Yesterday SAP announced that it was acquiring database and mobile provider Sybase for $65/share, or approx $5.8B in total, a 44% premium over Sybase’s trailing three-month average stock price and a 56% premium over Tuesday’s closing price. Here are some quick thoughts on the deal.
- SAP has been trying to figure out a way to get arch-rival Oracle out from underneath the majority of its deployments for about a decade. For example, they did a partnership with runner-up DBMS provider SoftwareAG to create MaxDB. Recently Hasso Plattner has been working with the Hasso Plattner Institute on a in-memory, column-oriented database. He presented a paper at SIGMOD on this work (which I’ll call HassoDB) and recently did a bizzare-ish video called Hasso on Hasso where he interviews himself discussing the project.
- SAP’s efforts thus far have lacked credibility. No serious Oracle shop would consider moving to MaxDB. Adabas is seen as a C-tier relational database provider in an oligopoly-dominated market (i.e., Oracle, IBM, Microsoft). Nor, to my knowledge, has Hasso’s work been taken seriously by the academic community; friends I know who attended the SIGMOD where he presented — and I’ll be nice for a change — said the paper was not particularly well received.
- SAP has a database problem. That’s clear. And I think buying Sybase was probably the best way out of it. The price, at 4.8x TTM sales seems high as does the 50%-ish premium. But then again, SAP didn’t have any real alternative if it wanted to buy size and credibility in the relational database market. The only other $1Bish company in the space is Teradata and they are data warehouse oriented. SAP presumably wants a data warehouse DBMS, but they need an OLTP DBMS as well. With its wide portfolio of DBMSs (e.g., column-oriented, in-memory, mobile, OLTP), Sybase fits the bill nicely. And that’s not to mention its Sybase 365 mobile services which position it well in mobile analytics.
- The acquisition seems pretty controversial. One banker I spoke to yesterday thought it was a terrible idea. I coincidentally spoke to some top DBMS industry analysts yesterday and they liked it. My analysis is simple: once SAP finally decided to solve their database problem — which, yes, they should have solved years ago — what other option did they have? Among the options obvious to me (e.g, partnering with IBM to leverage DB2, trying to commercialize HassoDB, buying Software AG, buying Teradata), this was the best one. The question isn’t how did they get themselves into this difficult situation and why were they asleep when Oracle consolidated a huge chunk of the enterprise software industry? The question is what should they do about it, right now? Sybase seems a reasonable choice, infinitely preferable to what I thought they were going to do: a quixotic attempt a turning HassoDB into a real competitor. (Presumably, the Sybase unit will now get that task and the odds of success go up by about 100x in handing it over.)
- I can’t help but mention the irony here. SAP was a key reason that Sybase ended up a B-tier DBMS. In the 1990s, when ERP application sales became a major driver for RDBMS purchases, Sybase lacked row-level locking which SAP required. While Sybase played a leading role in the OLTP phase of the RDBMS market, they were locked out of the party when ERP-driven phase hit. While Sybase eventually fixed the row-level locking issue (which was one of many knives also stuck in Ingres), it was too late.
- If SAP thinks this is going to be another easy Business Objects style integration they are wrong. Business Objects was naturally synergistic to SAP’s product offering and BI tools remained at the top of CIO priority lists around the time of the SAP / Business Objects deal. So while I think the Sybase deal is a good strategic move, I think it’s going to be about 10x harder to sell Sybase to SAP customers than it was to sell BusinessObjects. Last time, they were selling a complementary add-on product in a hot category; this time they’re asking customers to tear up railroad tracks.
- Is this deal about credibility? Yes. Does buying Sybase give SAP a lot of DBMS credibility? No. Sybase’s market share is less than 5%, but they have a nice portfolio of DBMS technologies on which SAP can build. Of SAP’s available alternatives, does this deal get SAP the most credibility? In my estimation, yes.
- Finally, a quick note on HassoDB. The basic idea is that column-oriented databases go fast for data warehousing because data warehouse queries typically aggregate detail in columns. Ergo, column orientation increases information density for these types of queries. The problem is that column orientation is a disaster or OLTP operations because what would have been one simple insert/update gets split across N columns. The solution to this problem, argues Hasso, is to put the whole thing in memory, ergo preserving the benefits of column-orientation while eliminating the drawbacks.
18 responses so far ↓
1 Jamie Hylton // May 13, 2010 at 6:35 am
Best analysis I’ve seen so far on this.
2 Dave Kellogg // May 13, 2010 at 11:29 am
Thanks!
3 Sybase Database Value to SAP – Long Term and Short « Merv's Market Strategies for IT Suppliers // May 13, 2010 at 12:00 pm
[...] great posts: Dave Kellogg, Curt Monash, Dana Gardner, Dennis Howlett, show the skepticism and concerns we al have about [...]
4 Merv Adrian // May 13, 2010 at 12:22 pm
Dave – cogent and pointed – great work. I must say that while I think the Sybase ASE database revenue will be accretive, it will be adjacent, not “in the base” for a while. The deal makes $en$e but the near term strategic impact is elsewhere. The success of SAP’s transition to a “stack player” or a “portfolio company” will take skills they have yet to demonstrate. It’s going to be interesting to watch it.
5 Coté's People Over Process » Acquiring, everyone’s doing it – SAP Buying Sybase – Quick Analysis // May 13, 2010 at 1:24 pm
[...] Dave Kellogg hits up the database angle as well. [...]
6 Zeev // May 13, 2010 at 3:06 pm
Well written post. Another interesting thing to observe will be who can execute the “stack” message the best in the field – build a simple story, and deliver it with impact – as this is where battles are won.
