SuccessFactors deal reboots SAP's cloud strategy

German software vendor SAP announced it will part with US$3.5 billion to acquire SuccessFactors, a maker of cloud-based employee management software. With the purchase, SAP has tacitly admitted their past cloud strategy was a failure, analysts pointed out.

The New York Times reported last Saturday that the all-cash transaction offered SuccessFactors shareholders a 52 percent premium above last Friday's closing stock price and reflected the fact that many companies are switching to cloud-based software. The deal is expected to close early next year.

"The premium is significant and it shows that SAP was struggling in its cloud strategy, especially in talent management," Forrester Research's analyst Paul Hamerman said in the report. "The cloud has been a small part of SAP's revenue stream, about 2 percent; the deal adds to the revenue base and shows SAP's strong commitment to the software-as-a-service (SaaS) business model."

In its press release, SAP said: "The cloud is a core of SAP's future growth, and the combination of SuccessFactors' leadership team and technology with SAP will create a cloud powerhouse."

In a separate Bloomberg report on Monday, Thomas Otter, vice president at Gartner, was cited as saying the acquisition will mean a "fundamental shift" in SAP's cloud strategy, which had been rather slow to get off the ground.

"This is a tacit admission that their cloud strategy was a failure," Otter told Bloomberg.

He added that the talent management market, in which SuccessFactors plays in, will probably be worth about US$3.5 billion this year, and SAP has paid effectively the year's market worth to purchase the company.

"It is a lot to pay for a niche in its portfolio but human resources technology is a hot space," the vice president noted.

Gartner had projected the global market for cloud services may spike from 2010's US$68.3 billion to US$148.8 billion in 2014, the report added.