SAP has agreed to acquire cloud-based human capital management (HCM) offerings provider SuccessFactors for $3.4 billion. Under the acquisition, SuccessFactors' team and technology will be added to SAP's cloud assets and the combination of SAP and SuccessFactors will establish an advanced end-to-end offering of cloud and on-premise solutions for managing all relevant business processes.
Without a doubt SAP has made a good move and in the right direction. One may argue that paying 13 times the revenue for a loss making company with nearly 66% of revenue going towards SG&A does not make financial sense. However, if SAP can leverage SuccessFactors’ technology and talent to speed up its transition to the cloud, the price would be quite worth paying. In fact, by offering SuccessFactors’ technology to its current customers, SAP could help reduce the cost of new customer acquisition for SuccessFactors, which has been a major concern for many SaaS providers.
SAP has been trying to add subscription-based cloud solutions to its license and services offerings for a long time. A lot has been written about non-success of SAP’s Business ByDesign – a SaaS offering for large-scale business-management deployment focused on growing mid-market companies. SAP needed just the right acquisition to truly begin its journey into the cloud.
SuccessFactors will not only provide SAP with 3,500 customers, but also technology and above all talent. SAP’s task in the immediate future would be use the technology and talent to scale across businesses, in effect a larger customer base. This is something that Cisco does well and has repeatedly demonstrated its capabilities across numerous acquisitions.
While enterprise and mid-market businesses can be targeted through the acquisition, there is still no “S”, that is, small business, within the SAP portfolio. The small business cloud computing market is the most fragmented and among the fastest growing. SAP should continue to look for acquisitions in the area. Possibilities could be Concur, SugarCRM, Zoho and others.
Several companies are ahead of SAP in delivering SaaS to small businesses including Microsoft Dynamics, Salesforce.com and NetSuite. Microsoft also has one of the largest numbers of channel partners that are very conversant with Microsoft cloud solutions and Salesforce.com has its Force.com platform that enables channel partners to develop new solutions for their customers. SAP should also think about expanding its SMB-focused channel partner base and offering PaaS for those partners to develop new solutions for
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