Deal Means More SAP Cloud Changes

If its $3.4 billion bid to buy SuccessFactors is successful, SAP could finally stabilize its cloud computing strategy -- which has so far been mostly ineffectual.

The agreement to acquire SuccessFactors, a provider of cloud-based human resources applications, was announced earlier this month . SAP expects it will close in early 2012.

In recent years, SAP hasn't been able to settle on a cloud strategy. The application vendor's cloud-based Business ByDesign ERP suite was pulled back in 2008 and reworked. The much-hyped offering was finally released this year. SAP claimed to have 650 Business ByDesign customers in October and projected reaching 1,000 by year's end.

Along with the ERP services, SAP is developing a series of on-demand applications aimed at specific enterprise functions, some of which appear to significantly overlap with SuccessFactors products.

Analysts said the combined product lines will present a major challenge to SuccessFactors CEO Lars Dalgaard, who's been tapped to lead SAP's overall cloud business once the deal closes. In a statement, SAP said it expects the combined firm "will establish an advanced end-to-end offering of cloud and on-premises solutions for managing all relevant business processes."

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

"There has been a burgeoning number of platforms [at SAP]," added China Martens, an analyst at Forrester Research. "I think they need to start rationalizing, or it won't all hang together."

Martens said SAP's decision on whether to actively sell Business ByDesign, Career OnDemand and other new SAP products or to make SuccessFactors software the focal point should prove very interesting.

In an interview, SAP co-CEO Bill McDermott called the addition of Dalgaard an "adrenaline shot" for SAP's cloud business.

"We think Lars is the best leader in the [cloud] business -- by a lot. When Lars gets in there, he'll see what he likes and what he doesn't like, and he'll make the calls," McDermott said.

Wang said that while he agrees that Dalgaard and his team will bring significant cloud know-how to SAP, that knowledge will have to be applied and shared in a much larger and more complex organization.

Wang said SuccessFactors' ability to win and then successfully complete major projects like a 400,000-seat installation at Siemens helped sway SAP's decision to pay $40 per share for the company, a 50% premium over its closing price when the agreement was reached.

Ironically, the Siemens deal is "one of those projects where they successfully blocked out SAP," Wang said.

Whether SAP will face a counteroffer for SuccessFactors from the likes of archrival Oracle remains an open question, analysts said. While not unthinkable, it may be unlikely, because Oracle has made HR software a centerpiece of its new Fusion Applications, Martens said, noting that an Oracle bid for SuccessFactors could therefore send confusing signals to the market.

Kanaracus is a reporter for the IDG News Service. Elizabeth Heichler of the IDG News Service and Mike Simons of Computerworld UK contributed to this story.

This version of this story was originally published in Computerworld's print edition. It was adapted from an article that appeared earlier on Computerworld.com.

Read more about cloud computing in Computerworld's Cloud Computing Topic Center.

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