News Analysis

SAP bets on internal innovation combined with strategic acquisition

Warwick Ashford

SAP's planned acquisition of Sybase for $5.8bn is being viewed by some as sudden and risky, while others see it as a logical and strategic move that will benefit SAP customers.

Like many other big tech sector companies in 2010, SAP is making a strategic acquisition to plug technology gaps and spur growth.

Mobility is high on the agenda of most enterprises, but SAP has been lagging in making the full range of its enterprise applications available to users of mobile devices.

Internal development alone is no longer able to keep pace with the rapid pace of technological innovation, says Wilson Warren Wilson, senior analyst at Ovum.

Laggard to leader

The acquisition has the potential to transform SAP from a laggard into a leader because of Sybase's mobile application platform, he says.

The acquisition is a clear indication that SAP's new co-chief executive officers, Bill McDermott and Jim Hagemann Snabe, are determined to whip rival Oracle in mobilising enterprise applications, according to other analysts.

But Wilson says the acquisition cannot be viewed as sudden or strictly considered to be the brainchild of the new leadership, as SAP has been working with Sybase since 2003, when they announced plans to align SAP's small-business ERP suite, Business One, with Sybase's data management solutions.

Little more than a year ago, in March 2009, they forged an agreement to use Sybase's platform to mobilise SAP's flagship Business Suite.

"Given that history, it seems likely that the acquisition has been under consideration for some time," says Wilson.

Moving to mobile

The timing, though, is likely to have been carefully considered by the new SAP leaders, who could see SAP become a major player in mobile applications, he says, as Sybase has built a strong and versatile platform that can deliver enterprise applications to a broad range of devices, from RIM's BlackBerry to Apple's iPhone.

Sybase, on the other hand, gains access to SAP's in-memory database computing technology, says Wilson. This will dramatically increase the performance of Sybase's complex event-processing and analytics tools, he says, and should also allow Sybase to integrate transactional and analytical capabilities in single products.

SAP has been talking about in-memory database management systems (DBMS) for a while, says Yvonne Genovese, analyst at research firm, Gartner.

"But they had no capabilities and prior expertise in managing this technology, no expertise in the DBMS market. Sybase provides that," she says.

What's in it for SAP users? 

The mutual advantages of the long-standing relationship between SAP and Sybase are clear, but what will SAP customers get out of the acquisition of Sybase?

The most obvious benefit for businesses that use SAP is that employees will be able to access enterprise applications through a variety of mobile computing devices.

But there are other, less obvious benefits that go beyond increased productivity, according to Genovese.

"In the future we will see more interest from business in understanding contextual information that comes from the use of apps on mobile devices, such as what customers are interested in," she says.

The ability to mine this information for patterns that will help companies know what to sell customers, how to service them, how to help employees, and so on, she says, will be incredibly powerful.

Another important benefit for SAP customers is that with Sybase's versatile platform they will be able to derive more value from their existing SAP investments by extending them to a broad range of mobile devices, says Wilson.

"It will also further SAP's strategy of supporting customers' heterogeneous IT environments, because Sybase's platform is versatile enough to connect to a wide variety of applications and data, both SAP and non-SAP," he says.

The acquisition of Sybase is the first major acquisition since SAP paid $6.8bn for BusinessObjects in 2007, which made the company much more competitive than it would otherwise have been.

Without BusinessObjects, SAP would have been at a major disadvantage in business intelligence, given that Oracle acquired Hyperion and IBM acquired Cognos at around the same time, says Wilson.

In the light of the fact that investors have rewarded Oracle for its hyper-aggressive acquisition strategy and that the pace of IT innovation continues to increase, SAP, and indirectly its customers, should do well out of a strategy that combines internal development with strategic acquisition.


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