June 5, 2013
After repeated false starts of trying to build its way into the enterprise eCommerce space, SAP has finally decided to do a U-turn on its strategy and buy its way in. For years there has been intense speculation that SAP might acquire hybris, and behind the scenes there has certainly been much umming and ahing over the enterprise software giant’s commerce strategy. Hybris has been on a tear recently, and until today was widely expected to file for an IPO in 2014; however, the firm’s destiny has for some time been in the hands of its VC investors (Huntsman Gay Global Capital, Meritech Capital Partners and Greylock Israel). The decision to sell to SAP was likely influenced by these VC firms who, between them, have a controlling state in the firm. The value of the acquisition has not been disclosed, but given hybris’ strong earnings over the past four quarters (the bulk of which was directly from license revenues) and with the looming path of an IPO, we can speculate that SAP paid a substantial price tag — although the terms of the transaction are likely complicated.
So the big surprise is not why, but why now? There is no single answer to this question — but we can look at the factors that have increasingly piled on the pressure for SAP to change direction and pull the trigger on this acquisition:
- SAP’s WCEM product was simply too far behind the market leaders. In Forrester’s last evaluation of B2C commerce suites in September 2012, SAP’s WCEM (Web Channel Experience Management) solution fell far behind the leaders (IBM, Oracle, hybris and Demandware). Although over the past 18 months SAP had certainly made strides in the right direction, two major problems continued to constrain the success of this product in the market: 1) The product simply could not complete on functionality, and 2) it was too tightly coupled with and dependent on SAP’s CRM product, severely limiting its appeal outside of SAP’s CRM install base. Forrester expects SAP will wind down development of WCEM and put all its eggs in the hybris basket going forward.
- Hybris has recently been treading on SAP’s traditional ERP turf. One of the core strengths of hybris lies in its mature B2B commerce capabilities. It’s a great solution for manufacturers and distributors who use it to drive their B2B (and B2C) eCommerce revenues, but these firms face complexities as they find duplication of capabilities (catalog management (PIM), pricing, offers, promotions, personalization, order management) between hybris and their SAP ERP. To this end, hybris has at times been describing itself as the “ERP of the Front-End.”
- SAP had a huge void in its portfolio against IBM and Oracle. The lack of a credible enterprise commerce platform has made it hard for SAP to compete against its arch rivals IBM and Oracle, which respectively have invested billions of dollars in their own eCommerce acquisitions over the past three years. This situation simply came to a boiling point. SAP finally reached the conclusion that catching up via a build strategy was not working.
With this acquisition, the enterprise commerce technology landscape is now dominated by four large software companies: SAP, IBM, Oracle and eBay. There are other smaller players, notably: Demandware, Digital River and Intershop, all of which have long been publically traded. The acquisition of hybris brings to a close a multi-billion-dollar, three-year spell of intensive M&A and IPO activity in the enterprise commerce technology space. There will be future acquisitions for sure, but there are few independent vendors left now. The enterprise commerce space has entered a new phase of maturity and is now firmly entrenched as a strategically key product line alongside ERP and CRM.
So what does the acquisition mean for existing hybris customers and partners?
For now it’s business as usual. SAP plans to operate hybris as independent business unit (which would have been a very important factor in the negotiations for the hybris founders and management team) so we can expect the management, development and sales teams to remain mostly intact. Investment in the solution will continue at the same feverish rate as before. Most importantly, however, hybris will continue to be offered to the market as a standalone product suite. There will be no forced dependencies on SAP’s existing ERP and CRM product lines, which will ensure that hybris continues to be an attractive choice for customers regardless of their current flavor of ERP or CRM back-office. Over the next 18 months we can expect SAP to make significant investments integrating the hybris suite with ERP and CRM, making it easier for existing SAP customers to use hybris in an integrated fashion. Furthermore, I expect that we will see SAP leverage assets like Hana to bring exciting new capabilities to hybris in the future. Put simply, existing and prospective hybris customers have little to worry about and those who are also existing SAP customers will likely have much to get excited about as the joint strategy and road map are unveiled.
Hybris has a large network of 250+ technology and commerce service provider partners. Many of its premier partners like Sapient, Accenture and Deloitte are also major SAP partners. So for them, this convergence will be compelling in terms of their ability to offer a cohesive solution to clients. For hybris’ smaller partners, the future may be a little hazier. On paper, it is business as usual: hybris will continue to support all partners and will sell the solution stand-alone from other SAP assets. However, over time, it is possible that the complexity of working with hybris as an entity of SAP will become a burden for some smaller niche eCommerce implementation partners.
The acquisition also leaves in doubt the future of hybris’ partnership with Adobe’s CQ5. SAP lacks a web content management platform in its product portfolio but with this acquisition, it has just gained extensive capabilities in digital customer experience through the personalization, content management, site search and merchandizing capabilities of the hybris platform. Forrester expects these digital experience capabilities to become strategically important to SAP going forward.
I recommend that Forrester clients who have questions or concerns about this acquisition to schedule an inquiry with me to discuss the implications.