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Four things SAP must consider before a Teradata acquisition

Speculation about a deal between SAP and Teradata continues, but columnist Mark Whitehorn, fresh from the Teradata user show, has some words of advice SAP should consider before making a Teradata acquisition.

Speculation about the possibility of SAP acquiring Teradata seems to rumble on. Some see the persistence of the rumors as proof that a deal is in the air, but it is worth remembering that rumor is recursive. Indeed, the very act of writing this article adds another hit to a Google search on the topic and keeps the story going.

Of course, it's true that Teradata is in an unusual position. As we are all aware, the business intelligence (BI) market has gone through a phase of intense consolidation. Teradata is one of the few acquisition targets left. In addition, SAP and Teradata signed a technical partnership agreement in 2004 and have continued to work together increasingly closely.

As I thought about this, however, I wondered about the factors that would influence me were I a potential buyer. So let's take a look at four things that SAP (or any potential buyer) really needs to know about Teradata before buying it.

1. Teradata has only just become independent

Teradata has been a division of NCR since 1991; it was only in late 2007 that the spin-off was completed and Teradata became a fully independent company. Why would a division work so hard to spin off, only to have itself acquired by another company two years later? It would be far, far easier for NCR to simply have sold the division.

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2. The customers are unusual

Teradata has only about 1,200 customers worldwide, but they are drawn from the top 3,000 companies in the world. So the customers represent the best of breed -- the most successful telcos, the biggest banks, the most profitable oil companies and so on. These companies push the boundaries of BI, and Teradata pushes alongside them. The relationship between Teradata and its customers is extraordinary. Go to a Microsoft conference or an Oracle conference and you find zealots who won't hear a bad word about the company and zealots who hate the company in some ratio (at a guess, perhaps 80/20). I have yet to meet any customer at a Teradata event who is a zealot of the second kind.

3. The company culture is different

It is fair to ask why the customers are so loyal, and the answer probably lies in the company culture within Teradata. It is a technically driven company. Sure, the marketing guys know how to wear a suit, but the CTO (Dr. Stephen Brobst) is the star of the conferences. He's very, very bright (both intellectually and in terms of the Hawaiian shirts he habitually wears). At the conferences, he and the other CXOs are not hidden behind a screen of ex-presidential bodyguards and riding around in limos. They are walking around the conference, talking to their customers. Get on a conference bus to go to the evening's entertainment and Stephen or Mike Koehler (president and CEO) is likely to get on and sit in any spare seat and talk to the customers who happen to be there. My experience is that this is unheard of in a company with revenues of $1.76 billion (2008).These guys probably don't have a mission statement that talks about customer engagement; they do it instead. Is this behavior admirable? I think so, but the laudability isn't really that important. What is important is that the customers love it and, in return, give their loyalty.

4. The people are different

It is worth remembering what Teradata does. Most BI companies pull data into a central repository (a data warehouse). Then they copy subsets of the data into data marts. This is complex and can lead to massive data duplication, but it means that the data in the marts can be pre-aggregated to make the queries run fast enough. Teradata has a simpler approach. Keep the data relational in the warehouse and run the queries against that. So why doesn't every company adopt this simpler model? The reason is that no one else can make a relational database run that fast. The people who work at Teradata are good at what they do -- very good, and proud of it. They take a genuine pride in the technology they produce and the way they work with customers to solve some of the hardest problems in the business. They get a kick out of being best.

You can probably see where I am going with this. Most takeovers swallow the smaller company and force it to adopt the parent's mores and attitudes. Teradata is genuinely different from most of the other BI companies -- it has a very unusual set of customers, a very unusual working/research relationship with them, a very different management ethos and very different staff. It is these differences that make it what it is and also make it successful.

Buying Teradata with a view to absorption will alienate the customers, destroy the company ethos and disaffect the workforce to the extent that many will leave. Looked at like this, who in their right minds would want to buy and absorb Teradata?

Of course a strategic takeover might work -- one that essentially leaves Teradata doing what it does so well. But in that case, in many functional ways, it isn't really a takeover. OK, so there are some changes, and one group of people on the stock market make money while others lose, but as far as Teradata's customers are concerned, life would carry on as usual.

I don't write for the stock market. I write about technology and technology companies and customers. A takeover that fundamentally changes Teradata seems, from my perspective, to make no sense whatsoever. Some people see Teradata as an orphan out there, all alone, waiting to be brought in from the cold. I see Teradata out there all alone (apart from a multitude of very happy customers and partners) precisely because it is so different and so good at what it does. That doesn't make it an easy company to buy, which may be precisely why SAP hasn't bought it.

About the author: Dr. Mark Whitehorn specializes in the areas of data analysis, data modeling, data warehousing and business intelligence (BI). Based in the U.K., he works as a consultant for a number of national and international companies, designing databases and BI systems. In addition to his consultancy practice, he is a well-recognized commentator on the computer world, publishing articles, white papers and books. He has written nine books on database and BI technology. The first one, "Inside Relational Databases" (1997), is now in its third edition and has been translated into three languages. The most recent is about MDX (a language for manipulating multi-dimensional data structures) and was co-written with the original architect of the language, Mosha Pasumansky. Mark has also worked as an associate with QA-IQ since 2000. He developed the company's database analysis and design course as well as its data warehousing course.

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