I put off writing about SAP's proposed acquisition of Sybase (SY) last week because it will have no meaningful enterprise-software market impact. And therefore no IT investment impact.
I had pretty much decided not to even waste my time analyzing it at all despite my 'following' the two companies -- SAP more than Sybase -- since 1993. Then I received an email from Bruce Richardson's PR person at Infor telling me what Bruce thinks of the deal. That brought back memories, from multiple directions, that might hint at where this thing is going. If I am right, the deal still has no meaningful enterprise-software market impact but there is a long-term investment story line.
First, Bruce Richardson -- if the name is not familiar to investors -- was the "dean of enterprise software industry analysts" for 20 years. Being 'dean' in this case means, among other things, that you get to ask the first question at analyst conferences. Of course, analysts and journalists never ask meaningful questions in public settings anyways so the title is simply a well-earned honorific, like a Brit being named a Knight by the Queen on New Years Day or being a VP of Research at IDC. Bruce wore an airplane seat on his back for many years for the former AMR software-industry-analysis group, recently acquired by Gartner, and then ironically joined all the former enterprise-software products he had "covered" as an analyst for 20 years (Baan, Geac, JBA, Mapcis, Marcam, SSA and about 30 others) by becoming the Chief Strategy Officer at Infor.
Bruce thinks:
- "This is a very risky move for SAP
· "The SAP/Sybase combination appears to represent little to no near-term value to either of their customer bases
· "This acquisition appears to be an attempt to create a platform combination to try and compete with Oracle (ORCL), and marks a significant shift away from the mid-market (strategy SAP said it was pursuing)
· "There is the potential that this acquisition could disrupt SAPs relationships with two of its most strategic partners and customers, IBM and Microsoft (MSFT)."
I am not sure why the Chief Strategy Officer of a company built on a couple of score of acquisitions would put out an opinion about another company's acquisitions (why highlight your own mish mash?) but I agree with the second and third of Bruce's bullets. Despite all the "mobile blah blah" written by SAP as the justification for this acquisition and parroted back by the technical journalists, Sybase gets most of its billion dollars in revenue from its legacy database product with a good chunk of the rest from the former Powerbuilder line of products it acquired with Powerbase in 1994. Neither product set represents any more of a threat to Oracle (ORCL) as part of the SAP lineup than it did independently.
But I don't agree with Bruce's first or fourth bullets. The acquisition gives SAP a few more arrows in the quiver, albeit arrows made of out of balsa, for cross selling. I don't see any risk to SAP in that. There is no inherent reason why this will change the SAP mid-market strategy, a strategy at which SAP has thrown a dozen tactics since 1997, beginning with the infamous Pandesic.
More important, with the increasing re-emergence of the cloud-computing/SaaS/ASP/OnDemand/timesharing/service-bureau mode of software deployment after its 25 year hiatus, I don't think partnerships like SAP's with Microsoft and IBM matter that much any more anyways. SAP and Microsoft will soon be bitter competitors up and down the stack (except in operating software, a market that doesn't apply in the cloud). And IBM Global Services helping SAP in big megamillion implementation deals won't be a factor either because implementation deals go away in the cloud.
The second memory that hit me as I thought about the fact that Sybase is really a middleware company in the Oracle mold -- and not a "mobile blah blah" -- led me down another path that I haven't seen mentioned on the blogosphere (so it might be worth writing this blog post after all). The legacy Sybase database I mention above is the nice twin of the evil Microsoft SQL/Server. The two companies had a joint development project in the late 1980s to develop PC-based database software; today's products descend from that effort. Sybase, which had marketed data management software at the time and was number two to Oracle's number one, never grew the business any further whereas Microsoft came from zero to a strong number two or three in the database market (depending on whether you think IBM DB/2 is one product).
Now here's where it becomes more than just an IT history lesson. SAP takes over the Sybase twin to Microsoft SQL/Server. The conservatives get even stronger in the UK over the next few years (despite saying what they are saying about proportional voting just to get into power). This makes the EU's big three governments all conservative (and maybe they even drop out of the EU but I can only dream about living that long). Microsoft waits until the U.S. government goes conservative again (no sooner than 2012 but even if it has to wait until 2016). Then Microsoft acquires SAP without having to put up with all that messy Democratic-party and EU-socialist anti-trust blah blah blah. The SQL/Server twins, separated at birth, are re-united. Oracle gets real competition up and down the stack, something that SAP can't provide and that Microsoft does not try to provide today because it doesn' want to deal with Eric Holder's leftist agenda.
Of course, my first memory trumps the second memory. None of this matters in the cloud/SaaS/ASP/etc. world. Which is why, by choice, Oracle is no longer the world's largest enterprise software provider. And, by choice, IBM exited the information technology market. And why I didn't want to write this blog post in the first place.
-- Dennis Byron
(no financial interest in companies mentioned except the $12 a year I pay Microsoft for Office)
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