SAP’s $3.4 billion purchase of employee-management software vendor SuccessFactors has raised eyebrows for its premium—10 times projected revenue for the year—and for its strategic implications.
As AllThingsD’s Arik Hesseldahl notes, the German sofware vendor has spent about half of its cash for a company that amounts to less than 4 percent of its revenue. California-based SuccessFactors, with 1,400 employees, is expected to continue as a separate entity. It will compete with Oracle and other human-resources software, and parallels Oracle‘s $1.43 billion purchase of RightNow Technologies, a maker of customer-service software. That was an acquisition designed to bring Oracle into cloud computing. SuccessFactors’ big plus? Allowing reticent companies to move to the cloud slowly.
The move marks a major turnaround from SAP’s standalone strategy, notes Bloomberg, which quotes Thomas Otter, a vice president at Gartner:
This means a fundamental shift in terms of their cloud strategy, which has been rather slow to get off the ground. This is a tacit admission that their cloud strategy was a failure.
Hesseldahl says it also increases the likelihood of buyouts of other smaller cloud companies such as human resource-management vendors Taleo and Workday, as well as business suite vendor NetSuite. He quotes NetSuite CEO Zach Nelson as saying:
With this acquisition, SAP has told their customers that the path NetSuite pioneered a decade ago is the future, while the acquisition does little to advance their own product architecture.
SAP management has acknowledged that SuccessFactors will provide only an incremental revenue boost in the next few years.
Still, Ray Wang, head of San Francisco-based Constellation Research, sees acquisitions as the path to innovation for SAP. Bloomberg quotes him, saying:
They need to make acquisitions. Innovation now happens at startups and SuccessFactors is a lot like a startup.