SAP, HP Forging Closer Ties

(MoneyWatch)  Struggling enterprise software giant SAP is drawing closer to HP as it attempts to stave off the inevitable decline of its traditional business. The companies are going to announce an extension of their existing partnership in the fast-growing business analytics application space next week during SAP's user conference in Phoenix.

Both companies hope that Phoenix is symbolic of a resurgence in their respective fortunes, but where SAP is concerned, that's far from guaranteed. SAP has failed to rise to the challenge set out by former CEO Henning Kagermann in January 2007, showing itself incapable of delivering a software-as-a-service (SaaS) offering for small- and medium-sized businesses in a timely manner. Meanwhile, serious-minded rivals like Salesforce.com, Coda, and NetSuite are gaining significant traction for services that rival SAP's flagship application suite used by customers to manage their companies. To make matters worse, Dennis Howlett notes that "a large number of SAP maintenance contracts [are] coming up for renewal in the next quarter," which means they'll be taking a harder look at those SaaS alternatives.

One advantage SAP has, however, is a plethora of integrations between its software and that of other vendors like HP. And HP is already SAP's largest partner and arguably its largest customer as well. On the surface, HP is doing quite well, and says it's gaining market share in all its businesses, including software. But it has also gained rivals across the spectrum of the IT industry, from IBM in services to Cisco in the server space, and is also finding that its OpenView and Mercury applications, used by customers to manage internal IT systems, is also under threat from SaaS vendor Service-Now.com. One of its main advantages in the enterprise is that, because it's in place up and down the stack, procurement and IT administrators simply never think about replacing its products or services in any of those capacities. Once a Service-Now gets in the data center door, however, or an Informatica slips a data warehouse into the stack, all bets are off.

That's why it's important for both companies to find ways of making their applications and services more valuable to their current customers. The two companies already offer fraud detection and applications to help predict customer behaviors for the telecommunications industry, and are likely to broaden their portfolio to other industries.

They are also likely to announce improved analytic capabilities between SAP's Business Objects line of analytic software and HP's Neoview data warehousing application. This type of analytic software, known as business intelligence, is one of the fastest-growing in the enterprise application space, so it's not a bad idea for SAP to try to build from there.

How much closer could the two companies become? Given that Dell and Perot Systems went from negotiating an alliance to talking acquisition, it's not unthinkable that HP would consider buying SAP. But HP CEO Mark Hurd has shown a great deal of acumen in his acquisition strategy, as the 2008 deal for growing services giant EDS illustrates. Buying a struggling behemoth and the prospect of serious cultural issues to boot just doesn't seem to be in the cards.