In a major move this week, SAP announced its intent to acquire Sybase. SAP will raise its technological stature in the market by gaining a portfolio of database management, application development and mobility products and services. Making the acquisition more attractive is the fact that Sybase is a financially sound company with cash on hand and maintenance streams and license revenue from its products. SAP and Sybase have worked together for some time in many areas to use technology for solutions as noted in a 2003 press release from SAP.While many industry observers were not surprised by the deal, I find it very revealing about what SAP management believes is important to its future, in particular further embracing mobile technology and taking a stronger position in the database market. The move into mobile technologies is not new for SAP, which indicated its importance for the future as long ago as a December 2009 analyst summit (See: “SAP Broadcasts New Enterprise Software and Applications Strategy”).
This announcement is the first big one from the new co-CEOs Bill McDermott and Jim Hagemann Snabe, who took the reins in February 2010 (See: “New CEO Heads of SAP Anointed but More Change Needed to Adapt and Grow”), though it has the fingerprints of SAP cofounder and chairman of Supervisory Board Hasso Plattner, who has long driven SAP to enhance its portfolio by acquisition of technology. There has always been a healthy tug of war and sometimes a roller coaster ride between forces in SAP that are focused on applications and others that push the technology agenda. On the technology side, Plattner has taken a vocal position in support of the value of in-memory database use. The Sybase acquisition will add to that but also should be balanced by help for the applications business. At last year’s annual SAPPHIRE conference, SAP began demonstrating mobile applications for giving customers access to companies’ information and service and adding value to customer relationships (See: “SAP Communicates New Clarity for Business at SAPPHIRE”). Many in the industry including me would also like to see SAP advance its applications agenda in core line-of-business areas that can operate in cloud computing environments. For example, SAP is not competitive in a range of business applications such as talent management, sales performance management, contact center and agent performance management, customer experience management and interaction technology; in all of these, new providers have made progress by using the cloud to rent these applications to customers.
Let’s review the Sybase technology, starting with what I see is most relevant to SAP and then moving on to areas where products overlap or where it is difficult to see strategic value for SAP’s future.
Sybase’s suite of mobile services technology helps both mobile operators and enterprises with messaging and mobile commerce. These technologies have helped Sybase build strong relationships around the world in providing a mobile infrastructure, and they will help SAP provide applications that are ready to operate across geographies. Sybase 365 Enterprise Services is used for a range of applications and will be a key asset to bolster SAP NetWeaver Mobile. Sybase also has Afaria, a set of capabilities to help the mobile enterprise connect data to mobile devices and form a mobile office of personal productivity capabilities in a secure manner. Sybase’s SQL Anywhere product provides data management on mobile devices and other small-footprint technologies. All of this will enable SAP to capitalize on its previous investments into mobile technology. This mobile investment is critical for SAP because Oracle already has an approach to assembling and developing mobile applications that can be generated from the same environment as the Rich Enterprise Applications that are part of Oracle Fusion Middleware.I analyzed this offering (See: “Oracle Middleware Provides Rich Enterprise Applications to Advance Information Applications Market“) that can design and publish from one environment to web and mobile technology. Oracle has not done a good job in marketing the mobile capabilities of the platform but now maybe they will step it up with some more heated competition. The other major competitor, IBM, lacks a strong vision and roadmap for mobility but has promised to discuss it in an upcoming mobility industry analyst summit.
In the area of database management Sybase provides a suite of products including its core relationship database Adaptive Server Enterprise (ASE), SQL Anywhere for mobile applications and Sybase IQ for analytic computation. This range of database technology competes against the market leaders Oracle, IBM, Microsoft and even Teradata. According to most industry analysts who track market share, Sybase has 3 to 5 percent. SAP has its own database, application suite and analytical capabilities in SAP NetWeaver Business Warehouse Accelerator, but they are not positioned as stand-alone products like Sybase’s and the rest of the industry’s. The acquisition provides a means for SAP to compete better against other database providers, but more importantly in this area it can help increase its profitability and save on royalties SAP currently pays to the top three database providers for embedding their application-specific-use-only versions. I am less worried about porting and support of databases from Sybase for SAP as both companies have smart people who can work out the technology integration of databases to platform, tools and application quite easily putting aside specific limitations that might take a couple of product releases to complete. While there is overlap in database technology, SAP will be able to converge them and use Sybase strategically.
Sybase claims it has business intelligence (BI) and analytics technology, but it is really an analytical database called Sybase IQ and the complex event processing (CEP) technology Sybase recently acquired from Aleri. CEP enables Operational Intelligence, a category we have defined and evaluated in our benchmark research. It will help SAP compete against Oracle and IBM, which already have advanced efforts in CEP. Sybase IQ is an established product, but limited marketing and sales have often kept it off the short list of analytical database technology choices. While not all the competing products are columnar in nature, they support analytic computation and come from Teradata, Netezza, HP, Greenplum, Asterdata, Kognitio, Vertica, Infobright, ParAccel and new Hadoop provider Datameer. The new release from Microsoft called SQL Server 2008 R2 has advanced analytic processing and an appliance packaging option, and Oracle has brought forward an analytic appliance called Oracle Exadata. While this competition has created new challenges for Sybase, it has been able to capitalize on the lack of strong competition in Asia Pacific countries. SAP will need to do more than just embed Sybase IQ into its own offerings and find ways to compete in a revived market that appreciates deep discussion of analytics and computation more than what brand provides it. It is not all about the columnar approach but it is about a better, faster, safer, easier and yes cheaper approach to analytic computing for business needs.
In the area of application servers, modeling and development tools, Sybase offers a suite of legacy products, PowerBuilder and PowerDesigner, and an application server called EAServer. As you might remember, Sybase long ago acquired PowerSoft, which at the time was a leader in application development. One of these legacy tools, PocketBuilder, is used to build Microsoft Windows Mobile-based technology. These products overlap with SAP NetWeaver, which has a common platform and tools for building applications and is integrated to support BI technology from SAP BusinessObjects. Sybase Workspace is an Eclipse-based development environment, but SAP has invested significantly in its own application development environment. This area of Sybase products probably is not important to SAP in the short term except from the financial perspective of maintenance revenue collected.
While there are plenty of financial synergies in this combination, it is more important that the move will bring SAP into technology markets it did not compete well in before. Making this acquisition was probably the best choice for SAP to step forward. SAP needs more technology in its portfolio to enable more strategic dialogues with CIOs and IT executives and compete in mindshare of intellectual discussion to those by HP, IBM and Oracle in appliances, cloud computing and analytics. SAP also gets a wealth of management experience in unfamiliar markets, which is a critical business gain. SAP will also find some technology gems such as CEP, which is a critical component for operating business processes and applications faster and more efficiently.
In summary, the acquisition has a lot of positive aspects for SAP, strengthening its posture in the market and adding technology to build a new generation of mobile applications. In short-term value for the applications business for 2010 and 2011 it is of less importance unless they can fast track development. We expect regulatory approvals in the U.S. and the European Union to happen quickly so the organizations can start figuring out how to move forward together. Of course maybe HP and others might counterbid but the premium SAP is paying for Sybase is quite large and a competitive bid though an option is unlikely. As SAP learned when it acquired BusinessObjects, it takes time to deal with culture, processes, customers, partners and employees, which will require considerable effort for at least the next couple of years for both organizations.
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Mark Smith – CEO & EVP Research