SAP takes Oracle Battle into the Cloud

February 8, 2012

Competitive rivalry between IT services giants SAP and Oracle continues with efforts to develop Cloud Computing projects

SAP and Oracle are by-words for project-driven innovation. Their rivalry is shown in the account of their interest in Cloud computing.

According to a review article in Bloombergs [4th Dec 2011], SAP has agreed to buy California-based SuccessFactors Inc. for $3.4 billion in cash to catch up with Oracle in the cloud-computing market.

Internal growth was favoured by former SAP chief

According to Bloombergs:

SAP AG’s then-chief Leo Apotheker told investors in 2009 that the German company’s homegrown technology was “significantly better” than that of Oracle Corp. (ORCL), which had “not done a good job with acquisitions.”

The shift to an acquisitions strategy

However, Apotheker was forced to leave three months later and his successors, co-CEOs Bill McDermott and Jim Hagemann Snabe, moved to an acquisitions strategy. The SuccessFactors bid is their second major purchase.

Make or buy

Business School students will recognise one of the most-widely faced innovation dilemma, ‘make or buy’. The fastest growing hi-tech pioneers tend to be concentrated first on ‘making’. For Microsoft, Google, Facebook, buying is a signal of a creative growth company. Buying market share for such companies tends to be been espoused later as a means of changing and adjusting to market conditions they themselves helped to create.

SAP ‘learning through customers’

One of the consequences of pioneering though innovating is that the learning takes place often painfully as customers get to work with newer versions of the product. This has become part of the history of IT product innovations and systems from the time Microsoft was no more than an infant.

A not atypical example is one I came across some years ago in a small but innovative food manufacturing business. In switching to a SAP-type system for managing its finances, it came within hours of complete meltdown after a systems failure. The concept of working with the customer in this way is described in far more positive terms in the video clip here

“What took you so long?”

McDermott and Snabe have changed tack at the largest maker of business-management software to do a better job meeting demand for new technologies, such as cloud computing, real-time analytics and mobile applications.

The SuccessFactors deal shows SAP’s previous go-it-alone approach to the cloud was lacking, said Thomas Otter, a vice president at Gartner Inc.
“My first reaction was: what took you so long?” Otter said in a phone interview from Heidelberg, Germany, less than 50 miles away from SAP’s headquarters in Walldorf. “This means a fundamental shift in terms of their cloud strategy, which has been rather slow to get off the ground. This is a tacit admission that their cloud strategy was a failure.”

The search for quality acquisitions

In Business Schools, the issue of searching for strategic partnerships gets extensive treatments. A touching faith in the models of Michael Porter sometimes overlooks the more intuitive side of the process.

According to Bloombergs again:

McDermott and SuccessFactors CEO Lars Dalgaard first met on Sept. 27 at SuccessFactors’s suburban office in San Mateo, the executives said. McDermott said he “personally” evaluated a number of cloud computing competitors — including having dinners with their executives — before deciding to buy SuccessFactors. Competing with Oracle wasn’t a driving factor in the deal, he said. One asset SAP gains is Dalgaard himself.