SAP's Business Objects acquistion: The death knell for point solutions?

SAP, the company known for building rather than acquiring technology, did an about-face this week, announcing its intention to acquire Business Objects, one of the largest point-solution ISVs in the BI space. SAP does not usually acquire large companies. Instead, it more typically makes what its executives like to call strategic "vest pocket" acquisitions of smaller, lower-profile companies to fill in gaps missi

SAP, the company known for building rather than acquiring technology, did an about-face this week, announcing its intention to acquire Business Objects, one of the largest point-solution ISVs in the BI space.

SAP does not usually acquire large companies. Instead, it more typically makes what its executives like to call strategic "vest pocket" acquisitions of smaller, lower-profile companies to fill in gaps missing in their own technology. But the acquisition of Business Objects could very well represent a major change in the ERP landscape.

From where I sit, Oracle has been on a buying spree for the past several years and, over that time, has learned more and more from each acquisition about how to do it right.

In the meantime, SAP has remained reticent, almost as if it were sitting back and waiting for Oracle to have a major stumble. Unfortunately for SAP, that never really happened. And SAP can wait no longer. Now it will have to play Oracle's game if it wants to remain competitive.

What we will probably see now is an accelerated pace in acquisitions and consolidation among software vendors as each major company vies for what remains of the pure-play vertical solution ISVs. Given a few years of this, point solutions may become extinct or, certainly, an endangered species. Companies will be forced like never before to make a platform decision: Fusion, NetWeaver, or Microsoft and go with it. Of course, eventually, the pendulum will swing back the other way.

As Howard Dresner, principal at Dresner Advisory Services, says, "For every vendor that is acquired, there are 20 emerging companies offering new approaches, technologies, and business models." This will be the case, but it will take a while for these startups to become seasoned enough for an enterprise customer to bite at their solutions.

ERP as a stand-alone enterprise solution is no longer what it once was, a topic I addressed last April. Oracle saw the handwriting on the wall and started acquiring. SAP saw it a bit later and started building, mainly NetWeaver. But for my money, this Business Objects acquisition is an admission on SAP's part that NetWeaver alone won't cut it. It needs to broaden its market potential and market offerings now.

Business Objects' strength is in analysis and performance management categories. According to a SAP statement, the acquisition of Business Objects will give SAP customers the ability to integrate embedded analytics in transactional applications.

With the market for pure ERP systems in decline, the acquisition is not surprising and fits into the SAP strategy, as stated by SAP CEO Henning Kagermann, "to double our addressable market by 2010."

Copyright © 2007 IDG Communications, Inc.