SAP Plays Cloud Catch Up with SuccessFactors Acquisition

SAP: SAP logo

SAP (NYSE:SAP), one of the largest enterprise software makers, announced that it has acquired SuccessFactors, a leading provider of cloud based HR (human resource management) solutions. [1] SuccessFactors provides a set of on-demand services and tools which help companies manage performance, goals, objectives, compensation and other employee related issues. SAP will be integrating SuccessFactors’ technology into its Business ByDesign ERP suite. SAP competes primarily with Oracle (NASDAQ:ORCL), Microsoft (NASDAQ:MSFT) and (NYSE:CRM) in the ERP (enterprise resource planning) market.

ERP software currently accounts for nearly 38% of SAP’s $63 Trefis price estimate, which stands close to its current market price.

Check out our complete price analysis for SAP

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SAP trying to gain share in increasingly competitive cloud computing market

SAP is currently one of the biggest players in the enterprise software space, but it has been relatively late to the cloud computing party. With the cloud computing market growing rapidly, traditional, on-premise software leaders like Oracle, SAP and Microsoft are trying to gain control of the market for cloud based software. SAP recently announced its intention to focus on three trends – mobile, cloud and big data, to drive growth in the coming years.

While Oracle and have been on an acquisition spree lately, SAP has tried the organic growth route – developing new applications and solutions in-house. However, that approach, though cheaper, would have resulted in a significant delay in bringing products to the market, giving SAP’s competitors a chance to capture the entire market before SAP could even make a move. This is probably why SAP is aggressively going for the kill, acquiring segment leaders in cloud based software, and integrating their offerings with its own product suite.

Bill McDermott, Co-CEO, 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. The acquisition will help us address the top priority for CEOs globally – managing people and talent. Together, SAP and SuccessFactors will create tremendous business value for customers, with potent synergies to accelerate our growth in the cloud.

SuccessFactors has more than 3,500 customers with a user base of 15 million subscription seats. SAP’s current enterprise customers have a total employee base of nearly 500 million, providing a massive growth opportunity for SuccessFactors. SAP currently has a 29% share in the ERP market, which is expected to decline marginally throughout the forecast period, due to increasing competition. With acquisitions like SuccessFactors, SAP has a chance to stem the decline and maybe even gain more market share.

You can see how changes in SAP’s ERP market share impact its Trefis price estimate by tweaking this chart.

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  1. SAP to Accelerate Cloud Strategy with Acquisition of SuccessFactors, Press Release []