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Blockbuster Acquisition: SAP Gobbles up Business Objects

What does the deal portend for customers? A mixed bag, analysts say.

• By Stephen Swoyer
• October 10, 2007

Everyone expected SAP AG to make a big business intelligence (BI) move of some kind, but few industry watchers anticipated a move of this size. SAP on Monday said it was acquiring BI and performance management (PM) powerhouse Business Objects SA for the princely sum of $6.8 billion. The two companies position the acquisition as a "friendly takeover."

The move wasn’t entirely a surprise: rumors surfaced last week that Business Objects was looking for a buyer. Industry watchers floated several likely candidates—including IBM Corp., Microsoft Corp., Oracle Corp., and SAP—but few in the BI space (or on Wall Street, for that matter) expected a deal to conclude so swiftly.

What can we make of SAP’s action? Analysts are divided: most see it as a coup for SAP and good news for Business Objects. Some are voicing concerns about what it might mean for the latter company’s customers, given the overlap between SAP NetWeaver and Enterprise XI. There’s also a large legacy base that Business Objects accumulated over the course of nearly a dozen acquisitions—starting with SAP-friendly ETL specialist Acta, enterprise reporting stalwart Crystal Decisions, PM pure-play Cartesis, and German data-quality specialist FUZZY, among others.

Philip Russom, senior manager of research with TDWI, has mixed feelings about the news.

"The acquisition is consistent with SAP’s stated strategy to double its addressable market by 2010, as announced in 2005. In that context, the party that stands to gain the most is the SAP investor," he points out. "However, I see no advantage for BOBJ customers who are not SAP customers. In fact, it’s likely that SAP’s sales force will pressure such customers to buy SAP applications. After all, up-sell and cross-sell are prominent reasons for vendors merging."

One thing seems certain, says veteran data warehouse administrator Mark Madsen, a principal with consultancy Third Nature: the BI market—like the larger ERP space—is all but consolidated. "With this purchase, the BI market now looks a lot like the ETL market. There's only one large independent vendor in each market—Informatica for ETL and Cognos for BI—and a bunch of mostly smaller companies left."

What does the acquisition mean for both SAP and Business Objects? Mostly good, Madsen suggests. "This is a great thing for SAP, since they can now start taking in sales for BI where once it all went to third parties. They also get a decent set of data integration and data quality products to complement SAP's core applications. It's good for Business Objects too, since this opens up the market for all those SAP accounts.

"It's not so great for Business Objects’ customers long term. SAP isn't known for being a quick, nimble company or for offering reasonably priced products. The stand-alone relationship with SAP may prevent the worst of over-management from a large global corporation from happening. This doesn't mean much for customers over the short term since it shouldn't mean any major changes to existing operations."

Russom, like Madsen, thinks SAP is tired of seeing BI and PM vendors nibbling away at its stack. "Another reason for the acquisition could be account control. SAP accounts are littered with products from numerous BI vendors, despite the fact that SAP users consistently use SAP’s BI products," he observes. "Among third-party BI vendors [used in tandem with SAP], Business Objects is by far the most prominent," Russom continues, pointing to a recent TDWI report ("BI Solutions for SAP") which found that 46 percent of survey respondents report using BI products from Business Objects, ahead of both Cognos (at 37 percent) and Hyperion (30 percent).

The acquisition should complicate things for SAP’s partners, too. Companies such as Trillium Software (a division of Harte-Hanks) and Informatica have established cozy SAP practices; those relationships could now be endangered, as SAP inherits both best-of-breed data quality (via the former Firstlogic technology, BusinessObjects Data Quality) and ETL (via the former Acta technology, BusinessObjects Data Integrator).

"A problem I see in most SAP ERP implementations is users ignoring data quality problems. To help with this, Trillium Software has developed support for SAP interfaces, so users can cleanse data in batch or upstream in real time," Russom points out. "Now that SAP owns a data quality tool … the relationship with Trillium may be threatened."

Ditto for SAP partners—many of whom have invested time and resources to achieve SAP certification. "[T]here’s a long list of third-party vendors who’ve earned certification from SAP, to prove that their products interoperate with SAP products appropriately," he notes. "Certification will get really interesting, now that SAP owns products that compete directly with most of the vendors seeking certification." The acquisition will affect nearly every BI, data integration, and data quality vendor, too, says Russom: most such companies have existing relationships or partnerships with SAP.

In the final analysis, it comes down to customers, of course. Wayne Eckerson, Director, TDWI Research sums it up this way: "The acquisition doesn't appear to have much to do with adding value for customers. It's more about defensive positioning and maximizing stockholder returns."