It was a blockbuster announcement, especially for a company not used to seeing its name associated with blockbusters of any kind. Last fall, the announcement that SAP acquired Business Objects, a leader in business intelligence (BI) and analytics, had long-term SAP watchers scratching their heads.
First, hadn’t SAP always said it wouldn’t do the kind of mega-billion-dollar deals that its rival, Oracle, seems to be doing on a monthly basis? And hadn’t SAP recently bought two other well-considered BI/analytics vendors as well?
Right on both accounts. Welcome to the new SAP — a little bolder (as in SAP Business ByDesign), a little more unpredictable (as in Business Objects), and, well, a lot more cognizant that a very bold and unpredictable competitor is challenging its status as a leader in enterprise software on a daily basis. SAP knows that it needs to rise to the challenge, and it is doing so in some rather unexpected ways.
However unpredictable the Business Objects deal seemed when it was announced, what was predictable was SAP’s need to make a daring move in the BI/analytics space. Indeed, this is an area that will be home to many daring moves across the industry over the next few years, as vendors wake up to the fact that the current crop of BI/analytics tools are just not meeting customers’ needs.
The fact that Business Objects was part of the problem, and now is part of the solution, isn’t just an example of rhetorical legerdemain. This deal is a real-world example of how a merger can give life to a moribund strategy, possibly changing the dynamics of the entire industry in the process.
The BI/Analytics Back Story
The back story makes this acquisition an important bellwether in the industry. For years, companies like Business Objects — as well as their big partners, includin
g the likes of SAP — have approached the BI/analytics problem the way Home Depot approaches the home ownership problem: offer access to the tools and other raw materials a customer needs to maintain a house, but leave the real work of meeting the direct needs of the customer (i.e., getting them into their dream house) to someone else.
This worked well when customers in the enterprise software space were living in the equivalent of a frontier wilderness, when do-it-yourself defined how everyone approached BI/analytics. Everyone was so used to building his or her own “log cabin” that it didn’t really matter that you needed to be a skilled contractor in order to actually own a home.
Today, however, in a mature enterprise software market, the frontier wilderness has been replaced by a modern, and much more complex, civilization. This requires customers to focus more on what they plan to do with their “home,” as opposed to focusing on acquiring the expertise, as well as having the time and inclination, to build it themselves.
Rather than going to the equivalent of Home Depot for their BI/analytics solution, today’s customers want to buy their solutions not only ready-built but also tailored specifically to their needs. This is today’s dream house version of the BI/analytics solution, very much in opposition to the log cabin version of yesteryear.
The problem is that the expertise needed, based on considerable industry knowledge and experience, has been hard to come by in an efficient manner. In most companies, deep industry expertise, which helps to define the complex analytics that are necessary for achieving competitive success, is either non-existent or lacks the technical knowledge that is required to build that BI/analytics dream house from scratch.
While locating most of the data is relatively easy —much of it is in SAP’s and its partners’ applications — knowing what to do with it has always been another question. SAP has arguably more deep industry experience built into its software than any enterprise software company in the business. However, surfacing that expertise in BI/analytics solutions, which is the equivalent of delivering that pre-built dream house, has always been another issue. SAP excelled at managing the transactions that help the business run on time. It, however, lacked the ability to leverage that industry expertise and create a next-generation set of pre-built, dream-house analytics for each of the industries at which it excels.
The Potential Impact
What’s potentially revolutionary about the marriage of SAP and Business Objects is the opportunity for this synergy to pay off, making one plus one equal three. Just buying Business Objects is an impressive start.
It takes a lot of intestinal fortitude on both sides to admit previous strategies hadn’t worked as well as they should have. SAP not too long ago released a new set of analytic solutions, which hit the market with a resounding thud, while Business Objects had definitely seen the writing on the wall regarding dream-house analytics and had begun moving in the right direction. Both companies, nevertheless, realized that neither one could move forward in this critical area on their own. A blending of the two companies’ expertise was the best move for everyone, especially customers.
There are many ways in which this acquisition will make a difference, but I’ll highlight two very important ones. The first is in technical capability: one of Business Objects’ more important recent acquisitions was a little company called Inxight, which specializes in creating BI/analytics solutions around unstructured data, such as emails, Web sites, and everything else that’s not in a traditional, transaction-processing, Relational Database Management System (RDBMS) environment. This is a capability that SAP has craved for some time, and creating analytics that transcend SAP transaction data and the rest of the world’s unstructured data is truly the trend to watch in BI/analytics.
The other effect of the Business Objects acquisition is an additional inroad into SAP’s competitors’ customer base. Over 75% of Business Objects customers, consisting of mostly database customers, are also Oracle customers, and only about one-third of these database customers are running SAP systems.
That leaves almost 14,000 new Oracle/Business Objects accounts for SAP to up-sell to, as well as another 10,000 non-Oracle, non-SAP accounts to target. It’s a nice little hunting license for a company that has to grow not just its customer base but also its revenues per customer in a significant way over the next few years.
Big acquisitions are hard, and there will be a lot of cultural, as well as other, issues to overcome on both sides of this deal. Once these two former partners are brought together in M&A matrimony, however, expect some exciting results. This is the kind of deal that could give SAP a much-needed leg-up on Oracle, and the rest of the market, for some time to come.
|Joshua Greenbaum is a market research analyst and consultant specializing in the intersection of enterprise applications and e-business. Greenbaum has more than 15 years of experience in the industry as a computer programmer, systems analyst, author, and consultant. Before starting his own firm, Enterprise Applications Consulting (www.eaconsult.com), he was the founding director of the Packaged Software Strategies Service for Hurwitz Group. You can reach him at firstname.lastname@example.org.