SAP buys Ariba for $4.3B – rather pricey, but still a good deal


As I was fighting jet lag and lying wide awake on my hotel bed in Bangalore yesterday night, I saw the news on twitter that SAP is going to buy Ariba for $4.3B. When IBM bought Emptoris earlier, there was always a question of who will buy Ariba – and my bet was on Oracle. And I am happy that it is SAP who finally did it. I am not sure why SAP did not announce this at SAPPHIRE last week, but I guess it doesn’t matter really.

Jim Snabe told us at Orlando last week that he envisions SAP to be a big player in business networks. At that point, several acquisition scenarios flashed through my mind, but Ariba was not on that list. As a matter of fact, Ariba hadn’t even crossed my mind for a few years now. They make less than a $500M in revenue,so my first thought was $4.3B was too much of a premium. Now, looking at the market cap – it looks like SAP is paying about 20% above closing price. Given the high multiples companies like SAP are paying for buying cloud companies, I wonder when they will generate real profits.

Ariba’s Calderoni will be a terrific addition to SAP’s board. I absolutely loved his decision to hive off services wing of the company to Accenture some time ago, so that Ariba can focus on what it does best. He was a CFO before he got the big job, and he is on the board of directors of Juniper Networks and KLA-Tencor. SAP could definitely use his experience well.Of course Ariba was not always a cloud company. So there is a learning opportunity for SAP here on how they can transform their big on-premises model into a more cloud enabled organization, by using Ariba’s experience. The one thing I do not understand at the moment is how Lars will lead the whole cloud business unit, and Ariba remains independent. Hopefully some one can provide clarity on this.

It is a bold move from SAP’s side for sure. They just paid more than $3B for SFSF few months ago, and now shelling out another $4.3B for Ariba shows a firm commitment to cloud. And it is consistent with their stated strategy of focusing on customers, vendors, money and people.

As I think more about this – the contrast with SFSF is quite apparent. SFSF is a solution that addresses more people since it is for employees. However, it is only used occasionally during the year due to the nature of the problem it solves. Ariba on the other hand targets much fewer users – but the usage is pretty high since it keeps track of purchases globally. So, SAP now has expertise in both models of cloud solutions.

I have a feeling that my buddy Sameer Patel is excited at the prospects of this acquisition. Ariba, at the heart of what it does – is all about enterprise level collaboration for purchasing/trading, which is close to Sameer’s heart. It makes even more sense now that SAP wisely hired Sameer.

Unifying all these cloud solutions – some acquired, some home grown into one consistent architecture and UX, is a complex task. But who better than Vishal Sikka to take that on? I think Ariba will have tremendous use of HANA compared to SFSF. SAP also can derive some synergy with BW and BOBJ in the context of what Ariba does for enterprises.

SAP has its strength in some of the atomic processes in Source to Pay, and Ariba has in some. And there is plenty of overlap between SAP and Ariba for now – and I am sure that will get rationalized over time. With the combined force of SAP and Ariba, Source to Pay could see some real innovation (Source to Pay is one of the most frequently outsourced business process, mostly due to manual steps) in business process. Combined with HANA – I am sure we will see a lot of change in SAP’s and Ariba’s user base.

In general, but for the heavy premium they paid, I am a big fan of this acquisition by SAP. And If I am wrong – I will blame it on jetlag 🙂

Some random thoughts on SAP’s cloud strategy


As I am flying to Bangalore, I have been thinking of SAP’s cloud strategy – or at least what I understood as their strategy – a fair bit. In general, they did not blow me away. However, I do think they have a lot of things done right. So here are some random thoughts for what it is worth.

SAP is targetting 4 groups – Customers, Employees/People, Money and Vendors. I like that – that covers a lot of the enterprise.But if being everything to everyone was a successful strategy, Business By Design would have scaled greater heights by now, which obviously has not happened. So somethings need to be prioritized over others. The big players in cloud – like SFDC, targeted specific segments and did not try to be everything to everyone. And in general – including SFSF – they have attracted more customers and users than SAP ever did.

I have often raised the opinion that SAP should run cloud as a separate business so that they are not burdened financially or bureaucratically by the larger legacy organization. So I was thrilled to see that SAP allowed Lars to operate cloud as an independent business. And he brings tremendous energy and passion to the table, which is also something SAP could do well with. So organizationally – I think SAP is well set.  If there is one question in my mind on this front – it is whether there will be consistency of engineering across SAP anymore if cloud is a separate organization. But given Lars and Vishal seem to be best buddies, I guess it will work out just fine.

