Posts Tagged ‘Success Factors’

News Analysis: SAP Buys SuccessFactors for $3.4B Signals SAP’s Commitment To Cloud, HCM, and Social

SuccessFactors Acquisition Puts SAP In Direct Competition With Workday And Taleo

SAP (NYSE:SAP) announced its $3.4B acquisition of SuccessFactors (NYSE: SFSF) as it seeks to bolster its position in the Cloud and more importantly in the rapidly growing strategic HCM market.  Based in San Mateo, CA, USA, SuccessFactors brings over 15 million subscription users from 3,500 customers in 168 countries.  The company has 1450 employees and has been one of the SaaS/Cloud darlings of the industry.  When completed, SuccessFactors will remain an independent entity renamed, SuccessFactors, an SAP company.  Lars Dalgaard, Founder and CEO, SuccessFactors will lead the cloud business for SAP.  A quick analysis of the news reveals:

  • SAP seeking a comprehensive and complementary HCM solution. SAP believes the combination of SuccessFactors and SAP will create a comprehensive HCM solution, marrying strength in enterprise applications with people-focused cloud applications. Today, SAP serves the market with a comprehensive and international Core HR and payroll.  Other on-premise offerings include talent management, workforce analytics, and shared services delivery. Key offerings from SuccessFactors include areas such as talent management, recruiting management, goal management, performance reviews, and business execution.  Further, SAP believes the core SFSF offerings will be an attractive to more than 500 million employees of SAP customers .  SAP has 15,000 HCM deployments (not customers) that could benefit from one-stop shopping.

    Point of View (POV):
    While the core offerings provided a solid approach, these applications remained in the systems of transaction world and lacked many of the newer requirements for systems of engagement.  In fact, many customers left SAP to go to SuccessFactors to accelerate innovation in the talent space. The rise of Taleo, Workday, and Ultimate Software comes from the lack of general innovation in the HCM space by legacy vendors such as Oracle, PeopleSoft, and SAP.  Cloud computing provided the opportunity to deliver rapid innovation to customers.  Consequently, existing customers will welcome the move while best of breed purists will have to overcome the surprise and determine how innovative they expect SAP to become in HCM.
  • SuccessFactors’ provides SAP with massive cross-sell opportunities. SAP believes the core SFSF offerings will be an attractive to more than 500 million employees of SAP customers .  SAP has 15,000 HCM deployments (not customers) that could potentially go for one-stop shopping from SAP.

    Point of View (POV):
    SAP sees the acquisition as a great cross-sell opportunity for other cloud apps and analytics.  Other opportunities include CRM, Collaboration, Travel, and Procurement in the cloud.  In the past two years, Success Factors has made the shift to focus on business performance execution and provides a real time decision making platform.  While customers can acquire a solution from one vendor, the integration of the various cloud platforms may prove to be a challenge.  However, from a financial play, Co-CEO, Bill McDermott sees this as an easy way to meet his 2015 target of €20billion and move towards the 35% margin he seeks to bring shareholders.

Software Insider Index™ (SII): 2009 SII Top 35 Enterprise Business Apps Vendors™

2009 Results In Major Revenue Declines For On Premise And Officially The Year Of SaaS

A review of last year’s financial performance should erase any doubts about the viability of SaaS as a deployment option and a business model.   Traditional on-premise business apps vendors took the brunt of the beating earlier in the year but have slowly recovered.   This year’s Software Insider Index™ (SII) highlights two major themes:

  • Legacy On-Premise Vendors Retain Operating Margins But Lose Revenue Share. Almost every on-premise software vendor lost revenue on a year-over-year (YoY) basis in 2009 (see Figure 1).  IFS (3.87%) and SAS Institute (2.21%) grew in the midst of the financial onslaught.  SAP is still double the size of Oracle in apps revenue!  Vendors such as QAD (-31.42%) and Manhattan Associates (-26.84%)saw the worst YoY declines (see Figure 2).  Most vendors relied on their maintenance and support to bolster their revenues. For example, CDC, Epicor, Exact, Lawson, Manhattan, Oracle, QAD, and SAP exceeded a 1:2 ratio in new license to maintenance revenue.  Why?  Customers chose not to upgrade, purchase new licenses, and expand their footprint.   Despite the downturn, most vendors survived with operating margins between 10% an 50%, well above those achieved by SaaS vendors.   Traditional vendors clearly felt pressure from SaaS/Cloud.
  • SaaS Models Prove Themselves In 2009. Meanwhile, every SaaS vendor grew, from Ariba with the lowest YoY revenue growth (0.44%) to SuccessFactors with the highest (38.73%). Overall the SaaS vendors tracked in the 2009 SII grew 7.98% in YoY revenue. SaaS deployments expanded in all areas from CRM to HCM to spend management. Of note, Salesforce.com exceeded the $1.3B mark, a milestone for the SaaS industry.

