On the eve of the announcement of the Business Objects (BO) acquisition, SAP CEO Henning Kagermann said he wasn’t under “any pressure” to make a large acquisition. But many believe otherwise. Says Andreas Bitterer, research vice president for the Business Intelligence Group at Gartner, “It is certainly a reaction to Oracle’s Hyperion acquisition. SAP used to acquire smaller companies. However, it changed its strategy with the Pilot acquisition. BO offers end-to-end BI solutions for end users.” SAP’s acquisition of Pilot, a strategy management software company, strengthened the parent company’s CRM offerings.

Nilotpal Chakravarti, senior analyst, Springboard Research, feels that the recent consolidation in the BI industry made it impossible for SAP to ignore the gaps in its BI offerings. “Oracle’s purchase of Hyperion and Siebel, and Microsoft’s recent BI announcements, were putting pressure on SAP since their BI story was comparatively weak.” Oracle acquired Hyperion, a leader in performance management, in March 2007, while Siebel, a leading CRM provider, was acquired in June 2006. According to Frost & Sullivan, the global BI market is currently pegged at more than $6.67 billion.

Whether a reactionary move or not, there is much speculation about how SAP would leverage the acquisition for business gains. The acquisition this time is of a much larger scale than those SAP has been used to. “The acquisition is somewhat of a strategy shift for SAP since they have either built their own analytic tools or acquired relatively small companies. The purchase in June 2007 of OutlookSoft (a provider of integrated planning, budgeting and forecasting tools, chiefly aimed at company CFOs) was a sign that this strategy would change,” says Chakravarti.

SAP’s move seems to be driven by the company’s stated strategy (announced in 2005) of doubling the addressable market by 2010. The acquisition will boost SAP’s user base to 78,000, bringing it closer to its goal of achieving a customer base of 100,000 by 2010.

The fact that BO’s product roadmap has been closely aligned with that of SAP’s should ease matters for the software giant. BO has been a third-party reporting solution for SAP R3 and SAP BW, SAP’s better known enterprise application and business warehouse software respectively. “Last year BO released BO BI 2 for SAP solutions. Many SAP R3 users in India have deployed BAPI (Business Application Programming Interfaces) from Business Objects as it gives them access to data not only within SAP, but also non-SAP applications,” says T R Madan Mohan, director of consulting information communication & technology practice, Frost & Sullivan.

According to Mohan, Microsoft and Oracle had been nibbling away at BO’s license and maintenance revenues. “By bundling BO’s CRM analytical tools with the ERP tools of SAP, the two companies will benefit immensely.”
While SAP has said that it would integrate with BO on the horizontal and analytics domains, analysts don’t rule out a certain amount of portfolio rationalization. Says Gartner’s Bitterer, “SAP already has three and BO two products under the BI portfolio. SAP customers will have to decide whether to use BO’s BI or stick to Business Explorer (SAP’s BI tool).”

The BO acquisition also dovetails well into SAP’s Software as Service (SaaS) strategy. Chakravarti explains: “BO is probably the most aggressive BI provider on the SaaS platform, and it could continue pushing this strategy since BO will continue to operate independently.”

SAP was traditionally focused on ERP and back office applications. While it has BI capabilities, the BO acquisition allows SAP a relatively easy route to expand its footprint in one of the growth areas of the enterprise applications market. “Outside of the financial considerations, Springboard views this as a very favorable acquisition for SAP from a strategy perspective,” says Chakravarti.Bitterer and Mohan believe that both companies will have to work hard to understand and make the acquisition work as they operate on different turfs.