A Microsoft/SAP deal is not out of the question. As I wrote back in 2004, during the Department of Justice lawsuit against Oracle it came out that SAP and Microsoft discussed a possible merger late in 2003. According to Microsoft, the talks were called off because of the complexity of the transaction and subsequent integration. SAP confirmed the story.
I also wrote,
It's not clear that the deal would have passed antitrust scrutiny. But if it had, and the deal had gone through, it would have made Oracle's pitch for PeopleSoft look like a used car offer. A Microsoft/SAP combination would have married the world's largest software developer, with a virtual monopoly on desktop operating systems, with the world's largest provider of enterprise systems to large organizations. The merger would have immediately turned Microsoft's applications group from a provider of business systems to small companies (with its Great Plains and Navision acquisitions) into the premier provider of complex enterprise-wide systems to the Global 1000.So, has anything changed now that would make a deal more likely? Only that Oracle has been vindicated in its acquisition program, and SAP--though still the industry leader and growing--has not shown the revenue growth that Oracle has.
During the same period, Microsoft's foray into business applications is floundering. Its biggest step has been to rebrand its four acquired products under a single Microsoft Dynamics brand. At the same time, it shuffled its management team and called off Project Green, its program to migrate those products to a single code base.
That said, I don't think these developments make it any more likely that there will be a merger of SAP and Microsoft. The deal would face enormous resistance on antitrust grounds from regulators, especially in Europe, where Microsoft has already lost other antitrust cases. The size of the deal, also, is problematic. Though Microsoft is certainly capable of acquiring SAP, which has a market cap of over $60 billion, it dwarfs the size of Microsoft deals in the past.
Another point arguing against such a deal is the cultural aspect. Both Microsoft and SAP have strong corporate cultures, which would be difficult to integrate. Microsoft's legacy as a vendor of shrink-wrapped products is much different from SAP's history as a provider of solutions that take a huge amount presales effort and post-sales professional services. Microsoft has no experience with these things. Its current business applications are all sold and delivered by partners, and even there it has struggled. If Microsoft found selling Great Plains, Axapta, and Navision was a "humbling experience," it ain't seen nothing compared to what it will see with SAP.
On the other hand, I never thought Oracle would complete its bid for PeopleSoft, so my track record is not good on predicting these sorts of things. Furthermore, a Microsoft-SAP combination would be Oracle's worst nightmare, which is--in the interest of promoting competition--perhaps the best reason to hope the rumor is true.
Mary Hayes Weier, blogging for Information Week, has additional analysis.
Update, Dec. 5: SAP is denying the rumor. This news item points out the distinctly "non-Microsoft" technology platform of SAP (i.e. J2EE) as another reason that a deal is unlikely.
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