Special Report: SAP sniffs BI success with BO

SAP snaps up business intelligence vendor Business Objects for a cool £3 billion. But why did SAP buy BO and why was Business Objects interested in being acquired?

By Stuart Lauchlan, news and analysis editor

Bang goes another marketing weapon in the SAP arsenal. Until now the German supplier has taken a high-minded stance on Oracle’s rampant shopping spree through the software industy, arguing that it only makes small tactical purchases to bolster its own product functionality.

Well they can’t say that now! Not after its decision to splash out £3.3 billion to end rumours over the fate of business intelligence vendor Business Objects. That’s a 20 percent premium on the stock price of the French firm, something which didn’t amuse the SAP shareholder base who sent the share price down. Business Objects has been the subject of repeated takeover speculation for several months with IBM and inevitably Oracle in the frame as possible bidders.

While it’s possible to read the takeover as a counterstrike to Oracle’s takeover of Hyperion earlier this year, it’s also clear that SAP is emulating buying a big chunk of marketshare a la Ellison. The firm has announced strategic plans to double its addressable market by 2010, so Business Objects installed base will come in very handy. "This acquisition accelerates our growth potential," admitted SAP CEO Hennig Kagermann.

Business Objects, based in California and Paris, will operate as a standalone business and be part of the SAP Group. Roughly 40 percent of Business Objects' customers use SAP.

Commenting on the deal, Henning Kagermann, CEO of SAP said: “We are highly committed to the next generation of applications serving Business Users. The combination of SAP and Business Objects in their respective domains will benefit customers, prospects, partners, employees and shareholders. At SAP, we are excited about the prospect of having Business Objects join the SAP Group.”

Kagermann added: “With the delivery of the first business process platform; the rapid adoption of our enterprise SOA platform, SAP NetWeaver; and the successful launch of the first complete on-demand business solution for mid-sized companies, SAP Business ByDesign, SAP can now take the opportunity to focus on the industry's next high-growth opportunity, by accelerating and enhancing our efforts for the Business User category.”

Separately, Business Objects provided preliminary results for the third quarter. The company said that it expects revenue for the third quarter in a range of $366-$370 million. Analysts expect the company to report revenues of $385.16 million for the quarter, with licence revenue in a range of approximately $137-$139 million and services revenue of approximately $229-$231 million.

Compelling reasons

But there are still questions about the deal. "There are two key questions here: why is SAP buying Business Objects, and why is Business Objects interested in being acquired?” asked David Bradshaw of research house Ovum. “Turning to the first, SAP has tended to carry relatively small acquisitions and that's one thing this isn't. So there must be compelling reasons from its side for this to happen.

"Most obviously is retaliation to Oracle buying Business Objects' competitor Hyperion, which specialised in adding financial and performance management tools for SAP systems. While neither SAP nor Hyperion can afford to back away from this relationship, it is deeply uncomfortable to SAP. We therefore expect SAP to work with Business Objects - which only recently acquired performance management vendor Cartesis itself - to provide an alternative for its customers.

"Another factor is the business growth that SAP can get from the combination. Large suppliers are attracting ever larger share of customer spend, as customers try to reduce the number of suppliers to bring some order to their IT buying. In some accounts, the purchase might turn SAP from being an 'also ran' into a strategic supplier. However, our experience is that SAP tends to be either a strategic supplier to its customers, or to have such a small footprint that it is barely on the corporate radar screen.

"But a much more important and longer term objective is what we call 'operationalising' the intelligence from the business data, and here Business Objects brings great breadth of BI and performance management capabilities to SAP. Managing processes and transactions efficiently is only half the challenge that the typical business faces - the other half (at least) is trying to decide what the smart thing is to do.

"This is a problem that extends from the corporate strategy level all the way down to the people at the coal-face carrying out the business processes and transactions. Typical BI systems address only top management's need for 'intelligence', which is why penetration of BI within the enterprise has only hit the 15-20 percent range.

"So why would Business Objects want to sell? Consolidation in the independent BI space has picked up space recently with the acquisitions of Hyperion, Cartesis and Applix - to name a few - all happening this year. In fact, rumours surfaced in September in the French newspaper Le Figaro that Business Objects was looking for a buyer. We expect this consolidation trend to continue in the future, so it comes as no surprise that Business Objects took the initiative. Business Objects will hope that being part of a larger company will help drive revenue and growth for its BI and performance management products in an increasingly competitive market.”

An alteration in the BI ecosystem?

But Bradshaw warned that the takeover meant an alteration in the BI ecosystem. "Two other issues for SAP in the acquisition will be conflict with its existing BI capabilities and its relationship with other BI vendors,” he warned. “SAP's own BI platform (SAP Netweaver BI) competes with BI vendors in around 30 percent of deals, but SAP also operates in a landscape of 'co-opetition' with the leading BI vendors - including Business Objects - to complement and broaden the reach of Netweaver BI. Some SAP customers had success with Netweaver BI, but others had problems, for example with integrating non-SAP and SAP data sources and the complexity of SAP's analysis front end (BEx).

"The Business Objects acquisition will bring both data extraction capabilities and market-leading front end query and reporting tools, complementing parts of the Netweaver BI stack. However, there are huge areas of overlap between the product sets. We expect any soon-to-be-announced integration plans to detail the areas for rationalisation and the product roadmap moving forward. How well it can carry on 'playing nicely' with competing BI vendors after it acquires Business Objects remains to be seen, but we think it will have no choice but to try.”

Playing nicely? Not much chance of that. “SAP is very late to the BI party,” said Richard Kellett, head of technology strategy at rival SAS UK. “Its entry demonstrates what has been evident for some time: BI – particularly BI query and reporting tools – has become a commodity. With BO, SAP now has BI tools to go along with its ERP and database software. But is this enough? SAP’s efforts to buy into the BI market has two major holes.

“Firstly, beyond simple data tools and a few small, to-be-integrated applications, SAP and BO lack analytics, particularly the predictive analytics - data mining, forecasting and optimisation - that help leading companies compete and succeed. Babson College professor and author Tom Davenport summed up this business trend towards predictive analytics.

“Secondly, a parallel trend in software is toward applications that solve very specific industry needs – for the banking, insurance, retail, telecom and other industries. BO delivers neither vertical industry focus nor expertise to SAP. IDC notes that a move toward industry-specific software is a sign of successful vendors: “As consolidation among the leading business analytics vendors continues, a new generation of software vendor will target specific market segments with innovative new solutions.”

Whatever the case, the BI battlefield has changed this week. SAP has upped to stakes; over to Oracle for the next move perhaps? Another acquistion? A counter-bid for Business Objects? The only certainty is that 2008 is shaping up to see a signiificant ramping up of competitive activity in the BI market. For customers the only safe mantra has to be that time-honoured and well worn cliché: buyer beware!

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