Microsoft Should Acquire SAP, Not Yahoo

Reservoir Hill writes "Randall Stross has an insightful article in the NY Times that says that if Microsoft thinks this is the right time to try a major acquisition on a scale it has never tried before, it should pursue not Yahoo but SAP, another major player in business software, thus merging Microsoft's strength with that of another. This is more likely to produce a happy outcome than yoking two ailing businesses, Yahoo's and Microsoft's own online offerings, and hoping for a miracle. Stross points to Oracle as a company whose acquisition strategy has picked up key products and customers while avoiding venturing too far from its core business, or overpaying. Stross recommends that Microsoft acquire SAP and leave it alone as an autonomous division — which would avoid a culture-clash integration fiasco. Besides, large enterprise customers are arguably the best customers a software company can have. A few dozen well-paying Fortune 500 customers may actually be more valuable than tens of millions of Web e-mail 'customers' who pay nothing for the service and whose attention is not highly valued by online advertisers."

Wrong POV.

The article is looking at things totally from the wrong point of view - it's as if they believe that Microsoft's problem is that it has a huge pile of cash & don't know what to do with it.

It's not. Microsoft's problem is Google. Google are eating them in the only arena where you can make serious money on the web (ad brokerage) and doing things to threaten MS's monopoly elsewhere (Google Apps, Photoshop on linux, Webmail, etc)

The Yahoo purchase might not be a solution to this problem, but a SAP purchase sure as hell won't be.

(and frankly, I can't imagine SAP's websphere/java using userbase being enthused with the next SAP release being C# only)

Re:Wrong POV.

Great point. However, it's worth mentioning that Microsoft isn't in all that much trouble from Google. They still have a virtual monopoly on the OS market, which means that the only real "threats" to Microsoft's main income source are sites like /. where people give information about and advocate the use of other operating systems.

Re:Wrong POV.

Because Google would /never/ considering doing anything in terms of an operating system. That's just silly!

Re:Wrong POV.

Because Google would /never/ considering doing anything in terms of an operating system. That's just silly!

I know you're just being funny, but you're right that they probably wouldn't bother coming up with their own proprietary OS. I mean, they already use Linux internally anyway: that plus a lot of their own code is one of their strengths.

Now, what would cause problems for Microsoft would be a Google distro marketed to the Dells and HPs and Lenovos of the world, and also on store shelves. Google has both the brand recognition and the in-house technical skill to pull that off, and it's probably that which keeps Ballmer awake at night. Hell, much of the overseas market would jump on a Google OS in a heartbeat: Microsoft is not well-liked in many parts of the world. I kinda hope they do it, just to shake up Redmond a little.

Worse yet for Microsoft, if such a Linux distro just happened to integrate phenomenally well with Google's online services and Android offering ... well.

Re:Wrong POV.

Are you saying they're missing something important that only Google has?

Google has brand name recognition, almost everyone with any exposure to computers will recognise Google. Only people familiar with Linux will know Ubuntu.

Re:Wrong POV.

Great point. However, it's worth mentioning that Microsoft isn't in all that much trouble from Google. They still have a virtual monopoly on the OS market,

And Google has a virtual lock on the internet advertising market (75% world wide in 2007 IIRC).

Now which do you think is going to be a bigger growth industry:
A) OS sales as 3rd world countries develop
B) Internet advertising as 3rd world countries develop

Hint: Only one of these things does not require the copyright police to enforce your business model

Re:Wrong POV.

Only one of these things does not require the copyright police to enforce your business model

And perhaps even more important ... the copyright attitude

Re:Wrong POV.

The bigger concern for the industry though should be where Mr Softy and The Goo go next. Microsoft can buy SAP and Yahoo, its not either/or. Google is likely to buy stuff as well. The same math works for them.

I'm not so sure. MSFT is going into a rather huge debt, and for the first time in its history... just to buy Yahoo. It'll take more than a couple of years to pay that off... unless they can turn a ~90% desktop share into a 150% one.

Now eventually they can, but I'd give it about five years before their budge3t can take that kind of hit, at least at the rate things are going for them. Problem is, five years is almost an eternity in this industry, and a whole bucketload of things can happen between here and there.

