Of friends and enemies

Some months back I spoke to a senior executive discussing about their product strategy. At one point in the discussion, he quoted an old Arabian Proverb: “the enemy of my enemy is my friend”. It is his interpretation of how partnerships are created in the business world. What scares me is that I understood what he meant and see its practical applications.

A week ago I wrote about SAP’s acquisition of Sybase and its implication to the software arms race. I follow this rant with a twist that comes in the form of new partnerships that are shaping up, not directly as a result of SAP’s acquisition, but as a progression of what’s been happening in the IT industry over the last five years.

And it begins with an interesting article written by Gavin Clarke (the UK Register) around the budding relationship between SAP and HP, as they go after Oracle in a more concerted effort. For HP, its because Oracle dumped its technology (Exadata 1) in favor of Sun (Exadata 2), following Oracle’s acquisition last year of Scott McNealy’s company. And to think that at the 2009 Oracle OpenWorld there was scant anonymity between HP and Oracle despite the Sun relationship.

So with all the knowledge gained from the first Exadata, HP brings a lot of knowledge to bear. Still I think the new SAP appliance will have a tough time competing with the Oracle product (now on Gen 2). SAP will likely integrate its expertise around in-memory architecture (NetWeaver Business Warehouse Accelerator) to market a “powerful calculation engine” for data modeling applications.

SAP Co-CEO  Bill McDermott told Informationweek’s Doug Henschen that SAP had briefed partners including IBM, HP, EMC and Cisco on its plans. Partners are eager to embrace the innovation, he said, and said they will find opportunities to build new products and services around the engine.

Granted that HP, IBM and EMC are interested in building an appliance to compete with the Exadata (with HP having a leg-up at this point in time), at this point IBM would be in the best position given that it has a strong database business, has a captive “mainframe” market, and the resources to spend on R&D. All this without necessarily working with SAP assuming that the German software giant will want to push its Sybase database as part of the bundle. HP may be more interested in this although it would hurt its relationship with Oracle big time (we’ve seen this with HP’s relationship with Cisco).

Speaking of which, a Cisco-EMC-SAP triumvirate may present the best opportunity to run against Oracle.

For the moment, Oracle has the upper hand, having created an opportunity with the Exadata and the rest of the industry is playing catch-up. Larry Ellison is having a ball.

 

Software arms race continues

SAP [7] agreed to buy Sybase [8] for US$5.8 billion further accelerating the software arms race that appears to have no end in sight. The acquistion is just a tad bit shy from the German software giant’s 2007 acquisition of Business Objects [9] for US$ 6.78 billion.

The Sybase acquisition gives SAP two things: a database of its own, and a foothold into the mobile marketplace by way of Sybase 365.

For years SAP has been content on selling its ERP applications to interested Oracle [10] database customers. The co-opetition scenario benefited both companies as it allowed them to ride on each other’s brands to grow their business. Ray Wang, an analyst with Altimeter Group [11], estimates that SAP sells about US$1 billion of Oracle databases annually. With the Sybase acquisition expect that number to come down a bit in the long term as the German giant uses its size to sway customers away from Oracle.

But not everyone thinks SAP can dance their way around the Oracle strangledhold on customers. WSJ quoted Peter Goldmacher, an analyst with Cowen & Co [12]., said the deal seems to be a desperate move by SAP. “Their business is terrible,” he said. “They’ve been out-executed at every turn by Oracle.” Goldmacher said he believes SAP will have a hard time convincing customers to move from Oracle database software to Sybase offerings.

IBM [13] benefited on this as well but mostly through its systems business and middleware offering. But with Oracle beefing up its middleware stack and offering a single-box solution, IBM should start feeling the pinch from the Oracle Exadata offering. The selling point for many business executives is still faster, better and cheaper – all the elements you will find in the Oracle Exadata product brochure.

The Sybase365 [14] business should be an interesting new field for SAP as it is aimed squarely at the mobile market – an area many analysts agree should get very hot very fast, not only in the consumer space but in the enterprise arena as well.

IBM CEO Samuel Palmisano is quoted on Wall Street Journal as indicating software is the top priority [15] for Big Blue. Palmisano is aiming to have software account for about half of the company’s pre-tax profit by 2015. IBM has spent US$13 billion over a period of seven years acquiring a total of 57 software companies.

One particular area on Palmisano’s analytics. Itself a broad segment of the software industry although around the area of business intelligence and analytics, there is only one vendor left standing by itself – SAS [16].

Wang believes that this acquisition is good for SAP [17]. It allows the vendor to prepare for the next generation of applications that are heavy into mobile and cloud technologies.

At the same time, the Sybase acquisition gives it better access into the financial services and public sector markets. The bonus for SAP is China. Sybase has a strong presence in that market.

M&A, a gentler way of saying takeover, continues to be the norm. I’m not seeing any changes to this strategy anytime. It is the goal of many a small or mid-sized niche software vendors to get rich quick by being acquired and retiring to the Bahamas.

Which leaves me to wonder, what is Microsoft [18] doing?