Why Did SAP buy Business Objects?

Why Did SAP buy Business Objects?

Summary: There’s been a lot of back and forth about this deal, covered admirably by Dennis Howlett, Dan Farber, and other bloggers, but precious little on what it means to blend a premier applications company with a premier business intelligence vendor. I think it’s worth trying to get inside the though process at SAP that led it to break with its own organic growth strategy – and take a hit in the stock market in the process.


There’s been a lot of back and forth about this deal, covered admirably by Dennis Howlett, Dan Farber, and other bloggers, but precious little on what it means to blend a premier applications company with a premier business intelligence vendor. I think it’s worth trying to get inside the though process at SAP that led it to break with its own organic growth strategy – and take a hit in the stock market in the process.

The crux of this deal lies in the relative shortcomings that have been plaguing transaction-based ERP systems and tools-based BI systems over the last five years. ERP systems have been great at amassing vast quantities of data, more and more of it coming not just from inside the firewall but outside as well: from partners, customers, suppliers, etc. And ERP vendors like SAP have excelled at amassing a tremendous amount of knowledge – in the form of business processes – about how companies in a wide range of industries run their businesses.

But ERP systems have lagged in being able to deliver top-notch analysis to a wide range of users regarding the strategic and tactical decisions they make during the course of the day. Part of the problem has been at the tools level – SAP and others haven’t excelled at providing the right tools for the job, and that has led to the tremendous overlap between the Business Objects customer base and the SAP customer base.

But a bigger problem has been the inability to take the domain knowledge that exists within a company like SAP and turn that into pre-built, highly-verticalized, analytical solutions that anticipate problems, identify them to the relevant users, and suggest or direct corrective action. The reason why this kind of analytical solution hasn’t to date dominated companies like SAP is simple: there was too much growth to be had just getting the world to buy into a modern, back-office transaction system. SAP, Oracle, Microsoft Dynamics, and pretty much everyone else in this industry made the choice to grow the easy way, and did so until recently with little or no question about whether they were on the right path or not.

This model hummed along well until two simultaneous problems smacked the vendors right in the kisser. The first is that growth started to stagnate – an inevitable result of market saturation – and the second was that line of business users and even a few forward thinking CIOs started looking for more value, more innovation, and more competitive differentiation from their ERP systems, and what they realized they had instead was software that leveled the playing field, but not much else.

Meanwhile, a lot of innovative start-ups began showing what a company could do with highly verticalized analytical software, and it was obvious that there was something in this new industry focus for everyone: Going into verticalized analytics could not only give vendors like SAP something else to sell to existing customers, they could potentially greatly expand the number of users at a given customer site, as these advanced analytics permeated the fertile, untapped ground for business-level analysis. And the line of business buyer and CIO could start buying software that actually made a competitive difference to their executives, instead of something – ERP – that was functioning more like a boring utility than an exciting, competitive technology.

Where were the BI tools vendors like Business Objects while this problem was playing out in the ERP market? Still stuck in the restrictiveness of their own business models – a variation on the notion that enough monkeys sitting at a enough typewriters could crank out a Shakespeare-worthy play -- which said that all you need to reach analytical nirvana is enough tools. So build tools they did, along with data warehouses, and reports, and dashboards that added much to the flow of data around the enterprise but little to raise overall business IQ and competitiveness.

What SAP is saying to the market with this acquisition is that top notch business transaction knowledge, married to top notch business analytics tools, should yield the elusive analytical enterprise that works faster, smarter, and more profitably than its competitors. It’s a grandiose vision, in that SAP has jettisoned its organic growth model in favor of stealing a page from Oracle’s big acquisition playbook. And taken some heat in the markets as a result.

The marriage of BI tools and vertical industry knowledge is a vision I think is long overdue for the industry, and one that could prove very valuable to SAP as well as cause trouble in a number of places. Redmond is clearly one place where the heat just got turned up a notch or two: Microsoft definitely gets the tools side of BI in spades, but has no clue how to put to work the domain knowledge needed to get things moving for its line of business customers. IBM is another place where trouble is now brewing: having eschewed direct participation in the applications business, it is stuck putting the considerable domain knowledge of its consulting group into expensive, one-off custom projects that have a significantly larger total cost of ownership than the packaged solutions SAP can now try to bring to market with Business Objects. For IBM and Microsoft, it’s time to be a little worried about the future of the BI market.

And then there’s Oracle, crowing somewhat that this huge acquisition justifies its own jumbo acquisition strategy. Which it does, in a way. But the promise of a whole new way to build and deliver business analytics a la Business Objects + SAP is very different than the strategy of acquiring customers and maintenance revenues and then upselling these new customers a set of existing applications that are part of a broadening portfolio. Oracle is justifying its buying spree by the promise of upsell and cross-sell of existing functionality, SAP is hoping this deal will result in net new solutions that have not really existed in the market before.

