TomorrowNow resignations won't affect SAP's business

by Joaquim P. Menezes

November 20, 2007 —

SAP AG announced yesterday the resignation of several senior managers of its
troubled subsidiary TomorrowNow, including CEO Andrew Nelson.

The episode has evoked a mixed reaction in the industry.

While announcing that Nelson and several members of his team had quit, SAP
said it is "considering several options for the future of the TomorrowNow
business, including possible sale."

Texas-based TomorrowNow was set up to provide Oracle customers with software
maintenance support -- and it did so at a much lower price than what Oracle
offered.

The company came into the spotlight in March when Oracle filed a lawsuit against
it (also naming SAP as a defendant). The lawsuit accused SAP and TomorrowNow
(SAP TN) of "corporate theft on a grand scale."

While the legal battle continues -- the resignations of senior TomorrowNow
execs, including its CEO is seen by one Canadian analyst as SAP just looking
to put an unpleasant episode behind them.

"SAP is the biggest company in the [enterprise software] space -- and
the last thing they need is something tarnishing their reputation," said
Joel Martin, vice-president of enterprise software research at analyst firm,
IDC Canada in Toronto. However, he said it's unlikely the TomorrowNow episode
will affect SAP's business in any significant way.

Meanwhile, SAP, when contacted, had very little to add to its statement.

"The litigation remains ongoing and a settlement conference is scheduled
for October 2008, where the parties are encouraged to discuss options, including
settlement, with a Magistrate Judge," said Andy Kendzie, Executive Director,
SAP America Media Relations in an e-mail sent to ITBusiness.ca.

"As there is active litigation, we cannot discuss this in any further
detail," he said.

IDC Canada's Martin noted that maintenance revenues are "very near and
dear to the enterprise software vendor's heart", and any threat to those
revenues by a competitor could potentially spur litigation. He said TomorrowNow
"must have been [affecting] US-based revenues for some of Oracle's core
products."

In its lawsuit Oracle claimed SAP TN, repeatedly and without authorization,
accessed Oracle's proprietary, password-protected customer support Web site.
From that site, it said, "SAP copied and swept thousands of Oracle software
products and other proprietary and confidential materials onto its own servers."

"As a result, SAP has compiled an illegal library of Oracle's copyrighted
software code and other materials."

The suit -- filed in the U.S. District Court in San Francisco -- threw into
sharp focus the crucial and growing importance "maintenance revenues"
in the enterprise software space.

There's little doubt that -- until Oracle's suit -- TomorrowNow's business
was a runaway success. Oracle and SAP offer very different perspectives on the
reasons for this success.

Oracle, in its suit, suggested that SAP TN was able to "offer cut rate
support" to Oracle customers was because it pilfered Oracle intellectual
property. However, SAP in its online FAQ on the lawsuit submitted that Oracle
customers have "long sought" less expensive support alternatives than
what Oracle offers.

Essentially, the SAP document attributes TomorrowNow's growth to a superior,
yet cheaper offering.

"TomorrowNow has succeeded because it offers a high quality, less expensive
alternative to Oracle support, particularly for products that are nearing end
of life at Oracle."

The lawsuit sparked a fierce debate, with many industry observers taking opposite
sides in the controversy. One veteran analyst, for instance, debunked Oracle's
claims that what SAP TN did was illegal.

"The bottom line is that TomorrowNow doesn't need to steal anything from
Oracle to take over its customers' maintenance contracts," noted Joshua
Greenbaum, principal at Berkeley, Calif.-based EA Consulting, who has 20 years
of experience in the industry as a computer programmer, systems analyst, author,
and consultant.

In a blog post, Greenbaum said customers are legally entitled to all the software
and documentation up to the moment their contract with Oracle is over.

According to Greenbaum, the real story is that TomorrowNow, by winning over
maintenance contracts from PeopleSoft, JD Edwards, and Siebel customers (all
now part of Oracle through acquisition) "at 50 cents to the Oracle dollar
has finally gotten under Oracle's skin."

Cutting maintenance in half can save thousands, if not millions of dollars
a year "for customers not buying into Oracle's Applications Unlimited or
Fusion Applications strategy," Greenbaum noted.

He suggested that for a company like Oracle whose maintenance revenues far
outstrip its license revenues ("in the most recent quarter applications
license revenue was $1.3 billion, maintenance was $2.3 billion) TomorrowNow's
success at making a dent in these revenues was intolerable.

"And that's why Oracle finally filed suit."

Greenbaum also disputed the claim that it was theft of Oracle's intellectual
property that enabled SAP TN to offer "cut rate support services."

He noted that as a SAP subsidiary since 2004, TomorrowNow "had been successfully
offering these 'cut rate" services without the benefit of the alleged theft,
which occurred last November."

The analyst suggested that the suit was not altogether a surprise to SAP.

SAP he said had "set up a series of virtual and real walls" between
TomorrowNow and itself in anticipation of this very kind of suit.

It seems SAP is now further cementing these walls.

In its statement, SAP has said its primary focus is to ensure that TomorrowNow's
customers are supported through this management transition, and to ensure that
TomorrowNow's obligations to these customers are met.

Mark White, who was appointed in July 2007 as executive chairman of TomorrowNow,
will continue in that role, SAP said in a statement.

It said White is putting programs in place "to secure delivery of continued
support services and assure retention of key managers and support personnel."

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