How SAP's Business Objects Purchase Affects You

Oracle bought Hyperion, and now SAP has made this bold BI move. Here's what analysts say CIOs should be asking themselves and their vendor reps.

No one is ever going to mistake SAP for Oracle. Especially after this past weekend, when, on a Sunday night of holiday weekends in both the United States (Columbus Day) and Canada (Thanksgiving), SAP announced, with little fanfare, its intent to buy business intelligence purveyor Business Objects for close to $7 billion. A marketing splash this was not.

Though media blitzes may not be SAP's strongest suit, the Walldorf, Germany-based company does have a market cap of nearly $70 billion and more than 41,000 global customers who are married to its hulking software applications. That some company purchased Paris-based Business Objects, with its 44,000 customers, didn't come as a surprise to industry insiders (Business Objects had reportedly been working with Goldman Sachs to find a suitor, though Business Objects refutes that), but who that buyer ended up being was something of a shock. "What was surprising was the strategy for SAP, because SAP has always been pushing organic growth," says Ray Wang, a principal analyst at Forrester Research.

As everyone in the industry seems to be noting with this deal, "organic growth" will now take place only on farms—and not in the universe of business software vendors. "After years of building a great organic strategy, even mighty SAP realizes that this industry requires strong acquisition skills for survival and growth of partner ecosystems," Wang says. "One may expect other vendors to reconsider their strategies." As such, this deal, combined with Oracle's purchase of Hyperion earlier this year, has made industry watchers and Wall Street speculate that BI vendor Cognos, a chief competitor to Business Objects, will soon be scooped up by either HP or IBM.

According to SAP CEO Henning Kagermann, however, homegrown solutions will still be part of SAP's ongoing strategy. "The acquisition of Business Objects is in keeping with SAP's stated strategy to double our addressable market by 2010 as announced in 2005," said Kagermann in a press release. "SAP will accelerate its growth in the business user segment, while complementing the company's successful organic growth strategy."

Early indications were that Wall Street did not love SAP's purchase. Financial analysts and investors have panned the acquisition, claiming that SAP paid too much. Meanwhile, industry insiders are questioning why SAP ventured so far from its typical game plan. According to The 451 Group, the acquisition is more than 10 times the size of any single deal SAP has inked in its 35-year history.

Perhaps the pressure from Oracle was too much for SAP to take. "One wonders if they bought Business Objects so someone else couldn't buy it," says Dee Slater, CIO of Wolverine Worldwide, the $1.1 billion footwear maker whose portfolio of owned and licensed brands includes Caterpillar, Harley-Davidson, Merrell and Wolverine. Slater's IT shop runs SAP's apparel and footwear, ERP and Virsa compliance calibrator applications. Wolverine is also a former Business Objects customer that switched over to SAP's business information warehouse (BW) tool in 2004.

Slater says that Wolverine moved to SAP's BW tool because of the company's long-term strategic growth plans that centered on SAP's demand planning toolset and because the TCO on the Business Objects suite "was higher than we liked." But the biggest reason of all was that the support for Business Objects "was awful," Slater says. "The support that Business Objects gave us didn't support our needs."

While the ink on the announcement has yet to dry and a lot of details still remain unknown, CIOs like Slater are going to have to watch this situation closely during the next several months and get on the phone with their vendor reps. The deal is supposed to be closed by the first quarter of 2008, and SAP has said that Business Objects will remain a separate business entity. But as Current Analysis analyst James Kobielus notes in his report on the deal, "Though SAP has assured the analyst community that it intends to operate Business Objects as a standalone entity, the combined firms will undoubtedly have to rationalize (i.e., selectively phase out) their overlapping product lines in order to realize the 'synergies' that drove them to merge."

Here's what CIOs should expect from the union: "SAP wants to deliver process-oriented analytics for operational BI, which means embedding Business Objects' reporting and analytic tools into its portfolio of transactional applications," write 451 Group analysts Krishna Roy and Brenon Daly in a report. "However, SAP also wants to maintain the application, database and middleware independent nature of the Business Objects portfolio; therefore, SAP won't be melding everything in the acquired product line into its own arsenal."

On the integration front, Roy and Daly report that details are still sketchy, but the "overall game plan is to integrate some Business Objects products into the SAP NetWeaver integration platform, while others will remain independent and heterogeneous," they write. "Both management teams have also talked about creating a single unified semantic layer between Business Objects analytics and SAP's transactional applications."

Until SAP and Business Objects deliver a "road map" as to what users can expect, Forrester's Wang offers some key questions that CIOs should ask SAP and Business Objects right now:

  • Will Business Objects users be forced on to SAP's NetWeaver in the long run?
  • Can users ensure that they do not have to use NetWeaver?
  • Does being a "separate company" in the SAP group work the way Tomorrow Now works?
  • How will SAP continue to support non-SAP users?
  • How will SAP and Business Objects address master data management?
  • What impact will this have on post-XI releases?
  • Will key management change, and who will replace them?

In addition, Wang stresses that now is as good a time as ever to negotiate longer maintenance contracts and buy new modules at significant discounts. "In the history of post-merger announcements, sales reps typically will be offering sweetheart deals to close out the quarter and status as an independent company," Wang says. "If you are leaning towards SAP, find your SAP rep and put in the motion for a master agreement prior to merger for completion after the merger."

Though CIO Slater has no plans right now to make any kind of move away from her SAP BW tools, she's as curious as any SAP customer as to what its plans are. She says, "We will keep a close eye on this."

Copyright © 2007 IDG Communications, Inc.

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