SAP: Snaps Up Coghead, More Acquisitions to Come?

Feb.23.09 | About: SAP AG (SAP)

Among my predictions for 2009, was that the on-demand services industry will experience a shakeout and consolidation. I also suggested in a recent post that platform and cloud computing companies, which don’t offer a combination of solid enabling technologies plus attractive channels to customers won’t survive the shakeout.

Sure enough, the rumors about the demise of Coghead have come true, and it is among the early entrants to the platform/cloud computing market who are now making an equally early departure. Coghead may have had terrific technological capabilities, but it lacked a sufficient revenue model to stay afloat in an increasingly competitive market. As a result, investors were unwilling to continue to fund the company and it had to discontinue operations.

The primary reason Coghead couldn’t generate sufficient revenue to stay alive was that it didn’t offer enough value to attract adequate customers. It was a classic ‘Catch 22′ situation – not enough customers bought into Coghead’s value proposition and as a result, not enough customers were willing to buy its solutions.

However, it didn’t take long for SAP (NYSE:SAP) to capitalize on the situation and acquire Coghead’s assets and a handful of its engineers for a fraction of its paid-in valuation. The asset sale gives SAP much needed insight into the engineering requirements to play in the Software-as-a-Service (SaaS) and broader cloud computing market.

It comes at a time when SAP openly admits that its internal efforts to develop and deliver a viable SaaS solution are being retooled. The acquisition of the Coghead technology and engineering team alone will not rectify SAP’s SaaS struggles. But, if this is the first in a series of acquisitions and alliances, which I referred to as the ‘tugboat strategy’ in 2007, it could begin to give SAP the new perspective and skills the company desperately needs to get its SaaS and cloud computing efforts turned around and back on track.

The best indication of whether SAP is serious about its intentions in the SaaS and cloud computing market is if it makes more of these opportunistic acquisitions in the months to come.

Disclosure: None