SAP Starts Cloud Application Gold Rush

| About: SAP AG (SAP)
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Enterprise vendors are deathly afraid of the cloud.

Clouds offer a cheaper, better platform on which to host applications, which can scale quickly and reduce hardware expenses. But companies like SAP (NYSE:SAP), Oracle (NYSE:ORCL) and IBM (NYSE:IBM) aren't cloud. They need a bridge to the cloud that will create customer lock-in.

The solution is Software as a Service (SaaS). SAP's purchase of SuccessFactors (NYSE:SFSF) could easily be the start of a gold rush on SaaS companies, as enterprises buy them, push them as cloud plays, and use the locked-in revenues to adapt to the new business computing environment.

Here are some companies that have gained on news of the SFSF acquisition, and could be in a great position to cash in:

  • Taleo (NASDAQ:TLEO) offers human resources software, billing itself as a tool for recruitment. The company's stock popped 20% on news of the SFSF deal. It has also been on its own acquisition binge lately, buying WorldWide Compensation and JobPartners.

  • Ariba (NASDAQ:ARBA) popped 10% on the SFSF news. Its business is collaborative business commerce, and has been around for over 15 years. They claim 700,000 corporate members on what's now the “Ariba Commerce Cloud.”

  • Saba (OTCPK:SABA) calls its offerings “people cloud” solutions, extending from recruitment to a full range of human resources functions. The stock popped 13% on news of the SFSF transaction.

  • Cornerstone (NASDAQ:CSOD) says it provides “learning and talent management software,” meaning it extends its offering into training. The stock rose nearly 10% on the SFSF news.

There are two reasons why human resources specialists are rising most quickly to the bait here. First, these SaaS applications provide substantial lock-in of customers. Once you're devoted to Saba, it's hard to move to Taleo. Second, there are enough of these companies around that most would see a buy-out as being in their best interests.

While it may not appear that human resources have much in common with databases, it's still an enterprise computer application, and thus similar to the kinds of companies Oracle spent the last decade acquiring, like Seibel Systems and PeopleSoft.

For companies that see themselves as direct competitors to Oracle, shopping on the recruitment SaaS aisle may make a lot of sense.

Disclosure: I am long IBM.