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Congratulations to my friends (and family) at Ariba…and welcome to SAP! While some are suggesting that the $4.3 billion buyout is really all about the transaction network, clearly Ariba’s strategic direction to transform into a cloud company is what drove the acquisition. As SAP (and others) continue their cloud spending spree, I wanted to highlight a few points made recently by Informatica’s Juan Carlos Soto, General Manager of Informatica Cloud, in an SIIA interview about the new era of Hybrid IT.
When asked about the mega-vendors buying pure-play SaaS companies and whether or not these acquisitions will succeed in helping them become what Marc Benioff calls Cloud People, he had this to say:
The past few months have seen at least four major acquisitions in the SaaS space by mega-vendors. For several of these mega-vendors, these moves represent a major course reversal as they are dragged into the Cloud. Despite the positive claims in the news, these acquisitions will pose major challenges to integrate and for the foreseeable future will likely remain as separate stand-alone businesses. The acquiring companies will also face difficulty to rationalize their product portfolio and explain to their customers when to buy which solutions.
A good question to ask is why these acquiring companies, with their seemingly unlimited access to leading technology and large pools of talent, failed to build Cloud versions earlier. From Informatica’s vantage, many successful companies are saddled with what Clayton Christensen famously calls “The Innovator’s Dilemma” – their focus on near-term license revenue targets and fear of cannibalizing their highly profitable product lines ties their hands from being able to make the necessary investments on disruptive, but necessary innovation.
Moreover, it takes more than just technology to become a successful Cloud vendor. Cloud requires different sales, marketing, financial and accounting, and support models than the mega-vendors’ existing competencies. In addition, while these mega-vendors generally have large services arms and deep experience hosting applications for their customers, this does not necessarily qualify them to operate multi-tenant cloud services.
The irony is that it is often easier to make an acquisition, at least from a finance perspective, than it is to fund the incremental hiring and upfront investment ahead of revenues needed to become a Cloud vendor. A key advantage from these SaaS acquisitions is that they come with Cloud sales, marketing, support and operations experience, along with established routes to market, to help the mega-vendors start to catch up and if properly integrated, to inject the Cloud mindset into their DNA.
Solid points indeed! It’s going to be interesting to see if SAP (and the other mega-vendors) can Escape Velocity. Either way, I’d strongly recommend that the executives at these companies take the time to read Geoffrey Moore’s latest book.
The interview with Informatica’s Juan Carlos Soto goes on to discuss the factors that are driving the mega-vendors to buy pure-play SaaS/Cloud vendors. You can read it here.
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