Dali-elephantsHow Many Legs Does An Elephant Need?

 

While Oracle’s acquisition of Sun Microsystems is still pending there has been a lot of speculation about which IT giant will take the next big acquisition step in response.

 

Is there a rule of cause & effect that fuels the spiral of acquisitions?

 

·         Know your enemy and know yourself

Of course companies have to watch their competition closely. As Sun Tzu stated in his famous book The Art Of War: ‘Know your enemy and know yourself and you can fight a hundred battles without disaster.’ A billion dollar acquisition is certainly a strategic step that needs to be analyzed properly. Some acquisitions target to increase market share, others to get access to superior technology but the most dangerous acquisitions for competitors are those that surround them and open new battlefields where the competitors are weak.

 

·         The elephants are stretching their legs

Large IT vendors have recently started to buy into markets that did not used to be their core business. If we structure the IT market into four segments of hardware, middleware/database software, application software and services we can see that most of the large IT vendors are already standing or stretching solid legs into several of these segments. Traditional hardware vendors are buying into services (e.g. HP with EDS) or into Apps Software (e.g. IBM with Cognos and Maximo) and software vendors are buying into hardware (e.g. Oracles with Sun). The benefits are obvious – higher integrated solutions from hardware to software to services with superior performance and efficiency for the clients.

 

For more insights into this market consolidation please see the Forrester report ‘Oracle’s Sun Acquisition Is A Game Changer’.

 

·         SAP is getting surrounded by competition

So what is SAP doing on this matter? The largest application software vendor continues to buy additional application software vendors (e.g. Business Objects, SAF etc.). Yes, SAP has service business and middleware business as well, but those merely support the software business and are not managed as independent business lines. As a consequence it is no surprise that a lot of speculation is posted about possible acquisitions by SAP into service companies or a middleware companies such as TIBCO. We do not have any evidence if concrete discussions are taking place and there are also good reasons that are not in favor of such a deal (e.g. a significant portfolio overlap), but SAP seriously needs to consider to stretch its legs out of the software box.

 

What do YOU think? Is it better for SAP to continue to focus on its core application software business or is it time for the elephant to stretch some legs into other markets?

 

Please leave a comment or contact me directly.

 

Kind regards,

Holger