SAP announced that it is buying Sybase for $5.8 billion. While some might be surprised, we see this is a highly synergistic acquisition with little overlap between the two that will propel SAP (and Sybase) to increased market share and into new markets. SAP rightly understands that within the next 2-3 years, there will be more mobile platforms used in business than desktops, especially in emerging markets where many businesses are skipping the traditional PC device in favor of the many flavors of smart phones and other wireless devices (e.g., the emerging trend in tablets/slates). Getting to this “next billion users” is critical to SAP’s long term success. With the acquisition of Sybase, SAP gets a proven technology player that has a major impact on mobilized solutions across a wide swath of capabilities. And while mobility may be the driving force behind this acquisition, SAP also gets a high quality analytics capability and mobile infrastructure play (Sybase 365) it can leverage to boot. SAP has stated that it has three pillars from which it must work: On Premise, On Demand, and On Device. Sybase helps them greatly achieve this last pillar.
Sybase and SAP have been working together for some time to strategically mobilize SAP core applications (e.g., CRM, SFA). SAP has not been terribly successful in the past with mobilizing its suite of back office applications on its own, despite years of trying. Sybase has the recognized industry-leading mobile middleware Unwired Platform, along with substantial assets in its Afaria product for mobile management and security, and Mobile Office in secure client technology for the leading smart phones (e.g., iPhone, Windows Mobile, Android, BlackBerry). SAP can use Sybase’s leverage in all of these areas. It plans to acquire Sybase, but run it as a stand-alone business and allow it to continue to focus on what it does well (and profitably) without undue pressure from SAP central command (at least this is the stated management goal).
So what does SAP obtain by acquiring Sybase? There are a number of key technologies and business opportunities.
• Sybase has a very good capability in large scale real time data analytics, and is widely deployed in banking and financial institutions. This is a key competitive component and something SAP needs to offer to limit impact from its competitors (e.g., IBM, Oracle) in its installed base of users. It also gives SAP a window of opportunity to sell into industries where it is not currently strong.
• Sybase has proven technology in mobilizing enterprise apps, and has provided SAP mobile solutions on a variety of handsets (BlackBerry, Android, iPhone, Windows Mobile). Mobility is an area where SAP has tried to be a major player on its own for some time, but has largely failed and has needed to rely on third party solutions to remain competitive. However, there are a number of third party solution providers that currently mobilize SAP applications for vertical industries (e.g. Antenna Software, Syclo) that have their own mobile platform, and the acquisition of Sybase might cause some channel conflict. We believe this can be managed.
• Sybase brings a competent DB capability in proprietary, open source, and mobile databases. Although the majority of companies still use Oracle or IBM as their primary DB, this will allow SAP to more tightly integrate a DB and potentially displace Oracle in some accounts, thus eliminating a potential threat from Oracle trying to replace existing SAP installations once on the premises. We don’t expect to see many defections in this regard, but it does give SAP an additional lever and potential competitive advantage in pricing. And it gives SAP the opportunity to penetrate existing Sybase DB clients.
• While Sybase owns a nice niche, especially in the financial industry, it can not compete head-to-head with Oracle in application suites. This has put them at a disadvantage, and a combination with SAP can rectify this, bringing it before new opportunities it could not have achieved on its own. This ultimately helps both SAP and Sybase obtain increased revenues.
• Sybase management (and especially CEO John Chen) has done a stellar job of making Sybase profitable and because of this, an attractive acquisition candidate. Was this the strategy all along? Who knows? But it does provide SAP with a compelling opportunity as it can essentially pay for the acquisition through future revenues and profits.
• SAP sees NetWeaver (their Java-based platform and dev environment) plus Mobility and in-memory analytics as the future of their platform. NetWeaver by itself is not very mobile capable, so SAP does need the mobility platform capability Sybase offers, and more specifically, the expertise Sybase brings from already having worked with NetWeaver to integrate SAP CRM with the Sybase Unwired Platform through joint development, Longer term we expect to see a melding of the best of the Unwired Platform with NetWeaver to allow easy deployment of mobile SAP solutions. Sybase is an open environment supporting many end user platforms and will complement the Java-only environment of NetWeaver. This will also give them an advantage as they court the major System Integrators who embrace openness for its flexibility.
