1. CASE ANALYSIS
SAP vs ORACLE
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
• 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. SAP Strategy
• To continue expanding into the small and mid-sized
• 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
• To enhance its technology solutions for ERP systems –
ERP applications on cell phones
4. ORACLE Strategy
• To acquire companies with expertise in specific industry
• 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
• 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. Herfindahl Index
MARKET SHARE OF ERP VENDORS IN 2010
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. 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
• ERP Industry evolved into oligopolistic industry
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. Kinked Demand Curve Model
• Kinked Demand Curve
Model explains Price
Rigidity in this
▫ Demand curve has a kink
at prevailing price
▫ Highly elastic for price
▫ Much less elastic for
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
11. Payoff Matrix for a Price Game
Firm B/Oracle ERP
• 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. Payoff Matrix on Differentiation
Firm B/Oracle ERP
Note : Values in Matrix correspond to market penetration
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
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.
• 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
• 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
• 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.