SAP’s proposed purchase of Business Objects for €4.8bn (£3.3bn) complements the German application giant’s strategy to expand into the lower end of the corporate market.

SAP has already spent more than $500m (£245m) on the launch of its ByDesign service for small and medium-sized companies.

The purchase of Business Objects – which has a strong customer base among smaller firms and an established software-on-demand strategy – is a sensible addition, according to Ovum analyst David Bradshaw.

“SAP has to build up the on-demand market and Business Objects has been a close partner with Salesforce.com, which is strong in this area,” he said.

But the company will need to work hard to secure its position in an increasingly competitive arena.

“SAP is late to the on-demand market and will have to have a clear suite of linked-up services to be successful,” said Bradshaw.

The Business Objects takeover is a departure from SAP’s usual policy of organic growth only – that is, relying on sales rather than acquisitions. As such, it may be seen as a response to rival Oracle’s recent $20bn (£9.8bn) spending spree, including customer relationship management supplier Siebel.

But SAP chief executive Henning Kagermann says the deal is part of plans laid as long ago as 2005. “The acquisition is in keeping with our strategy to double our market by 2010,” he said.

“We will accelerate growth in the business user segment, while complementing the company’s organic growth strategy.”