This time last year I was on a flight to Santa Clara, where SAP was hosting its Influencer Summit. It’s a shindig where SAP communicates and listens to a group of analysts and influencers and last year, there was a clear focus: cloud.
SAP had the excellent John Wookey, who at that time was heading SAP’s on-demand strategy and he was positioned front and centre. There was an entire day dedicated to cloud and SAP’s core cloud product, an ERP system called Business ByDesign was aggressively marketed to the audience.
Now for two of SAP’s strategic areas – Enterprise Mobility, and in-Memory software, 2011 has been a fantastic year. The key products – the Sybase Unwired Platform for mobility, and the HANA in-memory platform – have had fantastic success. At the time of the Influencer Summit, Marge Breya – EVP of SAP’s solution portfolio, was on her way out – eventually headed off to join her old boss Leo Apotheker at HP.
But for the cloud side of the business, 2011 has been very lacklustre for SAP. Wookey left SAP and in a cruel twist of fate, ended up at Salesforce after his gardening leave was complete. The noise around HANA and SUP meant that the cloud messaging was quiet in the market as a whole, and also at SAP’s flagship conference, SAPPHIRE NOW.
There has been quite some criticism of SAP’s cloud strategy in the interim, with some suggestions that they are haemorrhaging customers within Line of Business to organisations like Workday and Salesforce.
So when I was invited back to the Influencer Summit, this time on the 12th December in Boston, I was surprised to see that once again, there was a whole day dedicated to cloud. Given the relative lack of progress and visibility in the last year, this caused me some surprise.
And today we heard the news that SAP is in the process of acquiring SuccessFactors in cash for $3.4bn. That’s 170,000,000 used $20 bills in a giant black briefcase. I hope Bill McDermott has been lifting weights. Note that they are massively overpaying – some 49% above stock value. Which sounds totally nuts.
But for my money, SAP’s senior management team has made two excellent acquisitions with Business Objects and Sybase. And for that reason I’m minded to consider that they’re acquiring SuccessFactors for some very good reasons. Here’s what I think they are.
The first is talent. SAP has lost some talent, notably John Wookie, but also various others. Jeff Stiles is leaving SAP in January and cloud marketing was high on his agenda. I believe that SAP doesn’t know how to create, market and sell (profitably) a cloud platform and all of the solutions built so far have lost SAP a ton of money. So acquiring a leader in Line of Business cloud allows SAP – like it has done with Business Objects and Sybase – to acquire great leaders. SuccessFactors CEO Lars Dalgaard will become the EVP of cloud at SAP.
Second up is credibility. Under the leadership of Aneel Bhusri, Workday have started to do in the Human Resources Line of Business what Salesforce.com did to the Sales & Marketing Line of Business. Workday don’t have the global reach of say SAP or Northgate Arinso but SAP must be terrified that Workday could get there. This acquisition gives SAP better cloud credibility and the ability to compete with Workday and Northgate Arinso.
Third up is diversification. There’s very little overlap between SAP and SuccessFactors customers and this means they acquire 3500 new customers and 6m users, up front. SAP’s intention appears to be to keep SuccessFactors as a separate business unit and that sounds like it makes sense in the first instance.
What’s also interesting is that SAP America has acquired SuccessFactors, which presumably means that SAP is keeping it away from the SAP AG management structure. I’m pretty certain that this is not a coincidence and SAP is looking to push the balance of power away from the legally constrained German organisation with its arcane labor laws.
In the end, the proof will be in the pudding and acquisition strategy is one thing, and execution is something else entirely. SAP’s ability to execute and integrate SuccessFactors will define its ability to compete in the cloud. Because SAP has overpaid for SuccessFactors, it needs to ensure that the acquisition is a force multiplier to SAP’s ability to execute in cloud, and not just a means to add a few hundred million of revenue to the top line.
My prediction is this is a good move and the SAP senior management team have got what it takes to make it to work. But this is just an initial reaction and as we get into the Influencer’s Summit in Boston, we should get a better feeling for what SAP is really up to. It will certainly be an interesting 2012.