FSN: SAP goes head to head with Oracle leaving Cognos and other independents with a clear field

SAP goes head to head with Oracle leaving Cognos and other independents with a clear field

15th October 2007
In a deal reportedly approaching $6 billion, SAP the world's largest vendor of accounting and ERP systems is to acquire Business Objects the supplier of Business Intelligence (BI) and performance management applications. The transaction places SAP on a similar footing to Oracle which earlier this year acquired Hyperion, one of other leading vendors in the performance management space. FSN's managing editor Gary Simon , considers the consequences of the latest mega deal for the respective organisations and their customers.

This is the deal the market had been waiting for and largely rectifies SAP's apparently half hearted entry into the performance management market made via the acquisition of OutlookSoft a few months ago. OutlookSoft did not have the customer credentials, market reach or weight of the Business Objects transaction and was never likely to position SAP appropriately against Oracle.

Arguably, Business Objects represents the deal that SAP should have done in the first place. Under the stewardship of Bernard Liautaud its chairman, Business Objects has transformed its position in a matter of years from a pure play vendor of Business Intelligence capability into a formidable supplier of performance management applications. Inspired strategy saw Business Objects acquire ALG Software the provider of ABC/ABM (Activity Based Costing/Management) and budgeting applications, followed by the capture of Cartesis, one of the leading suppliers of performance management systems with a strong bent for financial and statutory consolidation. Included in the latter acquisition was a valuable supply of consulting skills and domain knowledge that would give Hyperion (now Oracle) a run for its money.

However with the ink barely dry on these deals it is legitimate to enquire whether SAP is going to suffer indigestion as it seeks to integrate the enlarged Business Objects organisation which itself has only just absorbed Cartesis and ALG. Only last month Business Objects announced that it had integrated the recently acquired applications into an integrated data model but how will these products sit with the rest of the SAP portfolio?

David Jones, Director of Paragon Consulting, told FSN, “ We see it as another very interesting development which in the medium/longer term will clearly make SAP a powerhouse in the BPM space to compete with Oracle-Hyperion EPM (Enterprise Performance Management).

However, it will not make life easy for the clients we are currently working with on BPM vendor strategy and product selections, who will now see SAP offering three products in the consolidation space (SEM BCS, Cartesis Finance and Outlooksoft) and five products in the planning space (SEM Integrated Planning, Cartesis Planning, OutlookSoft, SRC and ALG) some of which don't have easily integrated architectures. We will await further details on the SAP BPM product strategy with considerable interest.”

But none of the mega deals of the last 18 months make the perfect acquisition. They inevitably involve product overlaps and technology conflicts. Business Objects itself has potential overlaps and so for that matter has Oracle – just consider how many accounting packages it has, for example, J D Edwards and PeopleSoft, not to mention overlaps in Business Intelligence.

Strategically speaking, overlapping products are not necessarily a bad thing provided that customers have security of tenure and that upgrade paths are guaranteed. The potential danger to customers comes from discontinued products or dead end product road maps. The problem with acquisitions is that they create a great deal of uncertainty and doubt as newly enlarged entities are forced to grapple with organisational change, differences in culture as well as technology.

Rather more interesting is how the current vogue for mergers between ERP vendors and BPM suppliers leaves the rest of the market. Clearly the scale of the newly enlarged SAP and Oracle businesses dwarfs many of the other competitors in the field, but it also serves to highlight the differences. Cognos for example remains a distinctly different competitor. It has no particular allegiance to an ERP platform or any other technical foundation and can with some justification claim to be truly independent. Some will see this as a significant advantage compared with the ‘all eggs in one basket' approach of the newly emerging ERP based giants. Furthermore, in reality very few multinationals have wall to wall technology from a single supplier and so a BPM vendor such as Cognos that can simultaneously straddle many technologies will be welcome news to some decision makers.

On the other side of the coin many companies are seeking to reduce the number of strategic suppliers and having more products under one roof will be seen as an advantage. However, SAP and Oracle will need to do more than accumulate portfolios and change product branding. Product integration, deep domain knowledge and delivery (consulting) skills will be key to realising the benefits that large global customers are seeking.

Microsoft and SAS also retain distinct market propositions. Often characterised as “applis” (vendors of applications plus infrastructure) both offer a viable performance management platform for companies heavily invested in their particular brand of technology.

So where does that leave the smaller specialist vendors such as Clarity Systems and Applix? Well Applix was snapped up by Cognos but Clarity Systems continues to flourish as an independent software house trading on the quality of its domain knowledge and ability to deliver more nimbly than some of its larger competitors .

It seems that after several years of coalescence where software leaders acquired the component applications underlying performance management (principally consolidation, planning and reporting) that the game plan has changed. A new breed of mega supplier is emerging, capable of providing both the performance management suites and ERP systems which feed them. Whether customers see this as an advantage remains to be seen. In the meantime the independents can not only trade on the inevitable uncertainty that large acquisitions engender but can also take satisfaction from the fact that their positioning is more distinct and viable in the face of fewer competitors. Customer choice has suddenly become a lot clearer.

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