SAP Buys Sybase to Fulfill Mobile Strategy. Is it Enough? And What About the Cloud?

SAP said it will acquire database vendor Sybase for $5.8 billion, paying a 45% premium over the stock price of its target. SAP thinks the premium is warranted because it will help it fulfill part of its "three pillar strategy of on-premise, on-demand, and on-device software" as it looks to Sybase to deliver on their mobile enterprise strategy. But many analysts questioned the premise of SAP's decision, especially give the huge price tag and the shifting tide of towards cloud-based computing.

Take Dennis Howlett's series of questions in his ZDNet article, SAP acquires Sybase for $5.8 billion, but why?

On the mobile side, questions must be raised about what this means for applications - again in the financial and telco utility space. Most applications in these markets are driven by opportunistic marketing campaigns requiring the development of new offers. That in turn often means custom development. Does SAP think that Sybase and in-memory gives them an entree to this massive market? If so how does it plan to manage all the integrations required? Where is the rapid apps development environment that would make SAP a natural choice? It has no real ownership in these markets such that the new combination makes direct sense.

Howlett also called into question SAP's current stance against building a complete software stack a la Oracle. Such a decision, which SAP appears adamantly against, would require a play for a key middleware acquisition. This seems almost a natural, whatever one believes of their approach with NetWeaver. As Howellet explains, "If SAP really wants to capitalise on all these opportunities it has to make a middleware and integration play or - as seems increasingly the case - deepen its relationships with integration and technology providers like TIBCO and SAG. This has the curious effect of creating a perverse dependency on smaller players who do this kind of heavy lifting."

Another great analysis is Bob Warfield's in Enterprise Irregulars, SAP + Sybase: Sy-Who? He covers some of the same ground as Howlett, but also takes it further by examining the implications as they relate to cloud computing.

I think he hits the mark when he focuses on the “paradigm shift” of cloud computing. It highlights the misreading of this shift by SAP and underscores their predicament. SAP took the predictable route and one that Wall Street understands and can easily quantify. A bolder move in the area of cloud “enablement”, as he suggests, would have actually been more strategic.

He starts by saying that this is much more than software as a service (SaaS). So while Business ByDesign is a nice step it isn't by any means enough. He explains it thus:

The innovations and paradigm shifts needed to figure out all the problems associated with safely moving a giant SAP patchwork into the Cloud will fund multiple hugely profitable companies. There are likely some extremely valuable acquisitions SAP could be making along those lines, but they are probably not obvious. If you told me they were buying Akamai, or some obscure web video provider, because those companies know how to move cubic terabytes into and around the Cloud, it would make more sense to me than Sybase.

Again, I totally agree. But, I also understand, as I'm sure most people do, that this acquisition was much easier to justify (we can debate the 45% premium) from a board room and Wall Street perspective. Sybase is a known quantity with customers, revenue and market share that can easily be calculated and massaged so that all the parties (including the investment bankers) feel good about it.

Unfortunately, reality has a tendency to change these nice equations and such enthusiastic words.