A Shift in SAP's Growth Strategy: Buy Big to Get Bigger

Historically, SAP has shied away from gobbling up large software companies, but by announcing on October 7 its intent to acquire business intelligence (BI) and analytics player Business Objects, the German software giant delivered the biggest indication to date that it has its eye on leveraging a merger-and-acquisition strategy to secure new business. While SAP has made its share of smaller acquisitions, the Business Objects deal -- valued at about 4.8 billion euro or $6.8 billion -- will, if approved by shareholders, be the largest in SAP's 35-year history.

Products going forward will be designed to enable companies to strengthen decision processes, increase customer value, and create sustainable competitive advantage through real-time, multidimensional BI, according to the companies. Moreover, the companies believe that customers will gain significant business benefits through the combination of enterprisewide BI solutions along with embedded analytics in transactional applications. Business Objects will operate as a standalone business as part of the SAP Group.

"It's a change in strategy for them," says Dave Kasabian, a research director at AMR Research. "Business Objects is a market leader in business intelligence and has a very broad client base, bringing a lot of clients to the table for SAP." However, product overlap on the performance management side of the equation must be ironed out, Kasabian adds. "They'll have to do some product rationalization around the products that are currently available in that market."

On his blog, Ray Wang, senior analyst for enterprise applications at Forrester Research, described the bid as "a not-so-surprise move to insiders."

Organic growth, according to Wang, is not sufficient to meet SAP's stated goals. "Despite great success with organic growth, Oracle's acquisition strategy is making a dent," he wrote, referring to Oracle's dozens of acquisitions since the turn of the century. "Henning Kagermann's quote from the press release says it all. '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. 'SAP will accelerate its growth in the business user segment, while complementing the company's successful organic growth strategy.' What kind of [other] acquisitions will SAP make to meet this self-imposed target?"

Moreover, SAP evaluated Business Objects for more than just BI, according to Wang. "After Oracle's takeover of [BI vendor Hyperion Solutions, earlier this year], SAP evaluated the impact to its overall solution-centric ecosystem," he writes, citing Business Objects' "strong partner ecosystem." Wang also noted that "Business Objects users may be forced onto NetWeaver in the long run."

Dan Sholler, a Gartner vice president, says that the SAP Business ByDesign and SAP-Business Objects announcements have dramatically increased the company's complexity. However, "having better BI capabilities baked into all of SAP's products is going to be a benefit," he says, "but that's something that will manifest itself over the space of several years."

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