Acquisitions are a standard part of business life but every now and then you find one that fills you with dismay and Oracle’s planned $1.5m/$43 per share acquisition of cloud pure play RightNow Technologies is one of them.
RightNow was one of the original SaaS gang along with Salesforce.com and Netsuite. It specialised in the customer service aspect of CRM and was early to embrace important trends like social media. It was stressing the importance of good customer service before it became the mantra of other vendors and business executives. But like other SaaS suppliers, although its revenues have undergone good levels of growth, profitability has been variable. For 2010 it delivered 22% revenue growth to $185.5m, with net income of $28.4m vs $5.9m the year before. Revenue for 2011 is expected to be in the range of $227m. However, word has it that good sales are putting pressure on its professional services operation, which is stretched and backlogged. Coming into the Oracle fold could provide access to the resources to address this.
Oracle’s intentions are pretty clear. Having announced its late entry in the cloud with the Oracle Public Cloud at OpenWorld last month (see Oracle finally gets the cloud) is it acquiring to build its cloud portfolio. RightNow is the first, it won’t be the last. Oracle effectively set out a shopping list in when it announced the RightNow move. "Oracle is moving aggressively to offer customers a full range of Cloud Solutions including sales force automation, human resources, talent management, social networking, databases and Java as part of the Oracle Public Cloud," said Thomas Kurian, executive vice president of Oracle development.
Having decided the cloud is a threat, Oracle is countering it by doing what it has become good at and buying its way into the market. The RightNow acquisition will also enable Oracle to issue a direct challenge to Salesforce.com and its Service Cloud, which has been an important growth driver and a good large enterprise access mechanism for the cloud native. Salesforce.com will probably be facing stiffer native cloud competition from now on.
More significantly, we think the acquisition is a sign that many pure play cloud providers have limited futures as independent suppliers – with Salesforce.com as an obvious exception. As has always been so in the enterprise software area, once a minor player gets to a certain size and threatens the dominant players they act to neutralize the threat and claim the opportunity – normally by acquisition. The big get bigger, the smaller are enfolded. SaaS vendors need to acquire or at least form consortiums if they want to maintain their independence.