By Tien Tzuo
Everyone is applauding Oracle (NYSE:ORCL) and SAP’s cloud acquisitions — RightNow, SuccessFactors, and now Taleo. But the biggest cheers are coming from SAP and Oracle’s cloud competitors, salesforce.com (NYSE:CRM) and Workday. Because with these acquisitions, Oracle and SAP have effectively validated the cloud and sounded the death knell for ERP (enterprise resource planning).
Why? Because SAP and Oracle are acquiescing to the cloud, yet they have no strategy to get their customers there. If SAP and Oracle were serious about the cloud, where are their big cloud solutions or visions for migrating customers?
Consider SAP, the leader in ERP. SAP had supposedly bought into the cloud five years ago with SAP BusinessbyDesign. But there are only 1,000 BusinessbyDesign customers to date; that’s less than half of a percent of SAP’s entire install base. Salesforce has over 100,000 customers last time I looked. So where’s SAP’s NetSuite (NYSE:N) killer? How are they going to fend off Workday?
Similarly, Oracle is the leader in the enterprise stack, but, when it comes to the cloud, it has acted like a follower. Oracle’s initial response to the popularity of cloud computing was to revert to the mainframe mindset with Oracle private clouds. Oracle should be reinventing its entire stack and look to provide the next generation platform for the enterprise. That position is open and available. Instead, it bought Taleo, an HR solution, and RightNow, yet another CRM solution. Why isn’t Oracle offering a relationship database in the cloud? Or an app server in the cloud? Why isn’t Exadata a true competitor to Amazon (NASDAQ:AMZN)? That would be a true sign of Oracle really trying to be a leader.
SAP and Oracle should be pushing innovative cloud solutions that cannibalize their bases. Instead, they’re attempting to acquire themselves into innovation. That’s not a strategy. That’s a shift into survival mode.
These kinds of deals have a history of backfiring on the deal makers. We’ve seen this story before: an industry giant makes a “strategic” acquisition that causes a critical shift in perception of a nascent space. It happened when Siebel acquired Upshot and in turn validated salesforce.com. It happened when Yahoo (NASDAQ:YHOO) acquired Broadcast.com and validated YouTube. It happened when Cisco (NASDAQ:CSCO) acquired Pure Digital, propelling video as a standard feature on smart phones. I would argue that it happened when Time Warner (NYSE:TWX) acquired AOL and in turn validated the entire Internet economy.
In each case, an industry leader first denies the relevance of a technology, then frets over losing marketshare to it, then finally spends big money to acquire it under the pretense that it’s the key to “expanding innovation”. Overnight, that technology is now worth far more in the eyes of customers and investors. But more importantly, the acquisition strategy failed in each case. Instead of leading the way, the deal makers never committed to the technology, and their actions usually helped open the door to a whole new class of companies to take over.
The bottom line is this: A series of cloud acquisitions won’t help lumbering old ERP one bit. Acquiring cloud companies doesn’t make you a cloud company any more than buying a Giants jersey makes you Eli Manning. It’s not a strategy for an on-premise solutions company. It’s an attempt to distract customers and hope they will forget about the ERP boat anchor they’re stuck with.
The big ERP players had their day, but now it’s coming to an end. This is the classic Innovator’s Dilemma. For too long SAP and Oracle have watched the enterprise market innovate around them, stuck to their knitting and failed to adapt. The cloud technology wave has passed them by, and now it’s too late.
It’s time for SAP and Oracle to either accept that they need to adapt and go all cloud, or accept that they are going to go the way of the mainframe stuffed in the back closet. They won’t die completely. They’ll just become irrelevant.