Why is SAP buying Business Objects?

Bangalore

10 October 2007

Retaliation to Oracle's buy out of Hyperion, which specialised in adding
financial and performance management tools for SAP systems, and the business
growth that SAP can get from the combination are the most obvious reasons that
triggered SAP's move to acquire Business Objects, feels research firm Ovum.
SAP on Monday had announced its decision to acquire Business Objects for €42
per share or around €4.8billion.

“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,” comment
David Bradshaw, Principal Analyst and Helena Schwenk, Senior Analyst.

On the business growth SAP can get from the combination, Ovum says 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 Ovum calls 'operationalising'
the intelligence from the business data. 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.

“Two other issues for SAP in the acquisition will be conflict with its
existing BI capabilities and its relationship with other BI vendors,” Ovum
continues. “SAP's own BI platform (SAP Netweaver BI) competes with BI vendors
in around 30 per cent 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.”

Ovum adds that 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).

Acquisition benefits

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.”

“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. The only other indicator was a profit
warning that the company issued last night. 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,” Ovum adds.