Figure 1. Software Insider IndexTM (SII) Top 35 Enterprise Business Apps VendorsTM (Calendar Year Revenue)

screen-shot-2010-03-18-at-110717-am

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

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Monday’s Musings: Why On-Premise Vendors and SI’s Should Go on the Offense with SaaS

On-premise vendors still see SaaS as a loss leader due to huge ramp up and punishing revenue recognition rules

When it comes to the topic of SaaS, many on-premise vendors appear to be living in denial, hoping that SaaS fails, and/or creating confusion in the market place.  These tactics have merit as a shift to SaaS requires plenty of work with minimal return and a destruction – disruption of the current business model.  In conversations with 61 vendors and building off of SaaS evangelist Jeffrey Kaplan’s post (July 2, 2009, Seeking Alpha – “From the Vendor’s Point of View: Why SaaS Sucks”), vendors who have made this transition or have started the investment put in heavy lifting in these activities must:

  • Re-architect apps
  • Find balance between configuration and optimization of SaaS platform
  • Design product road map and rollout strategy
  • Determine SLA’s
  • Identify a hosting strategy
  • Craft pricing and licensing policies
  • Harmonize SaaS pricing with On-premise and other models
  • Create go to market strategy
  • Alleviate channel conflict with partners, resellers, distributors

After all this work to be ready for SaaS deployments, vendors also discover that FASB SOP 97-2 software revenue recognition rules prohibit them from immediately recognizing multi-year contracts. Even worse, subscription revenue can only be recognized on a month-to-month basis – leading to a long road to profitability.  In fact, vendors such as Lawson, estimated a 7 to 10 year break even period for a full SaaS model.  No wonder Harry Debes was fired up on how SaaS could be a fad in his interview with Victoria Ho at ZD Net last year.  In private, most software executives also echo such sentiments and wholeheartedly agree with his comments about the business model challenges.

Yet, SaaS adoption moves beyond the Tipping Point in 2009

However, the confluence of recessionary forces, stalled innovation from many on-premise software vendors, and success of early SaaS pioneers such as SalesForce.com and NetSuite has put Software-as-a-Service into the mainstream.  Vendors can no longer resist the move to SaaS without negatively impacting their license sales and customer mind share.   Additional facts highlight the shift:

  • Forrester State of Enterprise Software 2009 survey results confirm significant adoption rates from 2008 to 2009. Of 1000 IT executives and decision-makers, 24% were interested/considering, 11% implemented or planning to expand, and 5% piloting SaaS solutions (see Figure 1).
  • Clients continue to vote with their budgets despite marketing FUD by many on-premise vendors on the perils of SaaS. Success Factors‘ win at Siemens for 420,000 employees, Workday‘s win at Flextronics for 240,000 employees, and Ultimate Software’s win at P.F. Chiang’s for 30,000 employees reinforces how SaaS is more than CRM and SMB.
  • Concerns over SaaS have dropped significantly over the past year. Successful deployments mitigate concerns and highlight the attitudinal shift towards acceptance.  Major decreases include integration issues (43%), total cost (31%), lack of customization (31%), complicated pricing models (30%), performance (23%), can’t find the specific application (20%), security (17%), and lock in with existing vendor (17%) (see Figure 2).

Figure 1: Users expect to increase SaaS adoption in 2009

saas-deployment-2009

Source: Forrester

Figure 2.  Concerns over SaaS have dropped significantly over the past year

2009 Enteprise and SMB Survey - SaaS Concerns Declinet

Source: Forrester

Defensive SaaS strategies by vendors miss the opportunity to take market share.

As customer’s continue to demand SaaS solutions for rapid deployment, pay-as-you-go pricing models, and timely innovation, traditional on-premise vendors without a SaaS offering must now explain, defend, or develop their own SaaS story.  Concerns about the impact of SaaS have many vendors in defensive mode.  Defensive strategies have included:

  • Creating counter marketing about SaaS and the viability of the market
  • Responding with hosting options and financing options
  • Building SaaS options for a limited set of popular SaaS solutions such as sales force automation (29%), strategic HCM (29%), and customer service and support (27%) (See Figure 3.)

At first glance, mega vendors such as SAP and Oracle have started with the first two points and are evolving to the third.  They aim to counter the success of Ariba, SalesForce.com, Success Factors, Taleo, Workday, and Ultimate Software with their own offerings.  SAP’s OnDemand for LE release and John Wookey’s ComputerWorld UK interview by Mike Simons, confirms that the strategy will include “CRM on-demand and e-sourcing, with expense management set for a 2010 release.”  Wookey’s approach appears to first shore up areas where SAP customers have been defecting and then worrying about what’s next (see Note 1).  Meanwhile, discussions with Oracle product teams also hint that a release of 5 to 9 SaaS offerings to complement Oracle Siebel CRM OnDemand offerings could be announced soon.  This defensive strategy shores up competitive SaaS solutions such as incentive comp, procurement, and strategic HCM.

