Clouds and Software Together

IBM Corp. announced it was acquiring Cύram Software Ltd. for its Smarter Cities initiative and DemandTec Inc. to enhance its cloud analytics. Meanwhile, SAP AG purchased SuccessFactors Inc., a software company that specializes in cloud-based human resource applications. In other cloud news, Hewlett-Packard Co. (HP) and Microsoft Corp. unveiled a global, four-year initiative to deliver Microsoft's leading communications and collaboration applications via HP's global private and public cloud services.

Focal Points:

 

• Big Blue bought one of its little green software partners, Cúram Software of Dublin, Ireland, for an undisclosed sum. Cúram employs about 700 staff and its software – which administers workforce, health, and social security services – is currently in use at more than 80 government agencies around the world. The company will become part of the IBM Software Group and will be included in its Smarter Cities initiatives that IBM sells. The twenty year old Irish firm has been an IBM business partner since 1999 and more than 90 percent of its customers use IBM's WebSphere middleware to run its applications while more than 70 percent of its customers use IBM iron. Big Blue also signed a definitive agreement to acquire DemandTec, which provides cloud-based customer analytics software that allows businesses to make decisions to increase revenue and profitability. IBM paid $440 million for the software company, a 57 percent premium over the previous day's close. The acquisition enables IBM to extend its leadership by enabling companies to use software as a service (SaaS) to gain insights about customer merchandising and pricing preferences to market, sell and deliver the right product at the right price. DemandTec will be folded into IBM's Smarter Commerce initiatives.
• SAP enhanced its cloud computing capabilities with the $3.4 billion purchase of SuccessFactors, a San Mateo, CA-based SaaS provider of performance and talent management applications. The deal was struck at a 52 percent premium over the previous close.  Key drivers for the valuation were the 80+ percent gross margins on recurring revenue and the 45+ percent revenue growth rate. SuccessFactors itself acquired two businesses in 2011 – Plateau Systems Ltd., a leading competitor, for $290 million and Jambok for approximately $10 million. SuccessFactors may possibly be the second-biggest pure play SaaS firm, behind only Salesforce.com Inc. The SaaS company has 3,500 customers and 15 million users in 168 countries. The company will be integrated into the SAP Business ByDesign portfolio but will remain a standalone unit.  
• HP and Microsoft will join together to offer private and public cloud solutions designed to help organizations rapidly scale new users, shift IT resources from maintenance to innovation and change IT from a capital to operating expense. There will be three sets of solutions – a private cloud, public cloud and hybrid cloud offering. In the private cloud space HP Enterprise Cloud Services – Messaging, HP Enterprise Cloud Services – Collaboration, and HP Enterprise Cloud Services – Real Time Collaboration will provide Microsoft Exchange Server 2010, SharePoint Server 2010 and Lync Server 2010 applications as a service from HP data centers around the world. The public cloud offering will include Microsoft Office 365, Office collaboration and productivity tools through Microsoft's cloud offerings. The hybrid solution will have HP reselling Microsoft Office 365 combined with the three HP private cloud offerings.

Experton Group believes IBM is committed to meet its five year plan through organic and inorganic growth, with a focus on its Smarter Planet initiatives and business analytics and optimization (BAO). IBM has carved out a unique position for itself as the high-value enterprise IT provider and is pursuing it aggressively globally. SAP has struggled to get its software cloud-enabled and its Business ByDesign portfolio has yet to take off. The SuccessFactors offerings accelerate its roadmap and may give the company the push it needs to compete more effectively. However, SAP is caught trying to bridge to a new business model while destroying the old without losing revenues – a delicate balance that has eluded the company to date. SAP recognizes the cloud is core to its future growth but it remains to be seen if the SuccessFactors leadership team can help the company make the leap. HP and Microsoft are long-standing partners and these announcements extend the relationship. In that HP will not be making any major acquisitions in the near future and the need for the company to enhance its cloud positioning, this was a well-timed move by the new CEO, Meg Whitman. 2011 has been a year for HP to build its various cloud solutions; in 2012 it will have to demonstrate that it can convert these assets into a strong revenue stream. IT executives should understand how their strategic partners are constructing their cloud roadmaps and strategies, determine which ones best fit corporate requirements, and partner accordingly. Moreover, since the cloud markets are still in their infancy, IT executives should carefully negotiate price, service levels, terms and conditions, and not assume vendors have their business models set in concrete and there is no room for pushing the envelope.