Teradata is a large enterprise software company; SAP is a larger enterprise software company. At one point, the two were partners, working extensively on ways to harmonize their respective products. Then things fell apart - dramatically; and in June, Teradata sued SAP.
What went so horribly sideways? In a nutshell, Teradata alleges that SAP used the partnership to learn about Teradata’s core data warehouse offering, so it could then engineer its own competing solution. Moreover, Teradata claims that SAP is increasingly focused on making its own competing data warehouse the only viable choice for interacting with its other, more established products. To understand the fear and anger that now seem to be driving Teradata, it’s worth unpacking a bit of context.
SAP has historically dominated a category of the software market known as “enterprise resource planning”, or ERP. Despite the painfully generic name, ERP systems provide a vital function: they manage the raw information pertaining to core business functions - including inventory, supply chain, human resources, and finance. Whether you’re trying to understand your budget for the quarter, or calculating whether you have the appropriate inventory for fulfilling a client order, you’re probably interacting with some sort of ERP system. (And there’s a high chance it’s provided by SAP.) A standard SAP ERP installation is operating across multiple business lines within a single organization, processing millions of data transactions per day, and acting as the source of truth for information related to suppliers, finances, customers, employees, and more.
While SAP’s ERP systems provide critical capability, they don’t address every data-driven need. Namely, ERP systems have not been historically optimized to serve the needs of analysts that need to aggregate findings from the raw data. Asking complex questions of large volumes of ERP data turns out to be a technically challenging problem; users want the ability to ask lots of questions simultaneously, receive responses quickly, and work with both the analytical questions and answers in their preferred software tools. Having a system that’s tuned to fulfilling these “business intelligence” requirements turned out to be so valuable that it gave rise to different class of companies.
Enter Teradata: founded in 1979, the company’s flagship “enterprise data warehouse” is intended to fill exactly the type of analytical gap that is left unaddressed by ERP systems. The typical data warehouse is essentially a specialized database that sits atop a customer’s transactional systems (e.g., SAP’s ERP systems) - pulling in subsets of data, and storing them in a manner that is optimized for efficient retrieval. Analysts can use familiar applications (e.g., Excel, Tableau) to quickly pull slices of data from the data warehouse, in order to answer questions and produce critical business reports. Teradata claims to have pioneered a “massively parallel processing” (MPP) architectural design that allows use of its data warehouse to scale linearly across thousands of end users, without diminishing performance for individual queries.
The complementary relationship between data warehouses and the underlying ERP systems led Teradata and SAP to partner, and announce a “Bridge Project” in 2008. The crux of the project was dubbed “Teradata Foundation”, a jointly engineered solution that promised seamless data warehousing functionality, backed by Teradata, for customers using SAP’s ERP systems. Throughout the development process, Teradata engineers were embedded with SAP counterparts - and, according to Teradata, conducted in-depth reviews of the technical features (e.g., MPP architecture) that underpinned Teradata’s fast performance. SAP engineers were also provided full access to Teradata’s products - though not to any underlying source code, it would seem. Teradata Foundation was successfully piloted at one major customer facility, and Teradata claims that the prospective business opportunity was in the hundreds of millions of dollars annually.
As SAP worked with Teradata on the bridge project, it began developing its own database solution - SAP HANA. In the summer of 2009, SAP announced its intention to revitalize its core offerings by providing a next-generation, in-memory database. At the time, the investment HANA was primarily viewed as an attempt to sever SAP’s relationship on Oracle. Oracle had long supplied the underlying database that backed SAP’s ERP offerings, and seemed to relish in eating into SAP’s core business - while simultaneously tightening its frenemy’s dependency on the Oracle database. However, has HANA began to mature, it became clear that SAP’s aspiration wasn’t simply to escape from Oracle’s grip. In May 2011, SAP announced that HANA’s architecture would enable it to serve analytics workflows in a first-class manner - eliminating the need for a separate data warehouse like Teradata.
Two months after flexing HANA’s features, SAP unilaterally terminated its partnership with Teradata. In the following days, SAP unveiled a new version of its Business Warehouse product - powered by HANA, that was supposedly capable of servicing the complex analytical workflows that Teradata’s product had historically targeted. Teradata was understandably alarmed; a valuable, reliable slice of their revenue was about to vanish - if their former partner had its way. As HANA’s development ramped up over the next several years, the relationship between SAP and Teradata grew increasingly strained.
In 2015, German publication Der Spiegel dropped a bombshell report; it alleged that SAP’s internal auditors found SAP engineers misusing intellectual property from other companies, including Teradata. Moreover, the audit specifically claimed that HANA’s development had improperly drawn on external IP. Shortly after presenting their findings to SAP leadership, the auditors were fired. It’s worth noting that one auditor tried to personally sue SAP, claiming that the company tried to suppress his findings - and asking for $25M in relief. SAP denied any wrongdoing, countersued the auditor, and had the personal lawsuit dismissed. (Another victory for the not-so-little guy.)
Der Spiegel’s report gave Teradata its call to arms. The company assembled a lawsuit that asks for two-fold relief: an injunction on the sale of SAP’s HANA database, and a broader antitrust investigation into SAP’s move into the data warehouse market. The first claim is pretty straightforward, if not a little wobbly: the report from Der Spiegel clearly indicates that SAP misappropriated Teradata’s IP. Moreover, Teradata attests that it has evidence that SAP reverse-engineered its data warehouse, while the two were working as partners. The wrinkle is that neither component of the claim provides a smoking gun; the Der Spiegel report doesn’t specify what was misappropriated, and Teradata hasn’t yet supplied evidence that the reverse-engineering occurred.
The second claim feels existentially motivated. Teradata is understandably concerned that SAP will continue to make it more difficult for other data warehouses to work with its ERP systems, as it continues to develop and promote HANA. A significant portion of the lawsuit is dedicated to describing SAP’s strength in the ERP market, and arguing that they are now using their power to anti-competitive ends. 60% of SAP’s customers plan to adopt HANA in the coming years, largely due to how it’s being bundled with ERP system upgrades. Paired with SAP’s indication that it will only support HANA-powered ERP installations by 2025, Teradata sees its market opportunity dwindling.
SAP has punched back, since the lawsuit was filed in June. On the first claim, regarding misappropriated IP, they point to the disgruntled nature of the auditor who leaked the information - and who was denied $25M. SAP attests that its own internal investigations surfaced no wrongdoing, and Teradata isn’t bringing forth specific evidence that suggests otherwise. On the second claim, SAP has sidestepped any suggestions that it is locking down its ERP systems to work only with its HANA data warehouse. Instead, they are painting a picture of natural competition, contending that Teradata is resentful that it hasn’t been able to compete in the evolving data warehouse market - and is looking to guarantee its historical marketshare.
Given the multi-year arc that’s typical of large technology lawsuits, we probably won’t see a verdict soon. Teradata is shooting the moon, asking for both an injunction on the HANA product, and controls that will keep SAP from closing off interoperability with its traditional ERP systems. Even partial success here could make a large difference to Teradata’s future. SAP seems adamant to secure HANA’s future, and as past tussles with Oracle show, is clearly willing to engage in prolonged legal warfare. Either way the case turns out, the verdict could prove meaningful for similar disputes that will inevitably appear down the line.
If you’re interested in reading through the lawsuit, you can check it out here