Sybase, SAP and Microsoft: Round 3 and Counting

Datamation content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More .

In a little-noticed announcement last November, SAP and Sybase inked a deal that said more about success and failure in the enterprise software market than many realize.

The deal, in which Sybase’s database will support SAP’s mid-market Business One software, may not by itself be the most earth-shattering event. But history behind this deal tells a cautionary tale about opportunity lost, and lost again. And about how much SAP and Microsoft are squaring off in a battle for the mid-market enterprise.

Way back in the late 1980s, a little start-up called Sybase made an enormous and costly mistake. Microsoft, which at the time was just starting to extend its vision beyond Windows and what would eventually be called Office, was looking for a relational database. Sybase, already fighting a growing Oracle juggernaut, was looking for an ally and a marketing coup. A deal was struck — Sybase would license a desktop version of its SQL Server database to Microsoft. Sybase would get a volume market and a powerful ally, and Microsoft would get a relational database that many thought had little chance for relevance as a desktop system.

The result was amazing disaster for Sybase: the SQL Server brand eventually became a Microsoft brand, Microsoft SQL Server, competing with Sybase and everyone else for an increasingly blurry desktop and server database market. Sybase dropped out of the low end of the market, and Microsoft chugged along, steadily growing its middleware business into the industry leadership position it enjoys today.

Way back in the mid-1990s, a successful and mature Sybase made another enormous and costly mistake. SAP, moving to consolidate its No. 1 position in the ERP market, was desperate for a relational database to challenge Oracle, which was moving up in the ERP market and beginning to give SAP a serious run for its money. SAP approached Sybase for a partnership, and was rebuffed. Egos clashed, angry words were exchanged, and Sybase never even got to square one in the burgeoning ERP market. The result was lost market share and a growing marginalization with respect to Oracle.

So at the close of 2003, Sybase has finally jumped in the game in a way that could threaten its old rivals and provide an important new alternative database for SAP. It may be a classic case of too-little, too-late. But I think it may give Sybase a much-needed chance for revenge and redemption.

One reason this may work is that SQL Server isn’t always the database of choice for Microsoft’s flagship Axapta enterprise software. Developers worldwide know that big Axapta projects can tax SQL Server’s scalability limits — forcing these partners and their customers into the relatively expensive hands of Oracle. A lower-cost Sybase alternative tied to SAP’s software and reputation could make Business One a viable competitor to Axapta and the rest of the Microsoft Business Solutions product line.

Another reason is that SAP is actively courting Microsoft partners, many of which are feeling pressured to support Microsoft’s attempts to use pricing as a way to compete with SAP. This policy has resulted in lower revenues for a Microsoft partner network made up of relatively small companies that have been punished by the recent recession and lack the financial resources to absorb a large number of low-ball deals. These partners may be heartened by the prospect of being able to compete on price with Microsoft without killing their profit margins.

The final reason that this might work is that SAP will now be in the position to offer Business One on Linux, something that was impossible when SQL Server was the only database Business One supported. This may be the big redemption play for Sybase: aiding and abetting the Linux market, particularly as a replacement technology for SQL Server, could mean sweet revenge for Sybase’s past errors.

A lot has to happen before this deal really spells redemption for Sybase or trouble for Microsoft, but the die is cast. The battle for the mid-market is just beginning, and a Sybase/SAP alliance could help tilt the balance. It’s an alliance that could have, and should have, happened a long time ago. But it’s hardly too late for the two companies to try again.