pricing Model • The Cournot Model Firm A : SAP ERP Firm B : Oracle ERP Note: Prices taken here are indicative and are not actual
  9. 9. 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.
  10. 10. Pricing Strategy • POSTIVE SUM GAME ▫ Both companies professional enough to handle Coopetition. ▫ 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.
  11. 11. 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.
  12. 12. Payoff Matrix on Differentiation Firm B/Oracle ERP User-friendliness Customizable User-friendliness 2,3 3,5 Customizable 10,7 4,6 Firm A SAP ERP Note : Values in Matrix correspond to market penetration
  13. 13. 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.
  14. 14. 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.
  15. 15. Reference • http://visual.ly/worldwide-erp-softwaremarket-shares
  16. 16. THANKS & QUESTIONS ?

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