May 25, 2005

SAP Continues Feud with Retek, Attempts to Steal Customers

By Evan Schuman, Ziff Davis Internet

SAP AG opened the latest volley in what has become a series of charges and countercharges between it and its former Retek acquisition target Wednesday by amending its Safe Passage program to provide incentives for Retek customers to jump ship.

Among the lures: a partial credit of the user's original Retek software licensing (no floor mentioned, but a ceiling of 75 percent) to be used to pay for SAP for Retail packages; "an on-site business case benefits assessment of migrating from Retek to SAP, delivered by SAP or one of its retail industry partners"; and SAP training.

SAP was on the verge of acquiring retail-application developer Retek for $496 million in March, but was edged out at the last minute by Oracle Corp., which cinched its own arrangement with Retek with a competitive offer of $525 million.

Retek executives have said SAP's complaints were sour grapes from a company that had lost out on an important acquisition.

Both firms—ironically—have leveled the almost identical charge against the other, namely that the other side is unstable and evolving and is not a safe choice for a key retail application suite.

Officials at Retek—whose software is generally considered to be highly customizable—have suggested that customers who use SAP are locked into a less feature-rich package and that retail customers must compromise their business objectives to use it.

Retek's position is that SAP is the less safe choice because Retek has already made its partner choice (Oracle) and its future path is clear. Those Retek officials say that SAP is still shopping for a retail application partner, a partner that one Retek executive labeled "second-best" because SAP had initially tried to buy Retek. Retek officials interpreted the attempted purchase as an acknowledgment from SAP that Retek's package was superior.

Jim McMurray, SAP's senior vice president for retail, didn't dismiss rumors that SAP is looking to make a competitive acquisition, but did say the company is exploring a wide range of options, including international development, partnership and acquisitions. But he tried to minimize the significance of such a deal, saying that it was only to "round out [SAP's] core" capabilities.

McMurray specifically challenged Polonski's interpretation of SAP's opinion about Retek. "Nowhere in any of our releases did we say that we [wanted] Retek for the functionality," McMurray said.

SAP did not want Retek for the capabilities of its software, McMurray said. Instead, it was interested because the marriage would get SAP about 525 retail specialists from Retek's payroll and give it Retek's marquee list of retail customers. Plus "a couple—and I emphasize a couple—of pieces of technology that we don't play in today," he said.

Although declining to identify what those pieces were, he said that industry analyst speculation that the pieces were point-of-sale (POS) and centralized inventory applications had merit, and he later mentioned "a little bit of visual merchandising." SAP has also been touting, as evidence of its own post-Retek success, customer wins including Fossil, The Home Depot, Limited Brands, Oreck, Wickes Furniture and Wawa.

SAP has actually only announced one retailer who switched from Retek, however: a $635 million Canadian bookstore chain called Indigo Books & Music.

Also, many of them—such as Home Depot—have been longtime SAP customers, which means some of the decision to stay might have been to avoid a long and costly conversion process.

Karen Etzkorn, vice president of merchant technology at the $72 billion Home Depot chain, said that her team "didn't do a detailed evaluation of Retek" because she already "had a pretty good understanding" of Retek from her work at Home Depot and her prior IT positions at Williams Sonoma and the Gap.

SAP was pushing reporters to talk with Etzkorn—who talked with CIOInsight.com from inside the SAP booth on the floor of the Retail Systems Conference and Exposition in Chicago, while flanked by McMurray, other SAP employees and an SAP public relations person.

Retek's software is all retail-focused and SAP's breadth is more broad, although how much of a role Oracle will play in broadening Retek's capabilities is an unknown. "I felt more confident" that with SAP "not only would they support retail, but also engineering. I felt more confident" with SAP's broader set of capabilities, Etzkorn said.

Etzkorn said The Home Depot also needed a lot of integration with packages from, among others, SAS and Marketmax. "I'm speaking to the integration of all of the tools that we need to work well together," she said.

"Right now, Retek has a lot on its plate," Etzkorn said, referring to the Oracle merger. "That is a very significant integration."

Scott Langdoc, a research VP at AMR Research, agreed that Retek's recent lack of announced customer wins and, for that matter, detailed product plans haven't helped the retail position of Retek and its new corporate parent, Oracle.

"Oracle's relative silence since it bought Retek is being perceived negatively by retailers, which is opening options for SAP," Langdoc said. But he added that a lot of the recent SAP customer announcements have yet to deploy the technology, which could dilute their perception value.

One analyst who currently works for both SAP and Retek said SAP's program and rhetoric—and Retek's anti-SAP taunts—make little sense and ultimately will not help either company.

Given that about 60 percent of the retail market today consists of homegrown retail applications, there are plenty of customers to work with without having to "go cannibalizing each other," said Paula Rosenblum, the director of retail research for the Aberdeen Group. "It doesn't serve anyone to get into these pissing contests. The industry would be best served if they each stuck to their knitting. This kind of stuff will just freeze the market and it doesn't help anybody and it's wrong."

Asked about SAP's widening of its Safe Passage program, Rosenblum didn't think it would influence any retailer who wouldn't have been interested anyway.

"Retailers don't make a decision to buy one of these merchandising systems lightly," Rosenblum said, adding that such a move is extremely disruptive and "it's just too much trouble, that's the bottom line."

Rosenblum also said she had hoped that the resolution of the Retek takeover battle would have ended the squabbling. "The war of the Gods is supposed to be over now," she said. "Retek was the prize, and Oracle won it."