Enterprise Software

SAP buys its way into the cloud with SuccessFactors

Ian Hardenburgh considers SAP's acquisition of SuccessFactors, a human capital management online service, and what it might mean to SAP's cloud strategy.

SAP, one of the world's preeminent leaders in enterprise resource planning software, has recently acquired SuccessFactors, an online human capital management (HCM) service.  Expected to close in the earlier part of 2012, the cash deal was a significant one, even for a company as big as SAP.  Prior to the announcement, SuccessFactors (ticker symbol SFSF on the New York Stock Exchange) was trading at around $26 a share.  SAP valuated the company at almost three-and-a-half billon. This comes as something as a surprise, especially when considering the $5.8 and $4.8 billion acquisitions they made with Sybase and BusinessObjects, respectively, not all too long ago. Perhaps this purchase comes as something of a shock not so much because of the money spent, but these purchases seem very distinct, with little correlation to one another. Once again, SAP creates some confusion regarding its long-term strategy with the enterprise cloud.

It was probably only a matter of time before SuccessFactors got gobbled up, as SaaS is slowly starting to work its way into the hearts and minds of business stakeholders. They provide a valuable service to enterprises that concerns one of the biggest line items in a company's books -- their employees. Surprisingly though, human capitalists, within the scope of ERP that is, are usually the last to adopt any kind of comprehensive data warehousing and analytics initiative. I don't think this is necessarily due to human resource personnel being aloof, but that it likely points to some concern with the issue of compliance. Perhaps this is the reason why SuccessFactors decided to coin the term "business execution software", in a hope to distinguish themselves as just another payroll, benefits, and compensation package. However, SAP already caters to this audience with their SAP ERP Human Capital Management solution, where a focus is put on managing your talent. Something that could be said to have more to do with an enterprise's operations, or the underlying idea of performance management -- more so than anything else. And this is what I find most perplexing about this acquisition. With BusinessObjects, SAP got an ad hoc reporting solution. With Sybase, they leisurely turned what was a partnership into direct asset acquisitions, which saw them extend their CRM offering to mobile devices, as well as got them their first notable database product. But with SuccessFactors, they only got something they sort of already had. One would at least of thought that they'd enter into the cloud market with something that could be deemed as an enhancement to what they heretofore promoted.

SAP might seem a bit lost in trying to compete in the cloud at first glance. They're infrastructure-less products, or operating system-independent solutions contrast with those offered by companies like Microsoft, who have continually forged ahead with complete baseline solutions and the option to build upon that foundation by way of development SDKs and bundled analytics tools  as their multi-tiered Web Role, SQL Azure, and SQL Azure Reporting options can provide.

On the other hand though, SAP could prove themselves to have a winner in SuccessFactors, as this company has done something extremely well: they've managed to build a platform with a slew of well-built applications. This holds true despite the content (HCM) they actually provide. Therefore, and somewhat ironically, SAP could be said to have purchased the talent itself -- SuccessFactors's employees, who have already built the infrastructure-less architecture SAP could so desperately need. Given SAP's history as being a third-party software-maker, taking a more Salesforce.com/SaaS/PaaS type of approach might serve as a more effective business model going forward, than one similar to Microsoft or IBM. Their strategy might be to do what SAP has always done, provide business solutions, not the infrastructure to support business solutions. SuccessFactors might be the ones to show them how to go about doing all this.

About

Ian is a manager of business intelligence/analytics for a small cap NYSE traded energy company. He also freelance writes about business and technology, as well as consults SMBs upon Internet marketing strategy.

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