Microsoft, SAP Settle in Mendocino

There's a great scene in Rocky II where upstart slugger Rocky Balboa and champ Apollo Creed end the second round of their legendary rematch by taunting each other. It ends with the commentator, played by Stu Nahan, proclaiming, "Everybody in the audience had better get ready for World War III." And, of course, the declaration lives up to the billing.

This morning, I feel a lot like Nahan must have been paid to feel in uttering that famous line. That's because Microsoft (Nasdaq: MSFT  ) and SAP (NYSE: SAP  ) have teamed to create a new suite of software that will leverage each other's classic business applications. Code-named Mendocino, the suite will allow users of Microsoft's Office suite to gain access to SAP's applications for tracking time, expenses, and other business functions using extended menus. Microsoft and SAP have also agreed to resell each other's software as a part of the deal.

There will be definite economic advantages to the pairing. But the name of the software is what interests me most in this deal. Unlike the peaceful stretch of California coastline that is the real Mendocino, this Mendocino probably feels to Oracle (Nasdaq: ORCL  ) a little like a Balboa left hook. That's because it's the latest in a series of reported moves by SAP to reduce its dependence on Oracle. For example, salespeople who once received big checks for bundling SAP software with Oracle's database software are now getting paid a flat salary. And industry trade publication The Red Herring says that SAP is in talks with IBM (NYSE: IBM  ) to develop a Microsoft-like arrangement that would presumably involve Big Blue's DB2 database, a leading competitor to Oracle.

In the end, all of this probably means that Oracle CEO Larry Ellison is getting exactly the fight he wanted. But it's worth pointing out that SAP, like PeopleSoft, had been a well-known database partner for Oracle. Don't expect that to continue for much longer. And that makes Ellison's margin for error in managing the integration with PeopleSoft very slim indeed. I hope your company is in fighting shape, Larry.

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Fool contributor Tim Beyers wonders whether anyone else thinks Ellison resembles World Wrestling Entertainment chief Vince McMahon. Yeah, maybe not. Tim owns shares in Oracle. You can find out what else is in his in his portfolio by checking his Fool profile, which is here. The Motley Fool has a disclosure policy.


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