Assessment

SAP is the market leader for enterprise applications. The company has teamed up with Microsoft to further advance the integration of Microsoft Office and applications from SAP. This partnership effort, led by SAP, and code-named Project Mendocino, is aimed at giving business users the ability to access common ERP-centric capabilities from within Microsoft Office. The joint technology integration will be extended by new applications from SAP and Microsoft that will be available sometime later this year. SAP and Microsoft did not publicly disclose specifics on applications, packaging and pricing.

This strategic partnership by SAP with Microsoft puts even more pressure on Oracle and Siebel. Both those suppliers have been challenged to continue new license revenue growth in their respective ERP and Microsoft Office areas. The largest barrier for Microsoft and SAP is their current and potential customers' ability to justify the investments required to upgrade their technology infrastructure to include Microsoft Office 2003, SAP NetWeaver and SAP ERP and additional human capital and opportunity costs to balance.

Justifying significant software infrastructure upgrades, along with associated hardware and services, has never been a simple task. With increased IT governance review and accompanying detailed review of IT expenditures, SAP and Microsoft will have to provide an in-depth, value-based economic model to justify their new approach. Their current focus on efficiency and innovation improvements are not be sufficient to demonstrate the financial and operational performance results required to justify the required level of investment. Ventana Research recommends organizations perform a full business case review to determine if the new software provides enough value to justify the investment.

Market Impact

SAP is the overall leader in ERP and applications developed to automate business activities. SAP has continued to build its lead over Oracle and Siebel. SAP partnering with Microsoft is critical for them who has struggled to bring out their next generation Microsoft Office based applications in the Microsoft Business Solutions division. SAP has provided a foundation that will help Microsoft understand enterprise-level application requirements. Competitively, Microsoft must also address SAP's significant investment into the small and medium business market where SAP wants to compete against Microsoft Business Solutions. This partnership will continue SAP's momentum in the ERP and application infrastructure space, putting significant pressure on Oracle to go beyond its currently communicated process automation strategy (Project Fusion.)

Recommendation

Ventana Research believes that the Microsoft and SAP partnership is a strategic move for both firms, and one that will fuel new applications purchases from users. Organizations that desire technology that integrates Microsoft Office and SAP, and believe it is critical for their future should evaluate the partnership cautiously, as the costs to adopt will be significant. If you do not own or use SAP and do not intend to adopt SAP NetWeaver or SAP ERP then you should not evaluate the combined solution, as your organization will bear even more significant costs in building competencies with SAP infrastructure. Anyone evaluating this integration and these applications should build a business case with ROI/TCO analysis that yields sizable productivity and performance improvements.