SAP subsidiary SAP America Inc's announcement that it was acquiring Sybase is a clear signal that its longstanding battle with Oracle for a larger share of the enterprise application market will intensify. SAP has been successful at growing organically (unlike Oracle who has acquired dozens of smaller competitors over the last ~5 years), but, has been struggling to grow recently. Both of these long time rivals have the same goal — trying to grow their share of the software and systems that corporate IT buyers are constantly upgrading, expanding, and maintaining. To date, SAP's largest acquisition was the purchase of BusinessObjects, a $6.8B purchase, just 3 years ago — at that time, it was very apparent that a growth opportunity existed in the business intelligence/analytics space (best-of-breed vendors such as Cognos, Hyperion, and BusinessObjects were highly profitable, and had grown quickly, all three were acquired); fast forward to the news this week of the acquisition of Sybase (the company’s second largest — $5.8B) and the area of focus for future growth has shifted towards enterprise mobility. Sybase is just the first significant enterprise mobility acquisition this year by a large software vendor — it’s a good bet that it won’t be the last.
SAP has Ambitious Growth Goals
SAP has publically stated that it intends to grow its user base to 1 billion by 2014 — to attain such lofty growth, the company is betting on the cloud. SAP has been touting Business ByDesign (hereinafter BBD), the company’s “on demand” solution for the midmarket and SMBs since 2007 — to date, SAP hasn’t been able to advance the offering (SAP’s inability to move quickly with BBD is widely attributed to former CEO Leo Apothekar’s departure). BBD will be front and center this week at Sapphire — the company plans to expand the vertical industries for BBD, and will continue with a controlled go-to-market approach (which has been limited thus far). BBD’s success in the midmarket/SMB segments is vital for the company to grow its enterprise application footprint, and the only way possible to realize the lofty customer growth goal the company aspires to. The acquisition of Sybase adds, without question, a piece of the puzzle that the company lacked — SAP has been trying to displace Oracle from the fabric of a majority of its deployments for some time now. With Sybase, SAP gets a very credible relational database player that is doing well in emerging markets (18% of the market in China, according to Sybase CEO John Chen). While Adaptive Server Enterprise or ASE (Sybase’s relational database product that competes with Oracle, IBM, and Microsoft) is not currently supported by SAP, the company will be moving quickly on this, and should be able to achieve compatibility in short order as it will be a high priority. While ASE provides an opening, it will be both a difficult and lengthy process to even make a dent on Oracle’s database domination — but, as technologies like in-memory and SaaS continue to evolve, the opportunity could become more pronounced.
SAP has Struggled in both the Database and Mobility Space
Sybase’s relational database market share is small when compared to larger vendors like Oracle, IBM, and Microsoft (estimates on Sybase’s market share of the global relational database market range from 3%-5%); however, ASE is a mature, scalable, stable, and well supported product, and most importantly, Sybase has been able to consistently grow its market share year over year. SAP has attempted to participate in the database space in the past, and has been largely unsuccessful (MaxDB, the company’s current database offering is not an effective platform to compete with the likes of Oracle, IBM, and Microsoft) — however, SAP has already alluded to its plans to enhance Sybase’s analytics processing capabilities with proprietary technology it has been developing around in-memory, and has the motivation to invest R&D dollars into ASE.
Regarding the various machinations relating to SAP’s mobility positioning, the company has made numerous partnership and co-innovation announcements (with Sybase, Syclo, and RIM) over the past two years, and the company has a resell agreement in place with Clicksoftware (a mobile workforce management vendor). Additionally, the company made a notable mobile acquisition last June when it acquired Skydata (Kevin Nix, former CEO of Skydata now heads up SAP’s mobility efforts). To further muddle the messaging, the offerings of co-innovation partners Syclo and Sybase both focus on CRM (Sybase for sales force automation, and Syclo for field services/asset management). With the acquisition of Sybase, and the new position for Kevin Nix, SAP has made it abundantly clear that they are making enterprise mobility a key part of their strategy going forward.
As with all acquisitions of this magnitude, there are inherent risks. In this case, if SAP goes full bore, and tries to compete head-to-head with Oracle (and others) they risk alienating them (SAP doesn’t have a choice in continuing to support competing database products, however, the alienation argument works both ways, as SAP’s application dominance prevents external database partners from ending their partnerships with SAP). SAP will have to proceed cautiously on this specific issue, as Oracle products are present in the majority of their implementations — maintaining their partners is critical for the company. Additionally, SAP already has a full plate in front of it, and will have to move quickly on the change management front (specifically, learning, development, and training for the Sybase engineering sales teams). Like BusinessObjects, Sybase will run as a standalone business unit — this strategy has worked well so far with BusinessObjects, and SAP will be aiming to replicate that success.
Mobility is Sexy, Databases Aren’t
There has been no shortage of opinion on this deal since the story broke last week, and much of the analysis has lead with the mobile “angle” — there is no question that Sybase’s mobile assets are impressive, in fact, in our view, SAP grabbed the top prize available. It is important to point out that roughly 30% of Sybase’s revenues are from its mobile business — the company’s “legacy” business (databases) while not as sexy as mobility, is still core to SAP’s thinking around the acquisition.
Sybase’s product range is very well regarded, and the mobile assets are very complimentary to SAP’s renewed emphasis on enterprise mobility.
Where does this leave other mobile enterprise platform players, such as Antenna Software, Pyxis Mobile — and what of Syclo (one of the other two co-innovation partners)? All are very likely on the radar of potential suitors — while they have relatively small customer bases (uptake has been difficult estimate), they have made significant inroads in terms of their partnerships and capabilities. Another area that leaves some questions will be how the broad array of partners SAP has assembled on their EcoHub (SAP’s online marketplace for vertical solutions) will react to the Sybase acquisition — many of the smaller partners will capitulate and figure out a way to continue the relationship, others such as Syclo will have to make “defensive moves”.
Mobility Becomes More Strategic
While SAP has proven its mettle with the integration of BusinessObjects, it will take a year or longer before SAP can make a significant bottom line impact with Sybase — but it is certain that Oracle, IBM, Microsoft, and others are paying attention. At the end of the day, this is a win for SAP, and for customers in a competitive marketplace. Sybase has performed well under John Chen’s leadership — he is a dynamic leader, is passionate about his company, has proven that he can grow a product, tough to predict if SAP will be able figure out a way of keeping him, if they can, it would be a big plus. Having a bona fide relational database offering to lead with will put pressure on Oracle to maintain their customer base (long term view) — this is good in a competitive marketplace. It is always good to see strong competitors — that way the customer wins.
Big Week for The Aquisition
As I'm sure many of you are aware, SAP's marquis event (Sapphire) began yesterday (5/17) — it turns out that Sybase had also scheduled their analyst summit later this week, I will attending, and am very much looking forward to the event. Stay tuned, as I will share what I learn right here.