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SAP Acquires TopTier

On Friday, March 30, 2001, SAP announced its intention to acquire TopTier, a California- and Israel-based portal software company, for $400 million. Industry insiders know that SAP already has a 3-year unlimited-use license for TopTier technology that has 1 ½ years to run, a license that cost just $5 million.

So what are they buying for $397.5 million?

  • The ability to extend the license. SAP sees a need for their technology that will extend beyond 2002.
  • The ability, theoretically, to dominate the corporate portal market by selling Top Tier technology to the SAP installed base. This ability to “dominate the EIP market” is the announced reason for the deal.
  • The ability to prevent SAP’s competitors, like Baan, from using TopTier’s slick drag and relate technology. (See below for comment.)
  • The ability to provide desktop integration (what TopTier calls “drag and relate”) to those customers who for some reason insist on using other enterprise applications besides SAP’s, applications like Siebel or i2.
  • The ability to redirect TopTier so that its development parallel’s SAP’s portal development.

When SAP paid the original $5 million, they got technology that became the foundation for SAP’s mySAP.com portal, which SAP calls the Workplace. The Workplace is a web interface to SAP that a) makes up for many of the sins of the regular interface and b) provides a simple way for business partners to access the core SAP applications.

This desire to allow access to business partners has been a driver for many SAP customers. Their problem is this. A planner at Company A wants access to Company B’s current planned ship date for A’s order. (Company B is the SAP customer.) Without an interface to SAP, the planner has to call, which is expensive. Companies want to save money on customer service, by allowing the planner to access this information using his or her browser. But direct access is bad, partly because many planners would be defeated by the SAP interface and partly because those who weren’t defeated would have access to Company B internal information. What they need is a buffer area—the Workplace—that is easy to use and provides only the information they need.

SAP has made money from these Workplaces already—a lot of money. They license the Workplace for a non-negligible (est. average $100/seat) amount of money, and the number of seats can be large. (Flagship customer Nestle was announced at 230,000.) So protecting this income is a pretty good underlying justification for the acquisition. It should be noted, however, that SAP also has a product called the Internet Transaction Server, which some SAP customers use to give external access in preference to the Workplace. So not all SAP customers will buy the Workplace.

As noted above, though, SAP has stated that its ambitions now extend farther than its installed base. SAP believes those analyst reports that say the EIP market will be $X billion, and they are willing to pay 20 times last year’s earnings (est.) to get what they hope is a big piece of it. (TopTier is a private company, but their revenues last year were a widely-reported $20 million, and this year, they say, is significantly better.)

Hence the organization that SAP has created. TopTier will become SAP Portals. Its CEO will be Shai Agassi, now CEO of TopTier. Product development will be headed by Klaus Kreplin, formerly Senior VP of Business Intelligence and Workplace at SAP.

SAP Portals will continue to license TopTier to its competitors, which should help TopTier gain dominance. Baan, as noted above, is a TopTier licensee, and so is Microsoft. Both have given their nominal blessings to the merger, while (I am sure) looking around for someone else. (Laurens van der Tang, president of Baan, even appeared at the aforementioned press conference.) SAP has shown that it can be ruthless in the past, and it would take a lot for its competitors to believe really that the leopard has changed its spots.


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