7 Kemal Gençay // May 13, 2010 at 9:12 pm
Dear Dave,
We are a bunch of ex-IBM’ers over 60 who still have our hands wet on apps, selling, installing, training.
I read the “MarkLogic Server Overview” white paper and was very impressed.
How about representing you here in Turkey?
Would be pleased to hear from you.
Best Regards
Kemal Gencay
8 Mike Pilcher // May 14, 2010 at 12:19 am
Dave
my gut says this is less about database and more about mobile. Perhaps I am giving SAP more credibility than they deserve as a pure database play would seem much too little, way too late. My thoughts on the topic are here.
http://www.sand.com/thoughts-sap-sybase/
Mike
9 E. Nose // May 14, 2010 at 12:39 am
Sybase has a number of interesting technologies for SAP:
1. The database – gets SAP an opportunity to choke off some of the ORCL revenue from SAP’s major accounts. This is not going to be an easy strategy to execute, but it’s something SAP has to try. (SAP initiated MySQL and sold it off – now it belongs to ORCL – what irony!)
2. Mobile infrastructure. A great move for SAP telco’s mediocre business. Apart from their recent billing acquisition and a scalable subledger for dunning, SAP has nothing of any note in telco. With Sybase they buy some thought leadership and some cool tools. Not sure whether this is enough for tier 1 telcos to trust their core business applications in the face of overwhelming capability and proof-points from ORCL and DOX, but it’s a good start-point. now at least SAP has something to talk about and some positive “five nines” reference customers.
3. Sybase understands internet-scalability in a way that is unknown in SAP, with its focus upon the enterprise. NetWeaver cannot – I repeat – cannot be used at internet-scale, which is the reason why it is not used at any of the main telcos or ISP platforms, nor in SDPs or portals. Sybase has some interesting stuff, and moreover excellent deep understanding of these issues. Until NetWeaver is fixed, SAP remains an easy target to snipe at by SalesForce.com and ORCL when discussing SaaS.
10 Dave Kellogg // May 14, 2010 at 2:14 pm
Kemcal, shoot me an email at ceo at marklogic dot com.
11 Dave Kellogg // May 14, 2010 at 2:16 pm
Mr. Pilcher,
Glad to see you’re blogging. My take is *they* want to play up the mobile angle and while it’s certainly part of the story, I think — and at least some others agree — that there’s plenty of database motivation as well.
Best,
Dave
12 Thoughts on the SAP Acquisition of Sybase: In Search of Credibility « JCC.COM // May 17, 2010 at 10:11 am
[...] May 13th, 2010 · 11 Comments [...]
13 Mike Pilcher // May 21, 2010 at 10:21 pm
Dave, always a pleasure. I think SAP trying to make this a database play is a bit like putting the ball over the line when everyone’s in the locker room. Customers are not going to switch platforms, nor deploy new instances because SAP encourage them too. I think SAP have done an awesome job of account influence up to this point but this is a step too far. We shall see but the Sybase technology for anything other than mobile is simply not innovative enough.
Mike
14 Ed Maguire // May 24, 2010 at 4:27 am
Dave, great analysis as always. My take is that the database angle is really secondary. The iPad’s explosive adoption is forcing enterprises to assess their mobility strategies, and Sybase had the broadest portfolio of MDM technologies and messaging services roughly $400mn/year. Even though the database is 70% of sales, this is still so small as to have very little impact. I think this is about SAP remaining relevant in the mobile enterprise with the database giving then a foothold in financial services where they have always lagged Oracle. SAP also gains a point of differentiation against Oracle on the mobile side – the only comparable efforts are AT&T’s mobile workbench (which uses Antenna software to mobile enable Oracle CRM).
15 Dave Kellogg // May 24, 2010 at 5:50 am
Thanks Ed and nice to hear from you. I’d argue there are elements of both. The mobile story is clearly 10x easier to tell right now than the database story so it’s not surprise to me that that’s the part they’re talking about.
In fact, if I’m right and that the DBMS is not a tag-along but a key motivator for this deal, there is little strategic reason why SAP should go message it. Why tip your cards when you can downplay DBMS in your messages and talk about mobile.
So I’ve not doubt that mobile is a big part of this. But I’m pretty darn sure that the DBMS was a big part of it, too.
Thanks for reading. Hope all is well in your firm.
16 Ed Maguire // May 24, 2010 at 12:40 pm
All is well Dave! If they were in fact looking to solve the DB problem this does get them there. Seems like the financial analysts were fixated on the database angle vs. Oracle and I think your view that they are trying to keep a low profile makes sense. I was at the analyst event Sybase held last week and John Chen said that it would take at least a couple of years for SAP to incorporate ASE into the stack in a meaningful way (and Chen also was very bullish on ASE – they were planning the next rev). I actually see this as a win-win for both parties, for SY $65/share is a pretty good outcome, SAP gets a story and technology without meaningful overlap. The proof of course lies in the execution…
17 Dave Kellogg // May 26, 2010 at 6:31 am
Thanks Ed and indeed it will both take time and the proof lies in the pudding.
18 Diana // Jun 18, 2010 at 4:34 am
Dave, always a pleasure. I think SAP trying to make this a database play is a bit like putting the ball over the line when everyone’s in the locker room. Customers are not going to switch platforms, nor deploy new instances because SAP encourage them too. I think SAP have done an awesome job of account influence up to this point but this is a step too far. We shall see but the Sybase technology for anything other than mobile is simply not innovative enough.
Mike
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