Cloud market heats up as SAP buys SuccessFactors

by Ashwani Mishra    Dec 04, 2011

The cloud computing market is buzzing with merger and acquisition (M&A) action lately as players seek to gain competitive advantage and market share.

Forrester estimates the cloud computing market to grow from $40.7 billion in 2011 to more than $241 billion in 2020.

After Oracle acquired RightNow Technologies in October for approximately $1.5 billion, SAP said that it has acquired US-based SuccessFactors for $3.4 billion.

SuccessFactors is a provider of cloud-based human capital management (HCM) solutions and has more than 3,500 customers in 168 countries.

Paul Hamerman an analyst at technology research group Forrester wrote in his blog that SAP’s cloud strategy has been struggling with time-to-market issues, and its core on-premise HR management software has been at competitive disadvantage with best-of-breed solutions in areas such as employee performance, succession planning and learning management.

“By acquiring SuccessFactors, SAP puts itself into a much stronger competitive position in human resources applications and reaffirms its commitment to software-as-a-service as a key business model,” he said.

Analysts opine that this deal will accelerate SAP’s cloud strategy.

“The cloud is a core of our future growth, and the combination of SuccessFactors’ leadership team and technology with SAP will create a cloud powerhouse. The acquisition will help us address the top priority for CEOs globally, managing people and talent,” said Bill McDermott, Co-CEO, SAP in a media statement.

The deal is expected to close in the first quarter of 2012. It is the largest acquisition by SAP since it bought Sybase for $5.8 billion in May last year.

Ray Wang, head of San Francisco-based Constellation Research commented in his blog that SAP sees the acquisition as a great cross-sell opportunity for other cloud apps and analytics. “Other opportunities include CRM, collaboration, travel, and procurement in the cloud,” he said.

According top IDC, competition will also characterize the world of cloud services in 2012 as the strategic focus shifts from building infrastructure to the creation of application platforms and ecosystems. Salesforce.com has been the pioneer in the cloud computing space and is still the market leader.

“The industry’s shift to the 3rd Platform will accelerate in 2012, forcing industry leaders to make bold investments and fateful decisions,” said Frank Gens, Senior Vice President and Chief Analyst at IDC.

He added that companies like Microsoft, HP, SAP, RIM, and others including Apple will face crossroads moments in 2012. “By the end of 2012, we should be able to see much more clearly which players have successfully positioned themselves in the lead pack of the marathon-like race for industry leadership in the decade ahead.”