SAP SuccessFactors Buy Raises Strategy Questions

In interviews, SAP co-CEO Bill McDermott and SuccessFactors CEO Lars Dalgaard discuss next steps after the $3.4b purchase.

By Chris Kanaracus

SAP's $3.4 billion purchase of SuccessFactors not only gives the company an increasingly popular set of on-demand human resources applications, but could also bring its entire cloud software portfolio into a new focus.

The acquisition was announced Saturday and is set to be completed in the first quarter of next year. After it closes, SuccessFactors CEO Lars Dalgaard will run the company as a separate division. He has also been tapped to lead SAP's overall cloud business.

Over the past several years, SAP hasn't quite been able to settle on a cloud strategy. The Business ByDesign ERP (enterprise resource planning) suite was pulled back and reworked once the company determined it couldn't make money on it at scale in its original form. ByDesign's target audience has also shifted, with SAP now courting both small and mid-sized businesses as well as divisions of larger companies.

Along with ByDesign, SAP has been developing a series of on-demand applications aimed at specific functions within enterprises, including Career OnDemand, an HR application that hasn't been released yet but would seem to have significant overlap with SuccessFactors' portfolio. Another potential point of overlap lies between SAP's StreamWork collaboration software and SuccessFactors' Cubetree offering.

And there's still more for Dalgaard to consider, such as SAP's new River platform for building lightweight cloud extensions to back-end ERP systems; how the cloud strategy will fit into SAP's stated goal of migrating all of its products to the HANA in-memory database platform; and SAP's efforts with partners such as VMWare and Cisco on private cloud infrastructure.

SAP's various technologies “fit perfectly with SuccessFactors," executive board member and technology chief Vishal Sikka said during a conference call on Monday. Its applications are already successfully integrated with SAP back-end systems at large enterprises such as Siemens and Hilti, and SAP should be able to weave them into the broader portfolio without problems, according to Sikka.

"One area we are excited about is the amazing analytics SuccessFactors has," he added. "With HANA, we can revolutionize this important area in HCM.”

All told, Dalgaard could have his hands full rationalizing this passel of technologies and products into a cohesive story, but he seems to have a good chance.

"It's a big job," said analyst Ray Wang, CEO of Constellation Research. "[But] Lars comes with cloud DNA. Before, the old 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]. I think they need to start rationalizing, or it won’t all hang together," said Forrester Research analyst China Martens.

SAP's line of business cloud applications are still in their early days, with products such as Career OnDemand lacking in serious sophistication at this juncture, Martens said. Now that SuccessFactors is in the fold, it will be interesting to see whether those new products are actively sold or instead SuccessFactors' family of software acts as the focal point for the line of business strategy, she said.