SAP Buys SuccessFactors – Acquisition Shows Gathering Strength of Workday and New Enterprise Innovators

SAP is buying SaaS provider Success Factors for an approximate $3.4 billion based upon market value. Success Factors will continue to operate independently.

The deal represents a real shift for the Human Capital Management (HCM) market which has seen the emergence of new players like Workday gobbling up market share with innovative, modern applications that fit a far more consumer oriented enterprise market.

The deal is through SAP subsidiary SAP America, which is paying $40 per share for the cloud-based services provider. Success Factors is one of the more dynamic SaaS players. It plays well in the enterprise in its encompassing contact management technology which at its core provides a smart, user driven experience for people to communicate. That’s critically important as the cloud-driven service providers like Workday are providing an advanced and very useful platform for the management of disparate human resources.

Also important to SuccessFactors is its activity stream technology, which it added through its acquisition of CubeTree. But analysts and seasoned experts in the social enterprise space are both bullish and skeptical about CubeTree’s value.

“It’s a light collaboration platform,” said Ray Wang, lead analyst at the Consellation Group. “I don’t think it is the answer to all things.”

It is good enterprise collaboration technology. It can act as a point solution on top of SAP StreamWork. But there is a lot more that needs to be done to make SAP successful against new competitors like Taleo and Workday.

Wang says there are five factors that SAP needs to consider: social, mobile, analytics and usability. SuccessFactors brings SAP some ease and simplicity but the real challenge will be in refactoring its business. That means adapting its mobile strategy and continuing to improve its line of business apps.

Oracle is trying to factor these pillars into its own line of Fusion cloud apps, which includes its own HCM solution. Oracle has also been on an acquisition streak, with RightNow being one of the most recent. Like SuccessFactors, RigthNow is one of those companies edging towards that middle between enterprise establishment and agile innovation.

Cloud analyst Krishnan Subramanian makes the point that Workday becomes increasingly valuable as a result of the SAP acquisition. That is true. Workday has a strong management team and a rising brand. An IPO now appears highly likely.

Success Factors is a real success story. Here’s a bit from the SAP press release:

SuccessFactors is believed to operate the largest scale of paying cloud users with 15 million subscription seats. With more than 3,500 customers in 168 countries, SuccessFactors is growing rapidly, recording 77 percent revenue growth year-over-year in the third quarter 2011 and 59 percent revenue growth year-over-year in the first nine months of 2011. SuccessFactors’ scalable cloud application platform supports organizations of all sizes from dozens to millions of users. With proven deployments in SAP environments at companies in diverse industries, the combination of SuccessFactors and SAP holds significant growth potential considering the more than 500 million employees of SAP customers and its 15,000 HCM deployments.

But this is hardly enough to make SAP a success. SAP does have analytics strengths with its in-memory technology. Sybase does bring a more potent mobile equation. But there is still the need to make a shift. The new players are bringing an experience to large businesses that is sorely needed. Apps from Oracle and SAP have been one-dimensional, with almost none of the freshness that the new enterprise service providers offer.

It’s innovation that SAP needs. In my view, Success Factors helps move SAP in the right direction but there is still a long way to go before we can say that it is on even par with the innovators in the market.

About Alex Williams

Alex Williams is an editor for SiliconAngle and lives a charmed life in Portland, Or.