SAP has not done well: the rebooted Business ByDesign offering has made little impact, SAP CRM on demand was virtually a non-starter, John Wookey was bought in to lead the large business on demand division but he moved on before putting down any roots (Salesforce.com hires ex-Oracle, ex-SAP exec John Wookey). Hopes now rest on SuccessFactors, including founder and CEO Lars Dalgaard who will lead SAP’s cloud initiative. Given the history it will not be an easy task.
No doubt SAP will want SuccessFactors to deliver a profit, something that it, like other cloud specialists such as NetSuite and even Salesforce.com, struggle to do (see SAP, NetSuite and the SaaS financials question and Still strong at Salesforce.com buy headwinds could be increasing). Although Successfactors is growing impressively – a 77% YOY revenue increase and 25% sequentially for Q3 resulting in non-GAAP revenue of $95.1m – it is not profitable. The $20m Q3 operating loss was the latest in line of losses. There are more and more signs that suggest SaaS pure plays cannot be profitable with the current model or subscription price points and that a reevaluation is due
SuccessFactors will boost SAP’s SaaS portfolio, although it does call the future of SAP’s own planned SaaS HR products into question. We don’t believe it is solely a response to Oracle’s acquisition of RightNow (see Oracle acts to acquire SaaSy RightNow) but this will have been a factor and timing was concern for SAP, as indicated by the usual move of announcing this important acquisition - SAP’s third largest acquisition in terms of revenue - over the weekend.
With both SAP and Oracle moving in this area we can expect SaaS acquisitions to accelerate rapidly. Salesforce.com will not be an immediate target, nor will HR and SaaS pure play Workday, but NetSuite will be and there are a host of other small plays. Those who can bring specialist capabilities will be in particular demand.