In the enterprise software industry the commonly held view among analysts and influencers is that Workday scares the hell out of SAP. Is Workday scary enough to prod SAP to pay $3.4 billion for SuccessFactors?
The Monday morning quarterbacking of SAP's purchase of SuccessFactors is interesting to watch. The themes go something like this:
- Cloud consolidation is here as on-premise software vendors freak out.
- SAP needed SuccessFactors because its own software as a service efforts were weak.
- SAP now has cloud chops so it paid up and can cross sell.
- In the end, SAP's SuccessFactors purchase helped Workday's IPO valuation immensely.
Bill McDermott, co-CEO of SAP, said on a Saturday conference call:
SuccessFactors gives us the number one human capital management solution in the cloud, period. The company has grown by more than 50% in the first nine months of the year. Together with SuccessFactors' widely respected team and its deep experience in building and bringing to market scalable cloud solutions, we see tremendous upside to create new business opportunities.
According to some analysts, those new business opportunities were needed to fend of Workday. Workday sees itself as a next-gen ERP vendor. Today Workday is about HR. Tomorrow it's about financials. Team Workday up with Salesforce and the threat to SAP and Oracle is real.
Cowen analyst Peter Goldmacher said SuccessFactors is a trophy wife for SAP to defend against Workday. Goldmacher said in a research note:
SaaS HR startup Workday is on fire with the best sales pitch in all of software: Buy our brand new HR products for 50% of the cost of your 15+ year old Oracle HR/SAP HR/PeopleSoft maintenance bill and we'll even run it for you to keep your costs down. Every deal Workday does leads to the cancellation of an Oracle or SAP maintenance contract, which is a 95% net margin business for the legacy software providers. Workday will book over $200 million in revenues this year which we estimate is worth over $400 million in SAP/Oracle maintenance contract renewals. SAP is acutely aware of this threat and we believe management feels that buying SuccessFactors gives them the SaaS HR chops to slow down the Workday machine. We disagree. SuccessFactors provides only a small subset of an HRMS solution around recruiting and retention that we believe is going to be increasingly outsourced to providers like Kenexa.
Goldmacher has a point, but the other elephant in the room is Oracle. Six weeks ago, Oracle bought RightNow and signaled it would be a cloud computing acquirer. SAP couldn't be left out of that party.
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