• SAP knows it can’t work with “Real Time” enterprise customers without a mobile component. Indeed, many real time organizations are over 50% mobile today. Sybase brings the ability to provide a solution to those companies while maintaining client control.
• Sybase has a major component of its business in Sybase 365: a company with connectivity to nearly all the worldwide carriers for its SMS/MMS messaging traffic. However, Sybase 365 also has some core components necessary for extending end user services to consumers (e.g., mobile payments, m-commerce, alerting). This is very attractive to key industries (e.g., retailing, banking) that want to extend their SAP back office systems to be direct to consumer focused (e.g., on-line banking, mobile commerce). This is a huge opportunity in both the developed and the developing world, and SAP should be able to leverage this accordingly and generate some significant revenues.
• Finally, buying Sybase takes the leading platform vendor for Mobile out of the market and away from the possible capture by a competitor of SAP, so this is a strategic business acquisition as well as a strategic technology one.
Who else in the market wins and loses by this acquisition?
• Oracle: This is a direct assault at Oracle, who SAP sees as its primary competitive threat. Oracle has a strong analytics capability and a huge DB business, including in SAP’s installed base, but a weak mobile story, which it has been improving over the past year. This acquisition targets Oracle in 3 keys areas: mobility, analytics, and to a lesser extend, its core DB business. While we don’t expect SAP/Sybase to displace many Oracle installations, this does give SAP rights to the most complete solution available. And keeping Sybase away from Oracle is strategic for SAP, although an acquisition by Oracle would have been unlikely since Oracle saw Sybase as a database company rather than a complementary technology enabler.
• Microsoft: This also places Microsoft at a disadvantage. It has been trying to move upstream and get more SAP installations by nipping at its heals, and with some success. With Sybase, SAP can now provide a more credible “mid-market” solution and excel at its mobile offering, becoming so key in the market.
• Device Manufacturers: RIM, Apple, Google, etc. all get renewed access to SAP solutions through the enhanced mobile interface Sybase will provide. This should drive their sales into businesses and increase and accelerate the overall acceptance of their devices. Since Sybase is vendor neutral (even if not all platforms are released at the same time), this is a win for all of the smart phone vendors.
• Third Party Solution Providers: The acquisition of Sybase may not be good for Antenna Software, Syclo and other targeted solution providers who worked with SAP directly on verticalized solutions, and who will now see increased competition (over time) from SAP-internal designs.
This acquisition has dramatically altered the mobile enterprise solutions market, and we see this as a win-win for both SAP and Sybase. However, SAP does not have the most stellar history of buying companies and then maximizing its investment in the technologies it has acquired. Will Sybase capabilities languish within SAP? Only time will tell, but keeping Sybase as an independent entity is a good idea. And will Sybase’s existing customer base look upon the SAP acquisition as a move to increase costs and extract new revenues by forcing upsell’s? It’s relatively hard to strip out a DB and analytics engine, so customers won’t be moving away very quickly if at all. But this acquisition should accelerate the “mobilization” of SAP’s core suite, making it easier for its installed base to get applications into the hands of the mobile workforce, and for SAP to sell into markets where a large majority of the workforce is mobile all the time. Mobile deployment costs should go down and time to market should be accelerated. Further, it will give SAP the ability to offer needed mobile services (e.g., payments, mobile marketing) many of its customers require. We expect this to be a successful combination of business and technology, and except for mis-steps in technology or pricing, should provide a market advantage to both SAP and its customers.
Jack Gold is the founder and principal analyst at J.Gold Associates, an information technology analyst firm based in Northborough, Mass., covering the many aspects of business and consumer computing and emerging technologies.