Figure 3.  Rate of adoption of key SaaS solutions show significant interest in CRM and other areas

2009 Enterprise and SMB Survey SaaS Interest Areas

Source: Forrester

The bottom line -SaaS gives software vendors and system integrators an opportunity to take market share.

Instead of playing defense, vendors should look at the opportunity to take market share through SaaS.  SaaS vendors and their investors have realized they can target any install base and win by providing compelling functionality.  Why shouldn’t on-premise vendors bite the bullet and go on the offense?  To make this work software vendors would want to take advantage of their partner ecosystems and customers to extend capabilities beyond what’s being delivered in on-premise.  Vendors must make an initial investment in a SaaS/PaaS platform, agile development methodologies, and integration technologies to support hybrid deployment options.  From there, white spaces in the product road map will provide direction into the future opportunities such as vertical and other pivot points that have not been well served.  SAP’s acquisition of Clear Standards for carbon compliance, NetSuite’s acquisition of OpenAir for project based solutions, and Intuit’s acquistion of Entellium for CRM highlights examples of going on the offensive with SaaS.  Of equal importance, system integrators can shift the balance of power and deliver new IP via SaaS solutions while reducing their dependency on the mega vendors.

Recommendations: 7 best practices for crafting a SaaS strategy at an on-premise vendor

Imagine you could start from scratch and build a new software company.  That’s the question I posed to 61 software executives this year.  Most stated they would start with a SaaS deployment option for the scale and the business model.  Now what to do if you are an on-premise vendor?  Answer – build a separate SaaS software division within an on-premise software company.  This could be the next trend among the on-premise vendors for both investment and revenue recognition reasons.  What would be a good strategy:

  1. Reuse similar business process parts as the on-premise product
  2. Harmonize the data model and common objects
  3. Build a brand new RIA based UI and UX
  4. Assume that all data sources will be heterogenous
  5. Design the product to run stand alone
  6. Attack white spaces of new growth in a competitor’s install base
  7. Keep a PaaS platform in mind to attract partners and customers to extend the solution

Your POV.

Totally turned off by SaaS? In the midst of a SaaS strategy? Ready to embark on a SaaS strategy?  If you need assistance, don’t hesitate to reach out?  Please post your point of view here or send me a private email to rwang0 at gmail dot com.

Note 1: The large enterprise (LE) SaaS platform will not come from NetWeaver or SAP’s SME Business by Design (ByD) technology, but come from the acquired Frictionless platform.  While this may leave some SAP customers concerned, Wookey and product super stars Kevin Nix and Peter Lim (of Siebel fame) counter by highlighting where SAP components will be reused and highlighting the home base integration advantage.

As also seen in the July 14th, 2009 SandHill.com”Moving to a SaaS Offensive”

Copyright © 2009 R Wang. All rights reserved.

Wednesday’s Whispers: Corporate Whispers and Monthly Market Trends – June 2009

CORPORATE WHISPERS AND MONTHLY MARKET TRENDS*
Starting this month, we’ll be splitting the trends in Corporate Whispers from the People Whispers series.  Catch the latest monthly random thoughts, trend points, and corporate trends.  Hearing from twitterati, software execs, and industry experts about:

User trends

  • Recent win by SUSEN Software over SAP enhances validity of the used software market in the EU.  Other players like Used Software have battled Microsoft to open up competition in the market.  Many CIO’s hope that Nellie Kroes at the EU will investigate the lack of third party maintenance options and anti-competitive behaviour in some segments of enterprise software (i.e. Oracle DB, SAP, etc.) before her term expires.
  • Hybrid deployment options continue to gain ground.  Conversations with over 101 software decision makers highlight a shift from single source vendor strategies.  Move to support hybrid deployments benefit enterprise service bus and integration providers such as Boomi, Pervasive, and Informatica.
  • Japanese CIO’s finally realizing that they need to break free from their existing ERP software vendor relationships.  SaaS options now in consideration.  Recent advancements by NTT to host Zoho, Siemens’ 420K employee move to Success Factors, and Flextronics 240k employee deal with Workday have shifted perception that SaaS can’t solve large enterprise requirements.
  • Conversations with over 100 EMEA decision makers show a big push to move away from a single source vendor strategy.  Third party maintenance, virtualization, SaaS, Open Source, and BPO top lists of planned initiatives in 2009/2010.
  • Support for Apple Macs in corporate environments gaining significant traction.  Despite shipment gains, lack of real corporate support models (i.e. go to the Apple Store to fix your MacBook) do not engender the backing of corporate IT support departments.

Software vendor and system integrators trends

Your POV

Got a scoop or something to share? What are you hearing in the market?  Please post or send on to rwang0 at gmail dot com and we’ll keep your anonymity.

* Not responsible for any factual errors or omissions.  However, happy to correct any errors upon email receipt.

Copyright © 2009 R Wang. All rights reserved.