According to Jill Henry, Business Objects’ director of European alliances, a reseller and OEM deal set up in 2001 between the two companies had run its natural course.

That relationship allowed Business Objects to put its Crystal-branded reporting tools inside the box with 3.x versions of SAP’s Business Warehouse system, which is now part of SAP NetWeaver BI.

That licensing agreement will now come to an end on September 30, Henry said.

She added that the decision to split was an amicable and caused by a sales and fulfillment issue.

It didn’t come as a surprise. The OEM was becoming unprofitable to run through SAP. Revenue reached such a point where it was costly to support via SAP channels.

Business Objects, however, will continue to certify its BI software against SAP’ ERP applications suite.

Business Objects will continue with our rigorous program of certifying its new BusinessObjects XI BI suite against relevant pieces of the SAP architecture, she said.

In May this year the company sharpened its SAP focus by rolling out its XI Release 2 for SAP application that provides predefined reporting structures that tap directly into SAP’s R/3 and NetWeaver BI sources.

Our SAP alliance is not going away and we’ll continue to invest in other partnership levels and integration activities, Henry said.

She said the company has been in deep discussions with SAP to invest development around SAP’s NetWeaver and Enterprise Services Architecture (ESA). She pointed out that Business Objects is one of the founding partners of SAP’s ESA that was announced in April.

We’re been in discussion for six months but don’t have anything to announce today. It could take at least a year before anything comes to fruition.

The evolution of the SAP-Business Objects OEM is interesting. Originally signed in September 2001 it was one of several blockbuster deals that Crystal Decisions Inc, the original developer of Crystal Reports, forged when it was an independent reporting tools vendor.

That deal allowed Crystal Decisions to resell its popular Crystal Reports to SAP ERP customers and license some of its components to fill out the formatted reporting capabilities of SAP BW.

Business Objects effectively inherited the OEM when it acquired Crystal in 2003. The terms of the OEM included a flex point in the contact that gave either side an option to terminate the agreement in the event of any change of ownership. Business Objects subsequently extended its contract with SAP several times.

At the time Business Objects had already worked to integrate its own BI products with SAP announcing in 1996 its first integration with SAP’s R/3 business applications. When BW was launched in 1999, it also developed a connector for its WebIntelligence tools.

When the term of the original OEM expired in July last year, another clause in the contract gave both parties an option to renew the agreement for another year, which they did.

But after consultation with SAP in March this year the OEM was deemed to have run its natural course, and the reseller and fulfillment channel agreements were terminated.

The fact that it lasted five years is an achievement in itself, especially since SAP has been moving more deeply into the BI space over the past couple of years.

But it is also a logical conclusion that reflects new price points in the industry and a move by customers to seek out more complete BI solutions.

Henry admitted it would difficult to extend the OEM deal to the full BusinessObjects XI suite.

The OEM was limited to Crystal Reports and we discussed a possibility to extend the shape of the OEM to include the [XI] platform last July, she said. But the licensing, logistics and support implications the risk of cannibalizing our core BI business from that proved insolvable.

Henry explained that there is a six month wind-down period for the 1,500 or so existing OEM customers, which she admits isn’t an insignificant number.

We have provisions to continue support for three more years after the OEM ends in September.

She said that Business Objects is already contacting customers collectively and individually this summer, giving them the option to stay on SAP with a 3-year support structure or to switch directly to Business Objects.

Customers have the option to move now or later, she said.

SAP also issued a statement confirming that both companies will jointly continue to support customers that purchased Business Objects technology through SAP.

Both companies will make sure that these customers get the same level of support, maintenance and upgrade handling as during the reseller agreement, the statement read.

In many ways this is a friendly falling out between two software firms that are probably starting to step on each other’s toes in certain field sales engagements.

Arguably SAP needed to bundle Crystal Reports in 2001, primarily to compensate for weak reporting capabilities in its ERP suite at the time. After inheriting the OEM in 2003 Business Objects promptly set about deepening its ties to SAP — recognizing SAP’s ERP base as a lucrative opportunity to sell BI into to help customers enhance the value of their existing business application investments.

But Walldorf-based SAP has since awakened to BI and has decided it can better serve its customers by developing its own reporting and analysis tools as part of NetWeaver BI. Admittedly SAP has been more diplomatic in its BI marketing compared to Oracle Corp, which holds no qualms about promoting its new Oracle BI Suite as direct competition against BI pure-plays.

Up to now SAP’s BI pushes have largely been rolled out as a series of smaller nudges and continues to maintain a partner ecosystem, albeit dwindling, around NetWeaver BI that offers certifications for third-party BI tools to ease interoperability with SAP BW.

But judging by a statement from Lothar Schubert, director of solution marketing at SAP Labs, that stance might be changing due to shifting BI market landscape

Due to a strong drive towards standardization, customers increasingly demanded formatted reporting capabilities to be offered natively with SAP NetWeaver BI.

SAP effectively addressed this customer demand with the introduction of the latest release of SAP NetWeaver in October of 2005. As a result of this product enhancement, SAP decided to no longer resell/OEM product from Business Objects.

That said Schubert added that SAP will continue to leave the door open for Business Objects to participate in its Powered by SAP NetWeaver certification program on various product fronts.

SAP NetWeaver always followed an open strategy with regard to third-party BI technologies, via open interfaces and certification. SAP will continue to work with key providers, including BusinessObjects, to assure easy integration and sustainable cost structure for our customers, when working with multiple products.

Nevertheless it’s also clear now that SAP harbors greater BI ambitions of its own. And this summer will see a much bigger push in BI when SAP rolls out around 200 new canned analytic applications geared around various modules of its ERP applications suite.

Business Objects, which maintains dual headquarters in Paris, France and San Jose, California, is going through a rough patch right now, with software license revenue not growing as quickly as Business Objects had expected.

Its share price plummeted 22% on July 7 following a profit warning for its first quarter and lowered guidance for its second quarter. The company blamed lower than expected close rates on larger software deals

The dissolution of the SAP OEM deal certainly won’t help.

Business Objects is putting on a brave face. In a recent quarterly filing the company said it does not expect the cancellation of the alliance to materially impact its OEM revenue. However it did warn in the same filing that other major OEM partnerships could come under review.

If Microsoft, IBM or Oracle reduces its efforts on our behalf or discontinues or alters its relationship with us…our reputation as a technology partner with them could be damaged and our revenues and operating results could decline, warned Business Objects in the filing.

Business Objects currently has deals in place with Microsoft, IBM and Oracle. All of these vendors are also beefing up their own BI product lines and are becoming more directly competitive with Business Objects.

SAP and other vendors will continue evolve their BI product stacks. That’s not a worry for us because we consider ourselves to be a better, best-of-breed vendor, a defiant Henry said.

Business Objects isn’t the only BI vendor to reach out to SAP. Ottawa, Canada-based Cognos Inc recently joined a procession of BI vendors lining up to woo the German applications provider. The company recently made a series of SAP-friendly announcements to tighten up interoperability between its Cognos 8 suite and native SAP BW functions.

In recent months MicroStrategy, Hyperion Solutions, Applix and Panorama Software have all also been all but falling over each another to get closer to SAP to service BI and analytics starved ERP customers.