Will SAP Acquire Teradata to Extinguish the Lawsuit?

Executive Summary

• Teradata filed a lawsuit against SAP. However, an acquisition by SAP would negate this lawsuit.
• We cover how SAP may employ this strategy and what it would mean for HANA.

Introduction

Teradata is currently using SAP for anticompetitive behavior and IP theft. SAP also has a major problem on its hands with HANA being unable to meet the promises that SAP made for it, as we covered in last week’s article SAP’s Layoffs and a Brightwork Warning on HANA. In this article, we will review the reason SAP would make this acquisition.

Our References for This Article

If you want to see our references for this article and related Brightwork articles, visit this link.

The Motivation from SAP’s Side

The Teradata lawsuit is both highly embarrassing for SAP but also signifies a significant threat to SAP. This threat is pronounced from the anti-competitive side of the lawsuit. Teradata claims in the area of anticompetitive behavior were quite convincing. And SAP’s response in the motion to dismiss made no sense. We cover the topic in detail in the article How True is SAP’s Motion to Dismiss the Teradata Suit.

However, we have taken part in that article and place it in this article.

Teradata Cannot Compete with S/4HANA?

SAP goes on to assert that it is so absurd that SAP must believe the judge will make zero effort to fact-check the statement.

“Teradata has not been able to compete effectively with S/4HANA because it only focuses on its flagship analytical database and has failed to offer innovative and relevant compelling products,” the filing stated.

Teradata does not compete with S/4HANA. They compete with HANA. Teradata has not been able to compete in SAP customers with S/4HANA because SAP made it a requirement that HANA only copy data to a second instance of HANA. This made Teradata uncompetitive as it would massively increase the cost (HANA is an exorbitant database in its TCO, which we estimated in the Brightwork Study into SAP HANA’s TCO). This is not merely a Teradata issue. SAP is using these rules against all the database competitors and using them against SAP customers. Reports of these abuses come in from different places around the world to us. Therefore, SAP’s statement about failing to offer innovative and “relevant competing products” rings hollow. This is particularly true since HANA is not an innovative product, but as we covered in Did SAP Reinvent the Wheel with HANA.SAP backward engineered other databases combined with its acquisitions of other database components. To hide this backward engineering and seem innovative, SAP has renamed items that already had generally accepted names. For instance, what SAP calls “code pushdown” is simply the same old stored procedure as we covered in How Accurate are SAP’s Arguments on Code Pushdown and CDSs.

Teradata Must Develop an ERP System to Compete?

The sentence related to Teradata only focusing on its “flagship analytical database” by SAP contains a critical assumption that the judge should flesh out during the case. The assumption made clear by this statement is that Teradata should not offer only analytical/database products to compete with SAP but needs to develop its own ERP system. This fits within the construct that SAP finds appealing, which is that the ERP vendor should control the entire account. And it is an inherently anticompetitive assumption. Most curious is that SAP does not even appear to realize how this exposes them as monopolistic in their thought processes. That is not supposed to be the assumption of ERP systems. ERP vendors are entitled to offer the customer more products, but selling the ERP system to a customer does not authorize that vendor to all IT to spend of that company.

SAP Lacks Power in Its Customers?

One has to stand in awe of SAP’s next proposal to the judge. SAP would like the judge to think that SAP lacks influence in……SAP accounts.

“SAP said Teradata’s allegations that it was monopolising the enterprise data analytics and warehousing market also fell flat, arguing it had failed to even identify SAP’s power in that market.

The SAP Position on the Teradata Lawsuit

SAP hires the most expensive lawyers that money can buy, but the argument put forward by SAP’s attorneys makes no sense. And there is something very odd about the Teradata lawsuit. First, anticompetitive actions are supposed to be followed up by the FTC, not brought through the court system. But the FTC has stopped performing its function, with industry after industry entirely monopolized with the FTC doing nothing about it.

