SAP Adopts Oracle's Strategy, Inherits Oracle’s Problems

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Includes: ORCL, SAP
by: Dennis Byron

Dennis Byron submits: In acquiring Business Objects (BOBJ), the conventional wisdom is that SAP (NYSE:SAP) has given in and adopted Oracle’s (NYSE:ORCL) growth strategy. I actually think the acquisition was still more tactical (what SAP calls “tuck-in”) than strategic. It’s just that the tuck requires letting out more than a few holes in the belt. But, without changing strategy, SAP has bought into many of Oracle’s technical problems. That might be more an issue than if SAP had simply changed acquisition strategy.

First, did the acquisition represent a strategy change or a tactical move consistent with the already announced tuck-in strategy? At the conference call, Henning Kagermann confirmed that this was not a change and checking past conference calls, I agree. Because of SAP’s own presence in business intelligence [BI] and analytics, the acquisition only slightly increases the “addressable market” SAP is aiming at for 2010 (from $70 billion to $75 billion).

But it does allow much faster penetration of what SAP calls the enterprise “business user” role, in the first leg of the strategy stool, growing SAP’s business process platform business. Kagermann estimated that the acquisition accelerated time to market relative to the business-user role by at least a few years. SAP made the analogy that this acquisition increases business user penetration in the same way that the earlier Versa, Pilot and Outlooksoft acquisitions did.

The acquisition does not change SAP’s other two strategic legs: entering the small/medium enterprise [SME] ERP market with Business ByDesign [BBD] and growing SAP’s middleware business (already over $1B annually and on target to overtake Oracle). These second two objectives are actually bigger pieces of SAP’s 2010 growth objective than the business-user role expansion enabled by the Business Objects acquisition.

But the bigger issue is that SAP now faces many of the same incompatible architectural challenges faced by Oracle with its many acquisitions. At the conference call, the talk was all about keeping Business Objects independent and only leveraging synergies in business infrastructure. For example, Business Objects might drop salesforce.com (NYSE:CRM) and become a BBD user.

But product infrastructure was also mentioned with some tantalizing hints that the two entities are already thinking about things like incorporating BI Accelerator into the Business Object suite for example or having the Business Objects suite use SAP’s master data management NetWeaver functionality. The Oracle-like analogy is that Business Objects was only just beginning to normalize the four separate architectures in its suite, and SAP had not yet integrated Pilot and Outlooksoft into BW. The whole line-up is a mishmash of products that were not scheduled to come together for four-six more months even when the companies were separate. Assuming this mishmash can be decomposed into true services and re-hosted in a services oriented architecture [SOA], this will be a good test of NetWeaver’s enterprise SOA capability.

There was also talk of a joint portfolio of industry-specific BI products, which Business Objects lacks as discussed here last month. There was also a lot of talk about that old term, Operational BI, combining SAP’s ERP with BI.

Although not mentioned in the conference call, there was also a lot of blather in the blogosphere about this being some kind of EU play. Let’s see what Neelie Kroes of the EU Competition Commission (EU CC) thinks of the deal? If the EU CC fails to look at this acquisition after squashing GE (NYSE:GE) and Honeywell (NYSE:HON) a few years ago, it will prove that the EU is not anti-competition, just anti-American.