Last updated: November 13, 2011 7:57 pm

SAP resumes search for big acquisitions

Jim Snabe, the co-chief executive of SAP, says the software company is looking for further, large acquisition opportunities, to build on its purchases of Business Objects and Sybase.

“We’ve proven twice that we can buy big and be successful with that. With Business Objects, which we bought a couple of years ago, we came into the analytic space in a very strong way and we are now a clear market leader. Last year we acquired Sybase to bring the mobile technology to business software. So we can and we are also, of course, looking for such opportunities,” Mr Snabe told the Financial Times.

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But while he will not shy away from deals, Mr Snabe’s key focus is still innovating the company from within.

“We can innovate faster than others can acquire. We have brought our innovation cycle down to six months, while a big transaction can take much longer than that, 12-18 months,” he said. It is an indirect allusion to Oracle, SAP’s US rival, which has made acquisition a central strategy, buying about 78 companies over the last six years.

One of the most important innovations is making SAP’s technology more appealing to consumers. The software tends to be in the background of large corporations, running financial transactions, for example, or a human resources database. But few employees will realise they are using it. Mr Snabe wants them not just to notice – but to smile.

“At Electronic Arts they have a rule that if they don’t see visible joy in a user in seven minutes a game will not sell. I would like to do the same with business software,” he told the Financial Times. “We are not quite there yet, but sometimes we do get visible joy, with people saying ‘this is really cool and I am going to show it to my children’,” he said.

Last year, when Mr Snabe and Bill McDermott, his co-CEO, took charge of the company, they set a target of “touching 1bn people” with their software by 2015, putting the software into the hands of more employees at each customer company.

It is crucial to do this, as the way that business software is bought is changing dramatically. In a move often referred to as the “consumerisation of IT”, employees are increasingly bringing their own technology to the workplace and expecting the same kind of ease of use from business software as they get from their Google webmail or their Apple iPad.

If companies like SAP don’t adapt to these trends, they face being replaced by newer competitors.

“Big enterprise software installations are very sticky – they represent decades of investment so companies don’t easily change them. But it is not a market that is growing very fast,” said Ross MacMillan, analyst at Jefferies. “Over time, if upstart vendors begin to offer inexpensive, cloud-based versions of software that address complex processes that SAP software addresses, the company could face a lot of risk.”

“It is important for SAP to show that they are continuing to innovate, and adding to the platform that customers have installed. It will keep customers spending more money with them,” he said.

Mr Snabe has borrowed ideas not just from EA, but a host of other companies.

“We visited Porsche to learn lean, EA to learn user feedback, Cisco to learn how to breathe new ideas into the company, and Intel to learn about complex innovation processes,” Mr Snabe said.

Internet and tablet companies are also clearly an inspiration. “We want to take the concept of Facebook and bring it to business,” he added.

When Mr Snabe demonstrates some of SAP’s new products they all appear designed to work on an iPad screen. One, a team evaluation tool, allows pictures of employees to be plotted on a performance chart with the swipe of a finger. Another, a diagnostic tool for doctors, shows patient records in a Facebook-like format.

One of the surprise hits for the company has been Hana, an in-memory processing technology that allows large amounts of information to be analysed extremely quickly. Customers such as supermarket groups are evaluating its use. It could, for example, be used for sending shoppers highly personalised coupons, straight to their mobile phones while they are browsing in the store.

Hana was seen as very experimental last year, but now analysts like Mirko Maier, at Landesbank Baden-Württemberg, have been steadily raising their estimates for sales from the business, to €150m ($206m) for this year.

“By 2013 Hana could account for 10 per cent of licence revenues, and even that could be conservative. It could be a meaningful revenue stream,” said Mr Maier.

Other initiatives are going more slowly, however. Business by Design, SAP’s cloud computing offering, was launched late and is growing slowly. SAP aims to have 1,000 customers for the unit by the end of the year, but is currently up to just 650.

Overall, investors seems satisfied with a recent run of positive results, and the share price has moved up nearly 17 per cent over the past year. But with European markets facing crisis, it is unclear if the transformation is enough.

“The question is how much do these incremental businesses drive growth?,” Mr MacMillan said. “Fifty or 60 per cent of the company is still the core business which will slow in a downturn.”

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