SAP will also  offer parts of BByD as loosely coupled apps – like finance for example. This might work out ok – except, I think Finance in itself is more of a necessary evil, than a true innovation. Without financial postings – the rest of SAP won’t work very well . I am not sure how many will buy the finance solution just to run their GL. A few will for sure – but I don’t see it as a growth engine yet.

SAP derives most of its money from the on-premises world. This poses two challenges. One – if SAP takes a suite approach on cloud, they will have to cannibalize some parts of on-premises solutions. And two – they have to integrate cloud with on-premises world. Neither is an easy challenge to overcome.

First about trying to reinvent the business suite on the cloud. Don’t get me wrong – I do think eventually suite needs to run on cloud. What I am not convinced is the need to do it now, since that is not a path of least resistance within or outside SAP. I think SAP would find it much easier to create apps that solve specific problems that on-prem cannot solve easily. For example – on-prem does Accounts Receivables very well, but not Collections and Disputes management because those users typically are not on-premises. So, instead of moving AR to cloud – why not just move collections and disputes management to cloud? And once that is successful – there will be very little reasons for resistance to move rest of AR, and eventually all of GL to cloud, even for big companies.

And about the loosely coupled thing – I am not exactly buying into the idea of “out of the box” integration of cloud to on-premises systems. One – SAP is not considered a leader when it comes to integration technology. And two – on premises world is heavily customized, so nothing really works out of the box there. I made a living as a programmer primarily because nothing integrates in standard. For SAP to have a credible integration story – they should probably buy TIBCO or something ( ok, sorry to my friends who have heard me say this a million times). But given the high valuation, it might not be feasible.

On the social aspects of cloud, I like what they are doing. Combining Jam and Streamwork makes total sense for customers. And I applaud SAP for their stance that “Business” is the better part of “Social business”.

HANA is a perfect DB/platform for cloud. It will be a safe bet for customers and SAP since HANA can evolve and mature much faster in an environment that SAP has full control over.

One last thought before I have to shut my PC off. What is SAP’s data center story? Cloud needs significant data center efficiency. I think I heard SFSF has its own data centers. If SAP is serious about cloud in a big way – I think it is in their best interests to tell the world more about their strategy on data centers. And to extend that thought – they might even have to buy a hardware company at some point.

I am out of here before the flight attendant of this AI flight will shut my laptop down for me herself. Let me know what you think.

SAPPHIRENOW 2012 Orlando, day 3 – HANA, Developers, Partnership – and one more thing !


Day 3 has been my favorite ever since Vishal and Hasso started keynoting on the last day of SAPPHIRE. So I was up bright and early, and got to the keynote area much before it started.

Unlike last year, this time it was Hasso who started the Keynote. The first part of his session was all over the place, and did not do justice to his tremendous showmanship and technical brilliance. My feeling is that Hasso should be allowed to do it freeform without the constraints of the teleprompter and powerpoints. I would go to the extent of saying, he should also be given a whiteboard that can be projected on the screen so that he can explain his concepts more clearly. He took plenty of shots at oracle, with roaring approval from his fans in the audience.

The highlight of the keynote for me was Vishal announcing that developer licenses for HANA and Neo are now free. That is awesome news – and gratifing to all of us who have made the case with SAP in the past.

Vishal also announced the GA of Visual Intelligence, previously codenamed Hilo. It is a great product – but not the most mature. It hardly had a ramp, which is probably ok since it is a desktop tool. It fills a void in SAP’s portfolio today, and I hope it can match its established competitors some day soon. The only surprise for me was that it did not support Universes in first release. I asked that question to Adam Binnie and Mani Srinivasan – and they assured me that it will get new releases very quickly.  Having seen Mani in action over time, I think SAP has a rock star product manager on their staff. His passion for his product is of the highest order of magnitude.

Hasso downplayed ERP on HANA – which I think is the right thing for SAP to do. He also explained how OLAP and OLTP loads are different in nature.  ERP on HANA is not the best use of SAP’s time – I think they just aim to do this to gain credibility for SAP to tout HANA as a full fledged database.  ERP on HANA makes a lot more sense for SAP if it becomes simpler, and hence cater to an eventual convergence of on-premises and cloud versions. But just for speed – it is limited to long running batch jobs like payment runs, clearing of documents, dunning etc.  but considering SAP has to rewrite a lot of code in existing system, I doubt if it is a worthwhile investment.

