The second largest ERP solution provider, Oracle (ORCL), has spent hundreds of millions of dollars on social acquisitions in the past few months. Specifically, Oracle has purchased several social enterprise and networking companies during this time, in an attempt to best competing companies Microsoft (MSFT), SAP (SAP), Salesforce.com, (CRM), and IBM (IBM). As Seeking Alpha contributor John Mylant points out, technology companies need to keep adapting, and that "if a technology supplier, for example, Oracle, failts to have a host of ideas suited for different scenarios, it may very well bite the dust." I agree, and I think Oracle's new acquisitions give it the variety and adaptation potential it needs to stay ahead.
As Google (GOOG) has proven, it is very hard to build a social product. This is very true in enterprise software, too. Oracle and its competition have taken the route of acquisitions over building products, a route that obviously carries less risk.
Oracles recent acquisition of social marketing company Involver was announced last month for an undisclosed sum of money, although some report that Oracle did not have to shell out too much. With Involver, Oracle will be able to create custom applications for brands to market through social media. With social-media management tools poised to become an almost $1 billion market by 2016, Oracle is spending money now for a stake in the future revenue streams.
This acquisition is the most recent of three social acquisitions that allow the company to better integrate social into its strategy. The acquisition of Involver is a solid addition to recent acquisitions of Collective Intellect and Vitrue. Overall, these three will give Oracle's ERP solutions higher value, as it allows its customers to extract more data. With targeted marketing taking over in a huge way, these three acquisitions will allow the average company to better analyze its marketing budget.
More specifically, Oracle purchased Collective Intellect a month ago as an addition to its analytic tools. Collective Intellect allows a company to track customers' conversations on social media such as Facebook or Twitter, which would again allow it to better interact and advertise to its client base. It is also a solid strategic acquisition, as it will be integrated into an Oracle SaaS solution, bringing the company steady, recurring revenue.
Last, the acquisition that started everything was the $300 million purchase of social media marketing company Vitrue. This was the largest of the three acquisitions, and being that Vitrue was among the largest companies to win Facebook fans through marketing, as well as a key marketing company for other forms of social media, including YouTube. It should also be noted that these are all cloud based solutions. Overall, these acquisitions will make it harder for companies to leave the vast suite of solutions that Oracle has built up, locking in a solid stream of revenue. That these are SaaS solutions will help in maintaining a long-term, steady revenue stream.
And as Oracle builds its brand, especially in the global turn toward cloud computing (making other key acquisitions in this segment as well), its social abilities will return its name to the top. I believe that the move toward cloud solutions for businesses will boost interest and utility in social marketing, if only because the possibilities will have grown. With data instantly communicating with data across other sectors, and analytics getting better at tracking social trends, businesses that use Oracle for its suite solutions can tap into its social abilities too. The pitch should be easy on Oracle's end.
As Mylant states, Oracle "is now operating at a rate of over $1 billion yearly and an 'integrated solutions system' is the center of the company's future plans." Again, Oracle's pitch for a one-stop business solution is only going to become increasingly attractive as it consolidates the potential of its acquisitions, and for investors, the company's future plans shouldn't garner any worry.
Locked in competition with Oracle, Salesforce.com also made a strategic marketing acquisition. Its purchase of Buddy Media for $689 million is significantly larger than Oracle's Vitrue purchase, and likely larger than the combined size of most of Oracle's recent acquisitions. To some extent, the acquisition puts larger companies on Salesforce.com's client sheet, something that is a necessary next step. For this reason, it is hard to compare its acquisition to Oracle's as Oracle is already a leading ERP solution with many big name clients. Salesforce.com certainly has a growing client base, but an acquisition that demonstrates its product and potential to large companies like Ford (F) and Hewlett-Packard (HPQ) is a big next step to competing with Oracle and SAP.
Microsoft's acquisition on the surface is quite different than Oracle's. Microsoft acquired collaborate enterprise company Yammer for $1.2 billion. Instead of offering new tools for clients to interact with their customer base, Yammer allows employees across any part of a company to collaborate socially. It is so effective that is used at 85% of Fortune 500 companies. It is a similar acquisition in that it gives Microsoft a much needed collaborative cloud solution that will expand its user base and give greater offerings to its existing user base. This will have the effect of keeping current customers locked into its service.
SAP made by far the largest acquisition in terms of price out of the group of stocks. It paid $4.3 billion for Ariba Inc., a company specializing in enterprise applications. Like each of the aforementioned acquisitions, Ariba is a cloud-based company and will strengthen SAP's offerings in the cloud, an area which is currently heavily investing in. Will it have the tools to seamlessly integrate business solutions into social aspects? I doubt it. Unless it starts to make moves like Oracle has made, SAP may lag behind in social integration, though it may find a niche among companies choosing its business solutions and steering clear of social technologies or capabilities.
Finally, there is IBM, the company some believe is actually the leader in social enterprise. IBM has been more restrained in big acquisitions, mostly because it has the freedom to be. IBM is more invested in creating its own analytics tools, something it is currently doing by leveraging its Watson technology. Still that hasn't stopped rumors circulating that IBM might buy a division or two of Research in Motion (RIMM). The divisions it's considering look healthy, but it's hard to inspire any kind of excitement when RIM's name is nearby.
I recommend Oracle, plain and simple. It has acquired many of the capabilities that will keep it ahead of its competition for a fraction of the cost that the market leader SAP has spent. If Vitrue were to flop, Oracle would lose $300 million. Comparatively, if Ariba flopped, SAP would lose almost 15 times that amount. Not to mention that Oracle has raises its profits margin in each of the last four quarters, even with the move toward an acquisition-based strategy. Things are clicking here. With an enhanced menu of options, Oracle has placed itself in a great position to grow its share of the market.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.