Our view is that it is quite likely that Teradata would win its anti-competitive complaint against SAP. We are less convinced around the IP theft claims in the lawsuit. Not because SAP is not as an ordinary course consistently reverse-engineering other companies’ products, particularly those they are partners with, as we covered in Did SAP Invent the Wheel with HANA? But SAP has a partnership agreement with Teradata, which will have IP sharing clauses. SAP can point to two acquisitions (Trex and P*Time) which SAP purchased around a year before HANA was introduced and are the basis for most of HANA, which we covered in the article Did Hasso Plattner and His Ph.D. Students Invent HANA? The overall ins and outs of IP theft are murkier than the anticompetitive portion of the lawsuit. And if SAP were to lose, it would be opened up to more lawsuits because SAP has been using the same tactics described in the Teradata complaint against other vendors. It is difficult to see who the Teradata lawsuit can be satisfied with without a court order, which requires SAP to change its business. And this would probably make it impossible for the FTC to investigate SAP then not. And if SAP investigated SAP, they would find a great deal of evidence of anticompetitive behavior. SAP’s business model is based upon anticompetitive behavior. If SAP were blocked from this, it would go into a steep decline. Therefore, SAP really cannot afford to lose the lawsuit against Teradata.

Now, usually, this lawsuit could be settled by SAP writing a big check to Teradata. The terms would be sealed, and all we would have left to guide us as to what happened is the initial complaint filing and the motion to dismiss. But this is where the situation with HANA comes into play.

The Problem with HANA

This lawsuit exists because SAP decided to create a database and then reverse engineer that database from other databases (along with P*Time and Trex). SAP planned to push the other database vendors from their accounts — and a primary way they did this was by making false claims about HANA and denigrating all of their database partners. SAP released information through shills like John Appleby at Bluefin Solutions, who wrote that SAP was “finished on Oracle,” as we covered in How John Appleby Was So Wrong About His HANA Predictions. Our view that these false statements were made in exchange for some consideration from SAP. There are all kinds of considerations that SAP can provide to consulting firms that push its message, a factor that is also very difficult to track — something as simple as SAP referring business to the consulting company. SAP not only made outrageously false claims around HANA, as we covered in Articles that Exaggerated HANA’s Benefits. But they got partners to repeat these messages. Lenovo rigged a benchmark for SAP to make HANA look good, redacted, and manipulated to make HANA look as good as possible, as we covered in The Problems with the Strange Lenovo HANA Benchmark.

Other companies like Huawei bet big on HANA, thinking that HANA was an up-and-coming new database that they could build a business around.

HANA was one of the most prominent and deceptive marketing and sales campaigns in enterprise software history. It began in 2011-12 and increased in the promotion up until probably late 2017 or early 2018 when we finally called out the end of the reign of HANA as the primary marketing tentpole of SAP in the article HANA’s Time in the Sun Has Finally Come to an End.

In our article, SAP’s Layoffs and a Brightwork Warning on HANA,
we predicted that SAP had to do something with HANA. And that HANA is impossible to make meet SAP’s promises for it. And that HANA is just not making much progress in improving as a database. One solution that would make the Teradata lawsuit disappear and cover-up for what would be a jettisoning of HANA are through SAP acquiring Teradata.

By doing this, SAP would buy Teradata’s silence, end the lawsuit, and allow SAP to access Teradata’s products and talent. SAP could rename Teradata products as HANA and then port existing customers over to Teradata (HANA). Teradata’s products are far superior to what SAP has created in HANA.

Teradata’s Motivation

The lawsuit claims that Teradata’s business has suffered from SAP’s anticompetitive activities. However, Teradata is also being squeezed by what is widely considered poor management and a change in the database market, which has opened up more options to customers, one of these being cloud-based data warehouses. Teradata does have a good chance of winning at least part of its lawsuit, but as SAP would appeal, it would be years until Teradata would win a final judgment. And Teradata may not be in the position or have the interest to wait. While Teradata’s victory would be a victory of the overall enterprise software market, no other software firms pitch into “help” Teradata with the lawsuit. This is precisely why markets’ regulation is so essential because single companies should not have to sue other companies. After all, antitrust law is being broken. However, antitrust laws were barely enforced under the Obama Administration. They will not be implemented under the Trump Administration, which actively supports larger companies’ predation on smaller companies.

