Aug. 10 (Bloomberg) -- SAP AG, chasing Oracle Corp. and International Business Machines Corp. in the $26.7 billion database market, is betting on new product features to gain ground, said the man who helped build the company's arsenal.
The largest maker of business-management software has a realistic chance of overtaking IBM in database revenue in the next three years as it wins customers with new applications, integration with mobile and real-time technology, and lower prices, said John Chen, head of Sybase, the database and mobile- software maker that SAP bought for $5.8 billion in 2010.
SAP's push into database software opens up a battlefield with archrival Oracle and is giving the Walldorf, Germany-based company a fresh source of revenue growth. To become a longer- term threat to its bigger rivals, SAP also needs to plan for advances further out, such as self-correction mechanisms or built-in security layers, Chen said.
"I used to run an underdog for a long time, and I never underestimate competitors," Chen said in a phone interview on Aug. 7. "We seem to have something that could mesh well together. But I would be stupid if I thought that three years from now the same story holds, without any additions, without some new features or architecture that we could put in."
Chen, a Hong Kong native who has run Sybase since 1998, has served on George W. Bush's export council and is also a board member at Wells Fargo & Co. and Walt Disney Co. At SAP, one of Chen's challenges is to outsmart Oracle, which currently provides most of the databases that feed SAP's software for running tasks like customer management, payroll and accounting.
"They have lofty ambitions, but since they have a good set of products why shouldn't they beat their drum?" said Heinz Steffen, an analyst at Fairesearch in Kronberg near Frankfurt, who advises buying SAP shares. "The fact that they depend on Oracle databases for most of their installations has been nagging them for a long time."
SAP last year severed a partnership with Dayton, Ohio-based Teradata Corp. on data warehousing, as it aims to provide more underlying databases itself. The German company also has to displace Microsoft Corp. in that market. That's not easy because clients have to be convinced that replacing a functioning database is worth the effort, Chen said.
Oracle held 44 percent of the database market last year, followed by IBM at 22 percent, Microsoft at 18 percent, SAP at 4.1 percent and Teradata with 3.3 percent, according to Gartner Inc. The market is set to grow an average 6.4 percent a year to $36.5 billion by 2016 as companies require more storage for and better access to data, from customer contact information to videos, the research firm predicts.
SAP shares had gained 29 percent this year before today, exceeding a 22 percent gain for Oracle and a 7.9 percent increase at IBM. SAP declined 1.5 percent to 51.79 euros at 4:11 p.m. in Frankfurt. Oracle slipped 0.2 percent in New York, while IBM was down 0.4 percent.
SAP is growing faster than the market by linking Sybase's database tools with other software in its portfolio, Chen said. It's rolling out its Hana software, which allows faster transaction and analysis because it lets data bypass slow hard drives. Sybase's mobile technology gives employees access to data even when they're traveling.
"We'll have plenty of opportunities to replace databases," Chen said. "It's not going to replace the one that they're running, one for one. It's to enhance that one and then maybe surround and finally eliminate it."
One innovation would be integrating security software into databases that would help keep out most viruses and trojans, he said. Data security is one of the main risks companies face, as focused hackers can potentially breach any external security barriers physically or via the Internet.
Chen, who is also a trustee at the California Institute of Technology, said he took inspiration for future database technology this month from seeing Nasa's Curiosity rover touch down safely in a crater of Mars. A Caltech division designed, developed and assembled the rover.
Chen said he was impressed by the machine's self-correcting functions, which continuously assessed environmental features like the crater depth and the particularities of the landing site. It needed such mechanisms because commands from Earth would arrive minutes too late for them to have any effect.
By contrast, today's databases suffer problems that result from commands and queries coming in simultaneously, creating irregularities in the data which the software cannot resolve by itself, Chen said.
"If you apply that concept to commercial data management, you should have a concept that could heal itself," he said. "I'd love to work on those."