SuccessFactors and CubeTree: defensive or aggressive?

Today’s announcement that SuccessFactors has acquired CubeTree is drawing interesting analysis and comment. Larry Dignan says:

Carlin Wiegner, CEO of CubeTree, said that selling out to SuccessFactors made sense given the potential to be integrated with an installed base of 6 million seats. Toss in the recent deal with Wal-Mart to add 2.1 million employees to the SuccessFactors customer base and SuccessFactors could make a lot of enterprises social quickly.

Sameer Patel:

I felt about a year ago that stand alone Enterprise 2.0 faced serious commoditization and the lack of process and context was going to be a big problem. I still consider these to be significant impediments to getting to IPO for most vendors. That said, Chatter and now CubeTree serve as excellent reference architectures for other traditional enterprise software companies to see how process injected with engagement can lead to accelerated business performance for end customers.

Ben Kepes describes it as a defensive move:

With this acquisition, SuccessFactors get’s an already built and inherently social offering that they can then backend into their own application to find a way to use a similar approach as that taken by Salesforce with Chatter.

In terms of the numbers, the extreme long length of the earn out clause means that, for all intents and purposes, this is a $20 million acquisition.

I spoke with both Carlin Wiegner and Paul Albright, SuccessFactors chief marketing officer. It turns out that in a recent study, SuccessFactors discovered that the top 25% of its customers were achieving 5x ROI of the remaining 75% with almost 100% adoption throughout the business. Those companies were typically running their business on SuccessFactors solutions, moving way beyond talent management for which the company is best known. Average adoption overall is around 30%. Albright said: “Those top performing customers were getting transparency into projects, data on who is performing most effectively and how the business is performing against company goals.” In other words, companies that are leveraging SuccessFactors the best are not using it as a standalone solution but to drive performance more generally. By reaching nearly all of a company’s employees, SuccessFactors solutions are pervasive in ways that no other functional software category can hope to achieve - with the possible exception of social software. Enter CubeTree.

Sameer reflects something I have opined for a long time around the whole ’social enterprise’ buzzword mania. Content without context in process is meaningless. By combining SuccessFactors and CubeTree, contextual content in process is at least partially achieved. The financial dimension is not so clear. If you believe what I maintain, then it isn’t enough to run decisions against ad hoc analysis but against a flow of transactional data coming out of finance systems. The fact top performing SuccessFactors customers have seen huge value being driven should not be the end goal but a step in the direction of optimizing business performance. Adding CubeTree takes out one element of friction while giving CubeTree the exit it needs. In my view that’s a much more aggressive position than that depicted by Ben Kepes. However, questions remain:

1. On the call, Albright said that SuccessFactors doesn’t suit consensus driven business as well as those that are opportunistic. Having experience of both types of company, I understand what he means. Consensus driven businesses tend to be more slow moving but may produce more resilient outcomes. This brings into focus the question of which management styles will most likely succeed in the new economy. Does SuccessFactors finding call for long term changes in management thinking?
2. CubeTree has a development relationship with Salesforce.com I was unclear how that will pan out in the new situation though Wiegner said the company will continue to build on Salesforce platform. I’m pretty sure that will be a withering effort over time.
3. Pricing needs review. As Larry notes, CubeTree now gains access to a huge user base but at $3-5/month/user, I don’t see too many takers in the large enterprise. I don’t for example see organizations of the size of Siemens (a large SuccessFactors customer) forking over say $10 million a year for social software even though that might represent IT chump change. My caveat comes in whether those kinds of amount deliver x5 and above value. That point may have been factored into the long earn out.
4. Social software is all over the map. Mention was made of SAP as a CubeTree customer but then I know it has Atlassian, Jive and goodness knows what else floating around its business. I imagine the same goes elsewhere, especially given that departmental adoption can be done pretty much on a credit card. SuccessFactors will have to quickly build upon its 25% super star customers to provide the persuasive case studies that encourage others to ditch other solutions. However, if it is successful, then the standalone players are in for a very rough ride - or they will be acquired.

Some will see this as a consolidating move. That would be to misunderstand what’s happening here. Salesforce.com with Chatter and now SuccessFactors with CubeTree are starting to redefine the way business operates with the objective of optimizing performance.

This is going to create massive tensions in the enterprise market.

We now have an opening up of discussions around what really makes the difference to a company’s performance. Is it the ability to service customers a la CRM or is it about harnessing the value of knowledge in problem solving arising from the workforce? Or is it both? And if so then where is the winning vendor?

Vendors that have traditionally relied upon point solutions will find themselves becoming increasingly isolated in deals where the newer kids on the block can talk about end-to-end, agile business processes. The tantalizing promise doesn’t end with that mouthful of a buzz phrase. Those buying companies that can demonstrate significant performance improvements will be much better positioned to become channel masters capable of persuading ecosystem partners to join in with ‘their way’ of doing things. That may be a stretch goal for the future but the promise is there.