/P

Not quite correct

MS's main problem is not Google per se, but a Google obsession.

MS has failed dismally with its various acquisitions, with very few exceptions. MS core money makers are OS and Office. They seem to be putting very little energy into Vista and fixing its problems, doing something which would make their core business sound. In fact it looks like they've just cut these adrift.

If Google had not emerged as the new obsession, they'd still be aiming for Apple with knock-off interfaces, Zune etc.

This is reaaly the MS tradgedy: instead of being customer focussed and delivering new exciting products and technologies (something such an organisation should be able to do with their huge resources), they have become competition focussed.

Re:Not quite correct

As someone pointed out, lack of customer focus is not a new thing for Microsoft. They have always been competitor focused. I don't think Microsoft can change this, it's too core to what their company is all about. Microsoft is always really unhappy when anybody talks about someone else more than them. They want to be 'it' for some rather amorphous domain of computer oriented mindshare.

Re:No, whinney is right on the point and so is MS

That's simply not true.

Microsoft has been, for a lot of its history, very customer focused. They would not be able to achieve their current market position without being customer focused. It wasn't until they have secured their monopoly on Windows through OEM deals that they became the evil company they are today.

I can remember a couple brilliant examples where they outsmarted their competition by paying attention to what the market really wanted:

- Windows for Workgroups: They realized people did not want file and servers - they wanted to share files and printers and do e-mail. WfW, for all its failures, was a bright example of simplicity. With this, they more or less took the low-end of the NetWare business from Novell. This foothold allowed them to claim the rest of NetWare's share with NT.

- Visual Basic: People wanted an easy to use language to develop for Windows. The C/C++ tools they had were hideously expensive and painful to use (they more or less still are - C++ on Windows helps create the ugliest C++ I ever saw). VB surpassed all other development environments for Windows for flexibility, ease of use and productivity. It was the Ruby on Rails of its time. Sadly, it pretty much caused massive brain damage to a generation of programmers that never quite recovered.

Windows 3: People wanted GUIs but couldn't care less about bulletproof multitasking. OS/2 was great, but Windows 3 hit the sweet spot. 3.11 hit it even better with its TrueType rendering.

Windows 95: The last major overhaul of their consumer OS. Gave a nice (for the time) and easy to use GUI overhaul to the tired Windows 3 desktop. Thanks to the problems with the 68K to PPC transition, it was even stable compared to Macs - a first for MS.

Re:No, whinney is right on the point and so is MS

Google does not make operating system, dictate standards, or make make office software that runs 99% of all businesses.

Google is working on number 3, is rapidly getting the necessary position to do number 2, and regards number 1 as irrelevant.

Re:Wrong POV.

Google apps are a joke for the enterprise software market as well as any public company due to SOX, HIPAA and other laws. this article actually has a point

with Yahoo Microsoft is paying $40 billion for a bunch of web designers, some media contracts and other intellectual talent that can flee at any time and MS will have to keep the business going. Customers can flee to any competitor with a minimum of problems.

with SAP Microsoft will gain a product lineup with large customers that pay for service, can't migrate easily and SAP's product will have synergies with Microsoft's other products where they can sell more products to a customer.

and Google seems to be coming to the end of the current growth cycle. revenue and profit growth seems to have peaked, expenses are going up, they seem to be expanding to new areas that don't really make any sense to the core business, the new expansions don't seem to be #1 in their areas and Google doesn't seem to want to make them #1, Google's big thing is the search algorithm and the infrastructure behind it and they don't really own any data they return and the owners of the data may one day start to demand royalties or block Google from it like say blocking their site from Google News, funny things happen in recessions when businesses start looking under every rock from cash, a lot of Google's customers are small businesses and have a real chance of going under in a recession

Re:Wrong POV.

I would strongly disagree.

Google has made a lot of money from ad sales and web search. That's one big fat market segment, without a doubt. But no one uses google for comporate data processing. They do, however (and for better or worse), use SAP. In the services sector, which Yahoo and Google aren't in, SAP is big. That's not to say that they're brilliant but they do make money and are a 'best of breed' (doesn't speak well of the breed, but that's another post).

