SAP and Sybase - who gains?

When SAP announced its intention to acquire Sybase in May 2010, it immediately raised a number of questions. Seven weeks on and neither side seems particularly interested in publicly talking about the rationale behind this acquisition.

At first glance, this appears to be a smart move by SAP and a business saver for Sybase. 

A decade ago, ERP and CRM applications were seen as only relevant for large enterprises. Today, with the explosion of hosted services, even the smallest of companies can buy access to such software. This means that vendors need to be quick to respond and be able to support a much wider spread of customers.

SAP has led this market for a number of years but the acquisition of Siebel by Oracle, the consolidation by Microsoft of its Dynamics division and the success of have started to make inroads into the business. SAP has not been idle. It has built a strong developer community and has established hosting deals with a number of companies such as T-Systems who host over 1.5m SAP seats.

Despite all of this, SAP has one part of the cycle that it does not own and its competitors do – the underlying database. The ability for customers and developers to tune their applications for maximum performance is critical and the best way to do this is to own all the components.

This presents SAP with a real challenge. It has done very well out of IBM, Microsoft and Oracle, all of whom have invested significant sums of money in building consultancies capable of tuning SAP on their database products. Oracle recently set a new benchmark for SAP performance running on top of its own database products so it might seem that there is little need for SAP to buy its own database product.

Sybase has been the fourth largest database vendor for some time now but the last two decades have not always been kind to it. In the 1990s, not only did it rival Microsoft with its Rapid Application Development tools but at various points was seen as the market leader. When the RAD tools market took a dive, Sybase was hit very hard and has really struggled to reinvent and reposition PowerBuilder as a mainstream development tool.

The well publicised split between it and Microsoft that left Microsoft with SQL Server did allow Sybase to concentrate on the Enterprise market while Microsoft built a product that could compete with it. While no longer being a significant player in the general database space, Sybase does have a serious position in the high-end database market, mobile services and low-end portable databases. Sybase also has its own Business Intelligence and Analytics tools.

All of these appeal to SAP. They can use the high-end database product which includes in-memory and cloud versions to extend their hosted platform offerings. The mobile services platform means that they can position themselves into the operator and payments arena. Finally, the low-end portable database market means that their development community can build applications for mobile workforces where data can be collected on devices such as Smartphones, PDAs and laptops that will synchronise easily into the enterprise solutions.

Taken together, this would appear to give SAP a complete set of offerings and enable it to compete with those competitors who have a complete stack from developer tools, through ERP/CRM and database.

However, there are issues that need to be resolved. The first is that the large percentage of SAP sales come through the professional services teams at IBM, Oracle and even HP. By having its own database and tools, it will need to prove that it is not intending to abandon customers using other databases.

While the Sybase tooling looks good it is still far from perfect. Building tools for a wide range of mobile devices is not easy and the current tools are very Microsoft focused. Despite talking Rich Internet Applications for several years, Sybase has failed to deliver any serious RIA tooling.

The BI tools are not widely used and SAP is going to have to make decisions as to how to integrate them with Crystal Reports to create a single powerful end to end reporting and analytics engine.

So, is this a wise move? Provided SAP is prepared to drive Sybase and not allow it to just operate as a fully autonomous business unit, this makes sense. But if it treats Sybase in the same way as EMC did VMware for several years, any benefits will be slow in maturing.