As for more motivation, Teradata is getting leaner and engaging in layoffs, potentially making itself more appealing to an acquirer.

See the following quotations.

“Q3 in London, LT signed NDAs and were given a preview of the RIFs. In late Q3 and Q4 Field Hiring was executed in order to fill in with younger and less experienced people and new hires were given elevated grades. This way when the rifs happened, they can show the data to try to quell age discrimination and every one got the same severance – all based on grade.” – TheLayoff

“Seems pretty clear they are cutting payroll expenses to make the company more attractive for an acquisition. Highest paid, most successful folks go first – biggest impact on payroll. Then sell the services business to Cognizant. Then sell the technology business to SAP. Executives get their sweet golden parachutes with stock deals.” – TheLayoff

“You are saying what we are all thinking… Teradata has “jettisoned” a lot of their “first wave” of experienced Teradata folks who started in the late-80’s, 90’s. Many of these folks are some of the world’s best data analysts….so why don’t we use that against them? There have been wave after wave of layoffs. Each time Teradata has to provide a “peer group” analysis of like-jobs, locations and ages. I think they purposely manipulate these lists so that they pass “Age Discrimination” tests for each layoff.” – TheLayoff

“What’s up with hiring more and more H-1Bs from India after the layoffs. Sadly, it feels like company is infested with H-1Bs after kicking out many Americans. I hate to see many of my friends lost the job and instead of hiring them back we hire more and more H-1Bs. Does anyone else feel the same? Can we report this to immigration authority?” – TheLayoff

The Cost of the Deal

At a stock price of around $48, Teradata has a market capitalization of about $5.6 billion. If we estimate a 30% premium, we end up at an acquisition cost of $7.2 billion for a company with revenue revenues: $2.3 billion and 12,026 employees. Considering that SAP paid over $8 billion for the tiny Qualtrics we covered in Does SAP’s Acquisition of Qualtrics Make Any Sense?, this should be doable by SAP.

What SAP Would Get

As explained by Ahmed Azmi

Teradata’s account base in data warehousing, the world’s top banks, telcos, insurance.

Teradata’s prebuilt industry models for their major markets, which are mature and primary differentiators.

SAP could replace HANA with Teradata for BW for new customers.

The problem with this is that Teradata could not be well leveraged for creating an application database.

However, SAP needs an application database to replace HANA. SAP needs to shed HANA, and the word is that SAP internally is tired of the HANA overhead and lack of progress. But what will replace it?

What Happens if the Acquisition Were to Occur

But if SAP does acquire Teradata, it will say two possible things.

1. SAP knows that it has at least a reasonably good chance of losing part of the Teradata lawsuit.
2. Everything that SAP said about HANA is false. After all, SAP told customers they shared with Teradata that Teradata could no longer be recommended because everything Teradata had was inferior to HANA. This was “so innovative” that no other vendor could match it. HANA outperformed every competing technology by a factor of 100,000 times, as we covered in How Accurate Was SAP About HANA Being 100,000x Faster Than Any Other Technology in the World. HANA was so performant that genetic algorithms run in HANA would be essential to finding a cure for cancer, as we covered in How Accurate Was Vishal Sikka on the Future of HANA? If any of this were true….why would they need to purchase Teradata?
3. Or both 1 and 2 are correct.

Conclusion

Teradata’s lawsuit is one of the best hopes we have to reign in the anticompetitive behavior of SAP, and an acquisition would put a stop to this.

It is worse for the market than a settlement because the lawsuit becomes inactive instead of being settled. If the acquisition does occur, we see SAP jettisoning much of HANA and replacing HANA’s analytics usage with Teradata (which SAP will cover up and say the two technologies were “merged”). The rebranding of Teradata will make it appear as if the products are HANA. But it still does not give SAP an answer for replacing HANA for applications like S/4HANA.