SAP's Business Intelligence Leap

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Business Objects has been the subject of acquisition rumors for months. According to a source at Oracle, the company evaluated Business Objects as an acquisition target, but decided to pass. To make an acquisition work, the source said, Oracle would have liked to have kept Business Objects' U.S. engineering staff and cut administrative functions in France. But that would have been difficult given French labor laws.

Now with Business Objects off the market, Cognos (COGN), could be the next software company gobbled up. The business intelligence software maker booked $116 million in profit, on $979 million in revenues, for its fiscal year ended Feb. 28.

Buying into Fast-growing Markets

Other tech industry heavyweights have been attacking the data analysis software market as well. Microsoft acquired software vendor ProClarity in April, 2006, and has developed a new product called PerformancePoint Server based on the technology. A spokeswoman for IBM says the company has partnerships with key business intelligence vendors and will continue looking at acquisitions that add "higher-value middleware to our portfolio." IBM recently raised growth targets for its $18 billion software business to 7% to 10% through 2010 (BusinessWeek, 10/1/07). Meanwhile, HP has been selling data analysis software called Neoview to customers including Wal-Mart (WMT) and is believed to have considered an acquisition in this area of the corporate software market.

Kagermann told reporters that SAP will stick to its strategy of growing organically in its traditional business applications markets. But the SAP CEO has shown a willingness to open the company's wallet to buy into fast-growing markets. SAP has some currency for acquisitions: It had $2.8 billion in cash and short-term investments on its balance sheet as of June 30. In May, it bought OutLookSoft, a Stamford (Conn.) maker of software for planning budgets and forecasting financial results. And it bought Virsa Systems, which made software to help companies comply with the Sarbanes-Oxley Act, in April, 2006. Kagermann indicated SAP wanted to move even quicker to grab sales of business intelligence software. "I never excluded acquisitions, but from a management point of view, we had so much on our plate," he said during the conference call.

That includes a new suite of low-cost applications delivered over the Internet that SAP launched in September for small and midsize customers (BusinessWeek, 9/19/07). SAP has set a goal of increasing its customer base to 100,000 by 2010, from 42,000 today. Selling to smaller companies and expanding into new, fast-growing niche markets are pillars of the plan.

Software for the CFO

An SAP spokesman says the company plans to market Business Objects' software to chief financial officers who need to quickly keep track of costs and operational data around the world. SAP sells to about 40% of Business Objects' customers and the companies plan to exploit the overlap, said Business Objects CEO John Schwarz, who is expected to become a member of SAP's executive board. SAP Corporate Officer Doug Merritt, an executive in the company's Palo Alto (Calif.) office, will join the Business Objects unit and report to Schwarz.

After several years of encroachment into SAP's core market by Oracle and others, the Business Objects deal could be a sign that SAP is getting more aggressive about defending its turf.

Ricadela is a writer for BusinessWeek.com in Silicon Valley .