A big problem for folks going into HANA on Business Suite is the quality of SQL knowledge they need.  what we knew of as SQL as ABAPers won’t cut it. Actually the development paradigm of going to database for the minimum, and using more of ABAP is inefficient totally. Even for a SQL developer – he/she should know how to make use of set operations, since cursor based SQL is kind of like doing it in old ABAP. This skillset issue is something SAP and ecosystem should address head on. Product development on HANA should take education along with it. In this regard – I should thank Margaret Anderson and her CSA team for their stellar efforts in keeping us partners educated on HANA all the time, even as things change quickly.

Jeff Word’s HANA book, which some of us contributed to – was heavily pushed at the event. I got a copy signed by Hasso, Bill, Jim and Vishal. I need to get Jeff’s autograph too some day before I use it for the reason I got it all signed. Here is a picture.

It was a gratifying experience for me personally, since IBM got a lot of coverage in the keynote. The 100 TB system for HANA is IBM X series scale out machines, and we saw the subsecond response time on it. I had mentioned to many people at SAP including Vishal, Sethu , Aiaz and Steve Lucas that they should pull the plug on a HANA box during the keynote. And they did exactly that – and it worked like a charm. We saw the fail over of the nodes on the big screen. I hope SAP will provide additional details of the data stored in those nodes, time taken and so on later. HA is a big part of the buying decision for HANA – and I think this exercise will boost customer confidence a lot. The other side of the coin obviously is disaster recovery across sites, to make sure  HANA can be put in data centers without too much trouble and manual intervention. But that is harder to show in a key note. But in near future, I expect SAP to publish more details on HA, DR, log shipping, work load management etc. That will single handedly speed up the HANA sales and delivery for SAP.

Vishal also gave my team a shout out for the working capital management solution we built. Late last week, I got pinged by Vishal and team while I was in the Bay Area. It was a simple request – can I come quickly to Palo Alto to meet them, or should they drive out to meet me? I drove to SAP’s offices and showed the app to Vishal and team and they loved it. And they loved it and put it on key note. Thanks folks – much appreciated. Also a big shout out to Dennis Howlett who was the first to tell me this is exactly the type of solution HANA should power. Thanks Dennis. And last but not least – a HUGE shout out to my dear colleagues and their leader Gagan Reen who worked tirlessly to build out 8 end to end usecases to show case business applications of HANA. You guys ROCK, and I could not be more proud of you.

I also got to short interviews on video with the two leaders who manage IBM’s global SAP consulting business, and North American SAP consulting business – Jay Bellissimo and John Leffler. A colleague shot the video of both, and I am waiting to get the download from her. If it came out half decent – I will post it here. These guys have both seen SAP evolve, and I think it will be useful to others in SAP ecosystem to hear their perspective. I am not a skilled interviewer – so I am not holding my breath on this coming out with high quality, but lets see.

And oh – just one more thing. While at SAPPHIRE, I got announced officially by IBM’s Managing Partner for SAP Practice as “Head of Global and North America SAP Forward Engineering team”.  Thanks John and Jay and the leadership team.

It is quite a mouthful – and what the title means is that I will lead the efforts in IBM’s consulting organization for the innovation agenda in our SAP partnership – including HANA, Mobility and Cloud. My charter is to build the capabilities in engineering to put SAP’s amazing technology innovations in the context of business applications to add value to our customers. It is a tall order, and I am humbled at being given this opportunity.

I knew of this for a few months now, and till the official announcement came – I have already been working on many of the things this job entails. One thing I know for sure is that I cannot do this alone – so I am looking forward to collaborating even more with customers,  the SAP community, SAP itself and within the larger IBM organization to collectively surface the best solutions.  I already have solicited input from many people and they have all been generous with their time and ideas – and I want you to know I greatly appreciate it. I am not trying to lead a charge here – I am more looking forward to being an enabler of innovation with the teams and leaders in place today.

There are way too many people to thank – but I will resist the urge to name them all. You all know who you are ! But I have to make two exceptions – without SAP’s Marilyn Pratt’s and Mark Finnern’s efforts, I would have NEVER gone down the path I eventually did with SAP community, and that is what made the difference when I look back.  I cannot thank them enough.  I know all of us SAP Mentors and community members will join me in saying a big thanks to both of these wonderful people for all they do ! they are the BEST !!!