Yahoo is real estate. SAP is a running, producing engine. I think SAP is a better idea. Leave Yahoo alone, I'd say to Microsoft. Stick with what you do best: tying up clientele with proprietary, always-needs-integration stuff.

Anyone who buys Microsoft is a big enough SAP

Maybe it will SAP their will to live.

Oh, the humanity.

SAP is already a nightmare, I can't imagine Microsoft expending serious efforts to roll it into the Windows Server platform. It'd be like watching a thousand train wrecks, again and again...

Re:Oh, the humanity.

SAP is already a nightmare, I can't imagine Microsoft expending serious efforts to roll it into the Windows Server platform. It'd be like watching a thousand train wrecks, again and again...

Let me rephrase that for you.

The Microsoft platforms can't handle a sizable SAP platform without becoming unstable for mid-afternoon siesta (reboot).

Buggy, half finished software == perfect fit

SAP isn't so much a finished application as a license for the vendor to bleed you dry with "special" modules supposedly tailored to your business. In one way, Microsoft software doesn't fit that model (i.e. SAP isn't just a shrink wrapped product like Office). In another way, the endless bleeding of your tech dollars while your practices are changed to match the (in)capabilities of SAP would suit their revenue requirements perfectly. The real problem is that SAP is probably too labour intensive for a company like Microsoft.

MS already has a Bussiness Application.

Many people don't realize that MS already has a business Strategy for ERP systems. They've bought several small to large system. Navision, Great Plains, Axapta, Solomons. They have built in house CRM system and they are creating the Dynamics Product. Getting TOP 500 customers doesn't make sense for MS. They have already spent their money and won't change or grow. It's the small-mid businesses that will be growing and MS will be right there providing them with the right software. MS already considered buying SAP 6 or 7 years ago and the culture clash and business model did not fit MS goal, which is every business to run on their ERP system.

MS Business Applications suck

My current employer is a dominant player in our field, in a smallish country, that sells about a billion dollars of $stuff a year to 10,000 or so customers.

Our $30m+ competition for a new ERP system came down to SAP vs Microsoft.

SAP gave us 50 reference companies of similar size in similar industries, 5 of them in the same country as us, 3 of whom let us visit on site and grill them about their setups.

Microsoft gave us one reference company smaller than us in our country AT ALL, and one company in the US in a similar industry, but 10 times smaller than us.

We got the distinct impression that we would be pretty much the largest deployment EVER of Microsoft Business Apps in an industry similar to ours, by an order or magnitude.

SAP won, of course.

Microsoft has a horrid bootstrapping problem. Until they build up experience and a userbase that people like us can go visit and actually SEE their stuff working, they're going to struggle to be competitive.

The other big plus for SAP was their upgrade attitude "We understand that most of our customers want to upgrade their core ERP around every 8-12 years, on a Saturday afternoon" :)

Stupid Idea

Wrong platform: SAP runs on all sorts of platforms. Short of gutting the customer base there's no way they'll ever push platform support purely onto a windows platform. If they don't make that change though, then you'll have a mircrosoft division (SAP) selling you a product that runs on a combination of Solaris and Oracle. Talk about a non starter.

Wrong business model: SAP is a platform, meaning you buy it and then spend millions of dollars and years of consulting to "customize" it to your organization's needs. It's about as far from shrink wrap as you can get. Microsoft has virtually no experience in this kind of enterprise software market.

Wrong culture: SAP is about as germanic as a firm can be and, in their own way, every bit as committed to global domination as Microsoft is (albeit in a different market space). Trying to integrate the two firms, even into a loose confederation like, say, GE or Mitsubishi, and expecting anything other than all out, internal, bureaucratic warfare is willful ignorance (or gross stupidity).

Should acquire Yahoo, SAP, Chrysler AND Best Buy

That way, they'll have most of the shit I desperately want to avoid in one spot.

Nonsense

I think SAP is a poor fit. Yahoo fits Microsoft's needs. Microsoft wants to further entrench user lock-in to their company. Buying SAP gets them more income directly, perhaps, but that money coming from big companies who can demand flexibility or hire IBM and go open source if need be. What Microsoft wants is to get their claws into more users' online services, which can be tied to Windows and MS specific protocols and formats. Their greatest fear is that the Web will allow other companies to supply al a user's basic needs via the browser, meaning those users can buy a Linux box or an OS X box or a Solaris box or an iPhone or a Blackberry or anything that is not Windows.

