Cooptation (Cooperation + Competition) among SAP and Oracle

1. CASE ANALYSIS
OF
SAP vs ORACLE
BY:
Ankit Garg
Harshit Garg
Prateek Goyal
Rahul Vermani
Rohit Sindhwani

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. 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. 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. 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. 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. 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. 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
Oligopolistic Model
▫ Demand curve has a kink
at prevailing price
▫ Highly elastic for price
increase
▫ Much less elastic for
price cuts.

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. 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. 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. 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. 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. Reference
• http://visual.ly/worldwide-erp-softwaremarket-shares

16. THANKS
&
QUESTIONS ?