SAP's $5.8 billion acquisition of Sybase raises a bevy of questions and sparks a good bit of head scratching.
Is this deal really all about mobility in the enterprise, Sybase's growth engine? If you buy the mobility argument, some analysts such as Credit Suisse analyst Peter Goldmacher note that SAP levered up to pay $5.8 billion for a $400 million business (Sybase's mobile pieces).
Is this deal about grabbing a database that can win some incremental business and lessen SAP's dependence on Oracle databases? After all, 70 percent of Sybase's revenue comes from relational database and analytics software.
Or is the Sybase deal just one piece of what's going to become a string of SAP acquisitions? Dennis Howlett argues that SAP could also buy Tibco to play the middleware game. SAP executives said Wednesday that they aren't interested in owning an entire stack. We'll see.
First of all, I wish SAP had not done this. They have enough on their plate without adding another layer of complexity and chaos to distract management. But having said that, Sybase is a nice move, if it can give its customers a choice beyond Oracle, and help (Chairman Hasso) Plattner with more resources to deliver on his in-memory/columnar data vision.
Let's address those aforementioned big questions.
Mobility is the headliner of the deal. SAP co-CEO Bill McDermott said:
We see a huge emerging market for the real-time, unwired enterprise. With this strategic move, SAP becomes the number one provider in this market, a significant first mover advantage for our strategic growth ambitions.
Jim Hagemann Snabe, SAP co-CEO said:
This acquisition falls right in line with our three pillar strategy of on-premise, on-demand, and on-device software...Now, with the acquisition of Sybase, we will secure our leadership in on-device, further cementing our ability to bring information to users anytime, anywhere, and on any device. As mobile applications for consumers have changed the world, the way people live and communicate mobile applications for the enterprise will have an equal profound impact in the way they work. We want to make sure that SAP solutions can be accessed from all leading mobile devices.
Here's Sybase's unwired vision:
There's no doubt that mobility is a big market. However, SAP's big payoff will require some shareholder patience. Indeed, Goldmacher said:
While the dream around mobile is big and Sybase is the undisputed leader, it is going to take a long time before the mobile business can move the needle for SAP. There is a smaller near term opportunity within SAP to mobile-enable a portion of its existing ERP apps.
The database question. It has been suggested by a few observers that the Sybase acquisition has a heavy component of SAP chairman Hasso Plattner's urge to stick it to Oracle. For better or worse, SAP is now in the database business. Jefferies analyst Ross MacMillan said he gets the mobility part of the Sybase acquisition. "What we understand less is why SAP would want to own a relational database business with low (but improving) market share," he said.
We will continue to innovate the database and grow the license and maintenance revenue stream coming from it. Moreover, with the database business comes technological know how and market leadership in an area of column storage databases which is used for advanced analytics. This compliments the in-memory technology that we in SAP are using to provide real real-time analytics. This way Sybase will help us accelerate the delivery of a next generation platform for business intelligence and planning optimizing applications.
John Chen, Sybase CEO, acknowledged the database issue and the company's roughly 3 percent market share in the U.S. He said:
Where we play, we play well. We are the number one in investment banking world and in most of the financial world, stock exchanges, and insurance companies...So we actually believe, especially in the emerging markets, we're extremely, extremely competitive. The last set of data I know is Sybase enjoyed roughly about 18% database market share in China. And so that is something that I think we as a collective company could continue to serve and exploit especially in the southeast Asia area.
SAP said it will continue to support databases from key partners such as Microsoft and IBM. Oracle, though unnamed in the conference call transcript from Wednesday, is also on the list. It will be interesting to watch how SAP can lever Sybase's strong verticals in finance with its applications.
Laura Lederman, an analyst at William Blair, said:
While SAP management stated that it will continue to support other leading database vendors, our sense is that SAP will try to have customers use Sybase instead of the Oracle database. We do not expect them to be successful in this effort.
However, Altimeter Group's Ray Wang estimates that SAP resells $1 billion in Oracle databases a year. Why wouldn't SAP use Sybase to stop funding a rival?
And the final question to be addressed is SAP's ambitions beyond Sybase. Howlett makes a strong case that SAP will continue to acquire companies and possibly Tibco. Snabe addressed the issue a bit and said:
I think it's very important to make a clear statement that we fundamentally don't believe in buying the entire stack. We actually believe in choices for companies and we believe in focusing our attention on the right layers of the stack. Why do we have this belief? Fundamentally we believe that the stack as we know it today is being changed. You see hardware moving into the cloud and you see databases moving into memory. And this gives us opportunity for us to change the shape of that stack and move our strategic position forward. And this acquisition is clearly one that allows us to do that. Combining applications and data closely gives us huge advantages because that significantly increases the value proposition for our customers. So just wanted to say that we are not trying to and we don't believe in buying the entire stack.
However, it's a safe bet that SAP will be acquiring more parts of the IT stack. Just because it doesn't want all of it, doesn't mean it can't grab more parts via mergers and acquisitions.