Ironically, I believe that Oracle is already trying to finesse this issue organically – especially now that it owns Siebel Analytics and Hyperion, though it has done nothing as dramatic as SAP’s latest move. But there’s a fair amount of top notch analytic knowledge sitting around Oracle these days, and a growing portfolio of industry-specific transaction knowledge as well. So just as SAP is stealing a page from the Oracle playbook, Oracle is positioning itself to do the same vis-à-vis organic growth.

SAP + BO may be a watershed event for lots of reasons, including the obvious change of heart that SAP has had regarding large acquisitions. But more important than a me-too move in M&A is the potential growth for SAP if it can blend these two companies and get the business and tools sides working hand-in-glove. That will change the face of business analytics in a way that won’t just benefit investors (who will one day come around to this new opportunity I believe) but customers as well. And if that comes true it will be all worth while.

Topics: Enterprise Software, CXO, IBM, Oracle, SAP, Software

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  • SAP Made the Right Choice

    I am in agreement with the substance of this article. SAP has always had a longing for the presentation tools for the data warehouse side of its business and has already integrated may of BOs offerings into its distribution. It was alway my impression that Crystal Reporting (for example) would be offered by SAP to the BI/BW community at some point in its lifecycle. Reviewing the product line for BO, it seems that it is a natural fit for SAP on so many levels and addresses many of the SAP suite shortcomings.
  • RE: Why Did SAP buy Business Objects?

    What about Business Information Warehouse from SAP?
    Perhaps the movement should to be now, after Business Objects ate Crystal Reports.
    As BO's final user, i think that to get close process with analytical issues is positive.
    On the other hand to concentrate solutions on a few monster inc enterprises is not good at the final user point.

  • RE: Why Did SAP buy Business Objects?

    Josh - I agree with you that there is a lot of technical value to be unleashed by marrying ERP and BI, but I think this is really more of a following Oracle strategy than a breaking new ground strategy. I wrote my thoughts about it at: http://www.keeneview.com/2007/10/sap-decides-chuck-phillips-was-right.html
  • Reporting for the rest of us

    I have been intimately involved in helping SAP BW
    customers install, configure, and utilize the Crystal
    Reports solution for SAP (currently "Integration Kit for
    SAP") for over five years. Before that I worked at Apple
    Computer. Some thoughts from the trenches:

    1) Almost everyone involved in designing BI software
    (or any type of software, for that matter) doesn't have
    much of a clue as to how difficult it is for the
    everyday, normal human being to actually make
    reasonable use of it. The old idiom "more is less"
    certainly applies with BI.
    2) Crystal Reports is the "Rodney Dangerfield" of BI
    tools (I know, I'm dating myself - if you don't know
    who Rodney Dangerfield is, ask your Dad). I was once
    told by an IT director that he could put a monkey in
    front of Crystal Reports and produce all the reports he
    needs. Fortunately, he settled for me. But, even
    though his remark was meant to be derisive, in many
    ways it points out the best feature of Crystal from
    both a development AND consumption perspective - it
    is approachable by normal, nontechnical people (and
    perhaps a monkey or two).
    3) Crystal Reports is the "Swiss Army Knife" of BI tools.
    While it may be lacking in respect (by certain IT
    snobs), it quietly gets the job done - almost no matter
    what the job. I've yet to see anything you can throw at
    Crystal that it cannot handle, as long as it doesn't
    require to much in the way of slicing and dicing.
    4) Whatever happened to the idea that the business
    warehouse is supposed to deliver the data "ready for
    consumption"? Al most all of the data I???ve pulled out
    of the typical SAP warehouse has had to be run
    through another ???pass??? within Crystal to make it truly
    usable for the end user (whether it be additional
    business logic or fixes to the data). In my experience,
    the ???back end??? folks are just a bit too far removed
    from the business end user to effectively fix every
    problem with the data.
    5) An enterprise reporting tool like Crystal Reports
    should be the ???heavy hitter??? of an organization???s BI
    toolset. My contention is that you should be able to
    satisfy the bulk of an enterprises need for information
    with a tool like Crystal Reports. Before you get too
    anxious to move on to the more exotic BI offerings be
    sure you???ve laid a proper foundation to build upon.
    Which brings be to my final point . . .
    6) The combination of Crystal Reports and Business
    Objects Enterprise provides the enterprise with a ???gold
    standard??? to base all subsequent data analysis upon.
    This is perhaps the best reason of all, and could be
    the only one that ultimately matters. We all know the
    problem: no single version of the truth, the need to
    ???sing from the same song book???, etc. I have found that
    using this type of delivery platform is a great way to
    keep everyone on the same page.

    If you or someone you know would like to further
    discuss how to make the combination of SAP BW and
    Crystal Reports work for you, feel free to contact me
    directly at insideinfoinc@aol.com.

    Mike Garrett
    Mike Garrett