Empire-building not needed

Microsoft Corp.’s recent overtures to SAP AG should come as no surprise to anyone who’s followed either vendor. Each company covets the other’s market. Microsoft is evolving into a more complete vendor of ERP and other business applications. SAP has become a full-fledged Web application and integration platform vendor, in addition to strengthening its core ERP, CRM and supply-chain management application suites.

It’s also no surprise that their discussions didn’t result in a merger. Tying the knot would have required Microsoft to seriously rethink its commitment to its emerging Project Green next-generation business application suite. SAP, for its part, would have had to turn its back on Java 2 Platform Enterprise Edition, on which its mySAP applications and NetWeaver Web services application platform are built.

As it is, the two vendors remain on friendly terms and, in fact, recently announced joint efforts to strengthen integration between their products. Microsoft and SAP complement each other more than they compete. In spite of its recent forays into ERP, Microsoft sees itself primarily as an application and integration platform vendor. SAP, for its part, continues to focus on its core business applications market, and has only ventured into Web services platform software to strengthen mySAP.

Truth be told, Microsoft had more to gain than SAP from a merger. Over the past two to three years, Microsoft has acquired vendors in the small- and mid-size business segment of the ERP market. However, it has no business applications that address the needs of large companies, the segment in which SAP is the predominant vendor.

It’s probably best for enterprise customers that Microsoft and SAP didn’t merge. The platform and application markets have become more consolidated over the past several years, with Microsoft and SAP emerging as the kings of their respective hills. Anti-trust lawyers everywhere would have jumped at the chance to challenge the consolidation of so much market power in a single vendor.

One suspects that Microsoft and SAP entered into merger discussions to explore how they might defend themselves from a common foe, Oracle Corp. Oracle currently is embroiled in an attempted hostile takeover of PeopleSoft Inc. If it comes to pass, an Oracle-PeopleSoft merger would challenge SAP for dominance in the business application market. It also could seriously set back Microsoft’s efforts to break into the top tier of that segment.

The Microsoft-SAP discussions are an indicator of larger forces afoot in the business applications market. Vendor consolidation will continue, even if Oracle comes up empty-handed in its pursuit of PeopleSoft. Microsoft certainly will continue to acquire niche ERP, CRM, SCM and other vendors, and to position their wares in the broader context of Project Green. Oracle, PeopleSoft, Lawson Software Inc., i2 Technologies Inc. and others will do likewise.

Enterprise customers watch all these empire-building maneuvers with trepidation. Many users bet their businesses on their strategic ERP, CRM and other business applications. Typically, users intend these investments to last at least 10 years. When business application vendors consolidate, users fear that the acquired vendor’s product line has become a dead duck.

Business application vendors should keep the empire-building to a minimum. Instead, they should do as SAP has done: evolve their product families away from monolithic architectures and toward more thorough implementation of Web services standards. Any application vendor that helps users extend their strategic investment through standards-based interoperability is providing real value. Any vendor that upsets the industry apple cart through ill-considered mergers and acquisitions is doing users a disservice.

Kobielus is a senior analyst with Burton Group, an IT advisory service that provides in-depth technology analysis for network planners. He can be reached at (703) 924-6224 or [email protected].

Would you recommend this article?


Thanks for taking the time to let us know what you think of this article!
We'd love to hear your opinion about this or any other story you read in our publication.

Jim Love, Chief Content Officer, IT World Canada

Featured Download

Featured Article

ADaPT connects employers with highly skilled young workers

Help wanted. That’s what many tech companies across Canada are saying, and research shows that as the demand for skilled workers...

Related Tech News

Tech Jobs

Our experienced team of journalists and bloggers bring you engaging in-depth interviews, videos and content targeted to IT professionals and line-of-business executives.

Tech Companies Hiring Right Now