SAP: Does the Sybase Deal Make Sense?

OK, SAP can drop its continued insistence that big bang acquisitions are not part of its core strategy. The company’s planned $5.8 billion of Sybase Inc., in the wake of its 2007 $8.6 billion acquisition of Business Objects, makes SAP a serial mega acquirer.

Granted, SAP’s acquisition strategy is vastly different from that of its chief rival, Oracle Corp. Whereas Oracle has tended to grow through the acquisition of competitors and their customers — think PeopleSoft — SAP has acquired vendors in contiguous markets, hoping to expand the business while also benefiting users of its core enterprise applications.

So does the Sybase deal make sense? Yes, if SAP can capitalize on the potential synergies it brings without diverting management focus from a ton of other challenges facing the enterprise applications market leader.

With the proposed Sybase deal, SAP has put its money where Supervisory Board Chairman Hasso Plattner’s mouth is. Plattner has declared for at least a couple of years now that the next big thing for SAP and the enterprise applications market is ultra-fast in-memory databases. Such in-memory databases would allow SAP users to perform even complex, memory-intensive analytics directly from within the core ERP transaction environment. Such an approach would give manufacturers real-time visibility into things such as work-in process inventories across a network of plants.

Sybase’s In-Memory Database (IMDB) platform, drivers, and administrative tools are a great fit for Plattner’s vision. It would also give SAP direct control over something it’s always wanted: the database technology that underlies SAP’s core applications.

Of course, SAP’s entry into the database business raises questions about its relationships with DBMS partners IBM and Microsoft. While SAP, in its press release announcing the Sybase deal, went out of its way to say that it will continue to support “leading database vendors,” it’s difficult to see how this deal wouldn’t chill its relationships with its DBMS partners. The deal might even hasten IBM’s reentry into the applications business. (Microsoft is already there.)

The acquisition also has the potential to make SAP a leader in delivering wireless connectivity to enterprise systems. Many manufacturers I’ve talked to are excited about the prospect of allowing employees to access enterprise applications wirelessly from the plant floor or the field. And Sybase had already gone a long way toward establishing itself as a mobility software leader.

This deal has the potential to allow SAP to roll out mobility applications faster than it could have relying on partners.

So what’s the down side? SAP and its new two-headed office of the CEO were already facing major challenges and obligations even before the Sybase deal. CEOs Bill McDermott and Jim Hagemann Snabe have said they and SAP need to work hard to rebuild customer trust following the company’s missteps on software maintenance price hikes. At the same time, the company has much work to do executing on its vertical industry strategy, rolling out the cloud-based Business ByDesign product and, yes, realizing the promised benefits of the Business Objects acquisition.

Maybe SAP can do it all. But it might take four or five CEOs.