MS doesn't need more revenue. Their users will continue to pay because they have no choice. MS has their data and their networks locked up and the expense of switching is too high. MS doesn't want Yahoo to get more revenue. Almost all Yahoo users are Windows users and MS already collects their tithes. MS wants Yahoo to make sure Yahoo users are not given a choice of migrating to being Yahoo/Linux users or Yahoo/MacOS users instead of Yahoo/Windows users. Further they want the lion's share of the market so that most people are locked in. Right now, between Google and Yahoo, most users are not locked in for their mail and messaging and calendaring and in a short time, perhaps their office suite and IM and internet phone and internet TV and whatever else becomes a Web service. If they have most users then they can use that to break compatibility with Google and so Google will have to waste time, effort, and money trying to reverse engineer all of their proprietary apps, to the point of having to screen scrape to get data back to an open and usable format (which they already had had to do to some degree).

In summary, MS wants to buy people so they can use their normal tactics instead of competing to create a better product. If they were interested in making money on their acquisitions they would not have bought dozens of game companies and created the XBox. They want a presence in the living room so they can lock in people even more. Once they have lock-in they can take all the money they wish from people for perpetual upgrades and fees, so long as they make the pain of getting away from them greater than the cost at any given time.

Innovate dammit!

Okay, I understand that MS is hurting and they need to do something. My answer is MS research. You have the development labs. You have the cool ideas. Use them. INNOVATE DAMMIT. Google didn't get to this point by the standard merger philosophy. MS, you didn't get to where you are by stupid mergers and desperate acts. You got there by providing something that people wanted, in a better manner or for cheaper. Keep doing it. PUSH the boundaries of what you're doing. Yeah, it's higher risk. But the reward is higher. You get the revenue, the soft benefit of everyone loving your company vs everyone hating it. You'll avoid the monopoly claims because you won't be a monopoly. The only downside is higher risk. You have the cash to offset that. Use it.

Re:SAP may be a nightmare but who is a SAP-CSE

The "benefits" of SAP are quite debatable. I'd say that's true for practically ALL of these "enterprise class" applications that try to tackle the problem of integration of incoming sales orders, corporate accounting, shipping, human resources, etc. etc.

It's "beneficial" for the consultants who get highly paid to train employees on how to use the software, and for the people who customize the software for each business that takes them up on a purchase. But beyond that, it's unclear that it's *really* an efficient, worthwhile solution.

From past experience, I've observed a trend where these companies (whether it's Oracle, SAP, or you name it) make big promises, a company "bites" (knowing that the problems outlined really ARE big issues they'd LOVE to solve), and then the vendor proceeds to bleed millions of dollars out of their new customer. Eventually, something is constructed/customized that accomplishes SOME of the original goals, but does so in a rather clunky, bug-infested manner, while other items on the "want list" get bumped to "future stages of implementation" (which often never really get completed, because they're too costly and complicated). By this time, upper level management is forced to cost-justify the monstrosity, so they do their best to keep their jobs (and pride) by praising the software as a "big improvement" or "big step towards greater efficiency". Vendor then makes sure to quote them on that, and moves to the next sucker... uh, I mean customer.

IMHO, as disappointing as most Microsoft products are, they built their empire on the exact OPPOSITE philosophy. They promised "relatively inexpensive, out of the box" solutions to problems. Microsoft has never been about customizing their software for individual clients while charging by hours spent on them, nor do they tie customers to "maintenance contracts". They simply develop applications they feel will appeal to the majority of PC users out there, and make corrections and additions as they go, largely based on the collective feedback they receive.

So sure, you have silly things like people running around in large numbers, waving their MCSE certifications, expecting they should command top salaries because of them. But it's probably no more "silly" than companies scrambling to hire "experienced SAP implementation specialists" - when in reality, it just means you have people who helped muddle through the process of selling the stuff to previous customers. (You have no idea if they've ever done any customization work relevant to YOUR company's specific needs.)