SAP AG’s plan to acquire business intelligence vendor Business Objects SA for $6.7 billion will result in significant overlapping performance management software that creates questions about a future product road map, analysts said.
Although executives from SAP downplayed product overlap Sunday, “there’s nearly 100 per cent overlap” in the performance management capabilities of the software Business Objects acquired from Cartesis and SAP got when it bought OutlookSoft,” said Boris Evelson, an analyst at Forrester Research Inc., in a blog post. Both of those acquisitions were this year.
“Until both companies go through a formal product road map exercise, which may take at least a few months, it is unclear which products will remain front and center of SAP’s performance management strategy and which ones will be relegated to the ‘second-class citizen’ status,” Evelson noted.
John Hagerty, an analyst at AMR Research Inc., said that both companies were “making an assault” on the performance management market and that the acquisition will create product overlap.
“I think it’s going to require some backtracking on both firms’ fronts to make it look more complementary,” he said. He added that while SAP has long been criticized for its lack of usability in the BI arena, the Business Objects tools will “go a long way in improving SAP BI capability.”
When it announced the acquisition, SAP said that it intends to maintain the company as a separate entity. If SAP runs Business Objects as a separate division, there will not be much short-term effect on users, Hagerty added.
“But the value they plan to pay for in Business Objects is highly dependent on Business Objects remaining an independent provider of BI/performance management,” he said. “If they give even a whiff that Business Objects products require SAP infrastructure to operate, existing customers who don’t use SAP will become quite concerned. We’ll have to wait and see on this one.”
Evelson added that while Business Objects continues to work on product integration, “it still suffers from [an] incompletely integrated set of products” that will not be made easier by moving Business Objects’ research and development resources to SAP product integration.
Some users have been struggling with Business Objects’ most recent tools release called XI, he added, because it sometimes requires significant report redesign to make the upgrade.
“SAP has to be very careful not to make this situation worse and potentially lose some Business Objects BI customers,” according to Evelson.
In addition, SAP will have to deal with Business Objects’ numerous sales and joint development partnerships with Oracle Corp., he noted.
“Business Objects is Oracle’s largest BI partner and provides tight database integration as well as data integration and data-quality solutions for Oracle E-Business applications,” Evelson noted. “This relationship is going to be strained at the very least, and quite possibly severely reduced in scope.”
On the flip side, Business Objects users will benefit from SAP’s domain expertise, and the combination may allow SAP to lead the market in the emerging market of operational BI — embedding analysis into business processes.
“BI vendors have traditionally thought of the world as being data-centric,” Evelson wrote. “It is not — our world is process-centric and data exists only as a byproduct of processes and rules. SAP understands this concept very well and has been practicing and implementing workflow-based, industry-specific processes with embedded BI for a long time.”
Dan Vesset, an analyst at Framingham, Mass.-based market research firm IDC, said that the biggest winners from the deal are likely to be SAP users.
“Many of them already use Business Objects, but future developments are likely going to make the product integration easier,” he said.
The company with the most to lose, he added, could be Cognos Inc., which is one of the few remaining independent BI vendors since Oracle announced plans earlier this year to snap up Hyperion. “However, more than ever, there now seems to be a role for an independent BI/performance management vendor not tied to any database or applications company,” Vesset said. “Informatica holds this place in the data integration market, and Cognos may be able to do the same in the business analytics market.”
Jonathan Rothman, director of data management at Emergency Medical Associates in Livingston, N.J., and a Business Objects user, said he sees no advantages to the acquisition.
“It would just make Business Objects that much bigger of an organization and add layers and layers of corporate decision-makers,” he said. “I feel this would make Business Objects slower to adapt to end-user needs, especially smaller companies like mine. With an acquisition like this, Business Objects will spend years and years trying to better integrate its current product suite with SAP’s, rather than enhancing what it already has.” Executives from Business Objects SA and SAP AG each tried to explain today why their companies have parted with long-time strategies by agreeing to merge.
SAP announced Sunday that it would acquire the French-American business intelligence vendor for $6.78 billion, a move to expand SAP’s customer base and secure it a place in the growing market for business intelligence software.
It’s a big change for SAP, which until now has shunned big acquisitions in favor of small “tuck-in” purchases to get new technologies that it doesn’t have.
And it marked an even bigger change for Business Objects, a staunchly independent company that has always maintained it was not up for sale despite persistent rumors.
“To those of you who follow Business Objects, this might seem like a little bit of a surprise,” said Bernard Liautaud, Business Objects’ chairman and founder, at a press conference in Paris. “For 17 years I have spoken in favor of Business Objects as an independent company. So why the change of heart?”
“If you look at developments in the software market, a lot has changed in the last year,” he said.
Some big customers would prefer Business Objects to remain independent, he admitted, but there is also “an increasing number of clients who want a stronger alignment between their business applications and their business intelligence platform.”
Business Objects was open to the merger because it will be able operate as an “independent business” within SAP, he said, and continue to offer products that work with applications from other vendors. “SAP understands our openness,” Liautaud said.
One development in the software market he did not mention was Oracle Corp.’s acquisition in March of Hyperion Solutions, one of Business Objects’ few remaining independent rivals, for $3.3 billion.
One analyst said Business Objects may have opted for a merger because it felt pressured by the consolidation around it. “Although Business Objects is a huge company, in a sense they are also a niche player,” said Bo Lykkegaard, a research manager with IDC, adding that customers increasingly want to work with a smaller number of vendors who offer a wide range of products.
Even as he outlined the proposed merger plans with SAP, Liautaud continued to insist that Business Objects had not been for sale.
“Business Objects never decided to go on sale,” he said. “Never did we ourselves wish to put the company up for sale.”
Rather, SAP approached Business Objects in July — one of several big companies that offered a buyout, he said. “We were of course willing to listen,” he said. “We studied the parameters” and decided that merging with SAP would be the best thing to do.
Leo Apotheker, SAP’s deputy CEO, also had some explaining to do.
“We never said we would never acquire companies,” Apotheker said. “We’ve put the emphasis on organic growth, but we never said acquisitions were out of the question.”
SAP still intends to grow its core ERP business organically, Apotheker said, speaking in fluent French. “However, the business intelligence market is a new market, and to reinforce our presence there we must reinforce our offering,” he said.
SAP made two small, related acquisitions earlier this year — OutlookSoft and Pilot Software — while Business Objects recently acquired profit management company ALG and financial consolidation specialist Cartesis.
Asked if Business Objects would not be “one acquisition too many,” Apotheker replied, “I don’t think so. He said the companies’ products target discrete markets. “I’m not saying there’s no overlap whatsoever, but there’s not much at all.”
Several analysts disagreed with that statement.
“Product overlaps abound, especially in the business performance solutions (BPS) area,” Forrester analyst Paul Hamerman said in a blog posting. “This leaves SAP with a daunting challenge to rationalize three planning/budgeting solutions, three for financial consolidations, two for profitability management and several products for strategy management and performance scorecarding.”
Still, Apotheker and Liautaud promised benefits for both companies’ customers.SAP users will have BI reporting capabilities embedded deeply in their ERP applications, giving “real time feedback to know if their decisions bear fruit or not,” Apotheker said.
SAP will also bring its search, in-memory database and master data management technologies to Business Objects’ software, he said.
“This is a growth merger; not a merger aimed at cost reduction,” Apotheker said.
With files from James Niccolai
