Channel Partners Question SAP 's Business Objects Deal

SAP business intelligence software

"Overall, we see it as a positive. As a Business Objects channel partner we should have a bigger customer base to sell into now," said Paul Grill, principal with Infosol, a Phoenix-based business intelligence solution provider and 10-year Business Objects reseller.

Late Sunday SAP and Business Objects announced an agreement for SAP to acquire Business Objects for more than 4.8 billion Euros or approximately $6.8 billion. The deal, which requires approval from Business Objects shareholders and U.S. and European regulators, is expected to close in early 2008.

With the consolidation that's been sweeping the business intelligence industry in recent years, Business Objects and its chief rival Cognos have frequently been mentioned as potential takeover targets. Resellers say the rumor mill concerning Business Objects was particularly active in recent weeks because of a report last month that the company had hired Goldman Sachs to find a buyer. Hewlett-Packard, IBM, Oracle and SAP were all mentioned as potential suitors.

"I really thought it'd be HP," said Michael Ward, senior partner at Creative TechnologyTraining Solutions, a business intelligence solution provider in Shelby Township, Mich.

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"I figured an acquisition was inevitable. I didn't know how long they could remain independent," said Taylor Courtnay, president of Decision First Technologies, an Atlanta-based Business Objects channel partner. He considered SAP to be a better acquisition partner for Business Objects, noting that Oracle already has multiple business intelligence products from its previous acquisitions and IBM would likely have subsumed the business intelligence vendor.

"If the two companies are combined, the tendency for SAP shops will be to go with Business Objects," predicts Bill Dunn, president of Dunn Solutions, a Business Objects channel partner in Skokie, Ill. Dunn said when he pitches Business Objects to potential clients that use SAP applications, about 50 percent of those opportunities go with products from another business intelligence vendor. Linking SAP and Business Objects software more tightly should improve his win rate, Dunn says. "I tend to view this as an expansion of my potential client base," he said.

"My only concern would be if they changed the channel partner model," Dunn said. Infosol's Grill agreed, admitting that he knew nothing about SAP's channel program.

The acquisition is part of the evolution of business intelligence software from tools offered by independent companies such as Business Objects and Cognos to embedded reporting and data analysis within broader application solutions. On the plus side, such solutions "should be easier to sell," said Gartner analyst Dan Sholler. But that also could negate the value-add BI solutions work some channel partners have built their businesses on.

Market research firm International Data Corp. ranked Business Objects as the top company in the $6.25 billion business intelligence tools market in 2006 while SAP was ranked seventh. In 2006 SAP reported total revenue of more than $13 billion while Business Objects reported sales of $1.25 billion.

In a Monday morning conference call SAP CEO Henning Kagermann said Business Objects would operate as a separate business unit with Business Objects CEO John Schwarz staying on as CEO of the subsidiary and that there would be no significant reorganization of either company. But on the call Schwarz also acknowledged that the two companies must align their technologies, services and operations. The acquisition deal announcement said that additional "executional details" about how SAP and Business Objects will be combined would be released after the transaction is completed.

On the call Schwarz said a strategic reason for the merger is to help the companies accelerate their efforts to expand sales into mid-size markets -- customers with sales of less than $1 billion -- through the channel. Schwarz noted that each company has nearly 3,000 channel partners targeting SMB customers, "So the combined [number of] channel partners is more than 5,000," he said.

Gartner analyst Dan Sholler said SAP must provide a clear technology roadmap fairly quickly or sales of both companies' products could stall due to uncertainty.

Kagermann made it clear that Business Objects' products would remain "agnostic" -- able to work just as well with databases and applications from competitors as with SAP systems. Business Objects' software already has links to SAP's Business Information Warehouse data warehouse system, part of its NetWeaver platform. But the performance management tools SAP acquired earlier this year through its OutlookSoft buyout overlap with Business Object's own performance management offerings.

"To me it's an admission by SAP that they didn't have real end-user [BI] tools," said Ward of Creative TechnologyTraining Solutions. [While Ward's company provides Business Objects-related services and training, it severed its relationship with the vendor several years ago in a contract dispute.]

The SAP-Business Objects deal is the latest in a wave of consolidation that's been sweeping the business intelligence industry this year, including Oracle's $3.3 billion buyout of Hyperion in April and Cognos' pending $339 million acquisition of Applix. A report from UBS Investment bank said the Business Objects acquisition could make Cognos an even more attractive acquisition candidate and named EMC, HP and IBM as possible acquirers. (In a statement, Cognos CEO Rob Ashe emphasized that the SAP-Business Objects deal leaves Cognos as the leading independent performance management software vendor.)

Business Objects, which is headquartered in Paris, France, with significant operations in San Jose, Calif., itself offers technologies from a number of acquisitions, including reporting software developer Crystal Decisions, performance management software developer Cartesis and financial planning applications vendor SRC Software.

In a related matter, Business Objects issued preliminary results for its third quarter ended Sept. 30, stating that license revenue is expected to fall below expectations to between $137 million and $139 million. That, in turn, is expected to cause a shortfall in expected earnings, the company said. Schwarz said rumors about an impending acquisition took a toll on sales during the quarter.