Lani Spund is SAP's worst nightmare.
Spund, chief information officer of Esselte, a $1.1bn office supplies manufacturer, helped steer his company into a $10m business applications contract with Microsoft earlier this year. The five-year deal, which in the past might have been a nearly automatic win for market leader SAP, instead became Microsoft's largest-ever sale of such business software. The deal involves replacing a hodgepodge of outdated business systems across numerous international outposts -- one of SAP's specialties.
All the more vexing for SAP is that Esselte knows the German software maker well; it's been using the company's applications to process orders and run its factories in Europe for years. Spund said that for the most part, the latest deal came down to one factor: money. Microsoft's products were cheaper. Esselte plans to continue using SAP alongside its new Microsoft systems, even though that will require stitching together two incompatible sets of programs.
"The Esselte deal is a harbinger for what this market is going to be like," says Joshua Greenbaum, analyst at Enterprise Applications Consulting. "Microsoft has extraordinarily ambitious plans for growing this business, which means they have to push very hard. That will definitely put them in conflict with SAP directly."
Companies like Esselte will serve as a proving ground for Microsoft as it seeks to grow its share of the multibillion-dollar business applications market long dominated by SAP, PeopleSoft and Oracle.
They may also constitute a new battleground for Microsoft and companies it has long considered allies. When it entered the software niche known as enterprise resource planning (ERP) two years ago through a series of acquisitions, Microsoft made a pledge that it would steer clear of longtime partners SAP, PeopleSoft and Siebel Systems. The giant said that instead of selling its wares to the world's largest corporations as SAP and its traditional rivals do, it would target a largely untapped market: millions of small and medium-size businesses.
But with Microsoft expanding the scope of its applications and SAP looking to challenge Microsoft for small, high-volume contracts, the gloves are about to come off.
