Irritating the Oracle

SAP/Sybase: SAP has a history of being careful with acquisitions. While rival Oracle has made several dozen purchases over the past five years, the German group has largely been content to grow quietly. Now, the company's agreement to buy Sybase for $5.8 billion is the equivalent of rolling its tanks through the Japanese gardens of Oracle boss Larry Ellison. Moreover, this move may irritate other tech giants. Tech consolidation is forcing SAP's hand.

SAP wants Sybase's middleware for mobiles. The US company makes the plumbing that allows applications — such as SAP's business management software — to run on cell phones and other devices.

That's increasingly important as SAP's clients increasingly want to access applications on the go. And then there are databases, which are Sybase's cash cow. While the company has been in this market for decades, it has fallen far behind the leaders. Oracle's share of the database market is almost four times as large as Sybase's. More importantly, most of SAP's clients use Oracle software — as its rival likes to point out. The two companies have become bitter rivals, so it would be sweet indeed for the German company to switch customers into Sybase.

Unfortunately, this is easier said than done. One of the industry's dirty secrets is that companies can charge outrageous maintenance fees because it is so traumatic to rip out existing software and start anew. Moreover, owning a database company means SAP will be butting heads against companies it is more or less allied to, such as IBM and Microsoft. Both have considered buying SAP in the past with varying degrees of seriousness.

So why is SAP doing this deal? The deal appears of mediocre financial appeal - perhaps a 10 percent return on its investment. Sure, the company promises revenue synergies, but it is questionable whether these will appear. On the other hand, the strategic rationale appears stronger. A wave of consolidation is sweeping over the tech industry as companies invade each others' turf. The goal is to provide clients with everything they need in IT, and making sure it all runs smoothly. If SAP doesn't want to sell itself, then it is at a disadvantage against companies like Oracle and HP, which have assembled more pieces of the puzzle. That means more acquisitions for SAP are coming.