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SAP faces cloud strategy questions with SuccessFactors buy

Chris Kanaracus | Dec. 5, 2011
SAP's US$3.4 billion purchase of SuccessFactors not only gives the company an increasingly popular set of on-demand human resources applications, but could also bring its entire cloud software portfolio into a new focus.

SAP's US$3.4 billion purchase of SuccessFactors not only gives the company an increasingly popular set of on-demand human resources applications, but could also bring its entire cloud software portfolio into a new focus.

The acquisition was announced Saturday and is set to be completed in the first quarter of next year. After it closes, SuccessFactors CEO Lars Dalgaard will run the company as a separate division. He has also been tapped to lead SAP's overall cloud business.

Over the past several years, SAP hasn't quite been able to settle on a cloud strategy. The Business ByDesign ERP (enterprise resource planning) suite was pulled back and reworked once the company determined it couldn't make money on it at scale in its original form. ByDesign's target audience has also shifted, with SAP now courting both small and mid-sized businesses as well as divisions of larger companies.

Along with ByDesign, SAP has been developing a series of on-demand applications aimed at specific functions within enterprises, including Career OnDemand, an HR application that hasn't been released yet but would seem to have significant overlap with SuccessFactors' portfolio. Another potential point of overlap lies between SAP's StreamWork collaboration software and SuccessFactors' Cubetree offering.

And there's still more for Dalgaard to consider, such as SAP's new River platform for building lightweight cloud extensions to back-end ERP systems; how the cloud strategy will fit into SAP's stated goal of migrating all of its products to the HANA in-memory database platform; and SAP's efforts with partners such as VMWare and Cisco on private cloud infrastructure.

All told, Dalgaard could have his hands full rationalizing this passel of technologies and products into a cohesive story, but he seems to have a good chance.

"It's a big job," said analyst Ray Wang, CEO of Constellation Research. "[But] Lars comes with cloud DNA. Before, the old executives were bridging the old world with the new world. This should help a lot."

Buying SuccessFactors serves as an "adrenaline shot," for SAP's cloud business, co-CEO Bill McDermott said in an interview. "We think Lars is the best leader in the [cloud software] business, by a lot."

SAP made its play in mobility through a large transaction as well, with the purchase of Sybase. It ultimately made sense to do the same with cloud software, McDermott said.

"I really did kind of have a feeling it was going to go down that way," McDermott said. "Not that we don't have fantastic plans of our own, we do. But clearly the know-how around the on-demand business is different. We could have built it on our own but we wanted to get there fast."

 

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