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Some quick thoughts on SAP's acquisition of SuccessFactors, along with a few things that bothered me.

First, the links: replay link to news conference:
(click on the 1pm EST link, free registration required)

I've compiled a bunch of noteworthy articles on the jonerpnewsfeed:

It's gonna take time to sort this one out - automatically it makes the upcoming SAP Influencer Summit in Boston a LOT more interesting. Here's some quick hits and issues on my mind:

Some facts, many of them quoted by an uber-confident Bill McDermott, who proclaimed that this purchase would (drumroll...) "create a cloud powerhouse":
- Gartner is projecting a $10 billion HCM market, with $4 billion in talent management, 75 percent of that market coming from SaaS
- SuccessFactors has 3,500 customers and 6 million users
- Opportunity: only 14 percent of SuccessFactors' customers are currently running SAP, meaning there are 500 million seats on SAP customer sites that could be a prospect base for SuccessFactors

Largely a good move for SAP. I don't agree with McDermott that this acquisition (paraphrase) "succesfully builds on SAP's cloud momentum" - because I don't think SAP had any cloud momentum. In particular in Line of Business on-demand, SAP's commitment to big market share did not seem to be there. The solutions in progress felt like fascinating design thinking experiments. They were late to market and moving sluggishly at best. So there's no doubt that this purchase gives SAP leadership, market share and momentum in LOB cloud that it did not have before. Yes, this move adds some chaos to SAP's strategy (with some overlapping architectures and functionality), but I'm not sure that chaos is worse than the lack of momentum SAP had with its cloud offerings currently.

SAP America's acquisition of SuccessFactors is notable as others such as +John Appleby have pointed out, because this may free SAP up from the headaches of German employment law that can shackle SAP AG (if SAP AG had acquired them). I have long believed that SAP needed a separate cloud division to ensure freedom from the dominance of the on-premise business model - best case scenario, this acquisition could accomplish that for SAP.


1. Those who assume ByDesign is now dead should rethink. On today's call, Snabe was clear ByD still remained their integrated cloud ERP solution for the midmarket.

2. Those who claim SAP has multiple HR functionality in multiple architectures and apps are right, but this has been the case for a while - with everything from Nakisa for large ERP to B1 to ByD - each with its own functionality and architecture. This problem already existed before this acquisition. The biggest overlap is between Career OnDemand and SuccessFactors, but that will be addressed right away because:

3. Career OnDemand looks like it's gone. On the presser today, Snabe referred to other SAP LOB solutions Sourcing OnDemand and Sales OnDemand, as well as Travel OnDemand (in development). He did not mention Career OnDemand but said that SuccessFactors would be the SAP SaaS LOB HCM solution. Career OnDemand looks to be gone. I would assume some of that talent will be pulled into SuccessFactors. Wonder what +Jarret Pazahanick thinks of this - he's been tracking COD closely.

4. There are different kinds of integration challenges people are lumping together, and not all of them are the same:

a. integration with on-premise solutions - SuccessFactors has a history of integrating with SAP ERP on-premise so that's the easiest going forward.

b. integrating HR/HCM functionality and assets across the board - probably the biggest challenge with SuccessFactors remaining an independently-run unit.

c. integrating with SAP's existing on-demand architecture for development purposes may not be as imposing as it sounds. As Vishal Sikka noted on the call today, SuccessFactors is a Java-based platform, in theory this may fit into SAP's Java-based "Edge on Demand" architecture often referred to as NetWeaver Neo/River (no official name as yet). I will look forward to +Richard Hirsch, aka "the edge guy," wrapping his head around this one.

5. One blogger said that this now gives SAP strong plays in the four major best of breed cloud LOB plays: HCM, procurement, CRM, and collaboration. I don't agree, I think this addresses HCM, and Sourcing OnDemand is a mature cloud procurement solution. Sales OnDemand however is not a mature solution, and neither is collaboration. Of course, the collaboration cloud market is not as mature, with many solutions still looking for traction, not just SAP's.

6. SAP's collaboration play will need some focus now, with SuccessFactors' CubeTree an asset that will jive (pardon the pun) with StreamWork somehow. It seems to me that the two products are largely complementary at first glance, but there will no doubt be some disruption there as SAP sorts out collaboration tools and leadership. I look forward to hearing +Sameer Patel's comments on this.

7. Interesting hearing McDermott cite Siemens as a thriving SuccessFactors customer with 420K seats, as that was such a painful lost HCM customer for SAP at the time. No better revenge I guess than buying out your losses.

8. This fills a major gap in SAP's cloud portfolio, but I still don't think SAP can buy OR build their way to reinvention as a cloud platform. The pain of that last mile cannot be avoided. As I wrote after the TechEd Vegas show, SAP's ultimate challenge is to build an apps store platform and thriving developer community that supports mobile, cloud, and HANA. This purchase does not seem to get SAP closer to that goal, and could pose a distraction towards opening up SDKs and barriers to entry to developers. Here's that piece FYI:


SAP buying SuccessFactors at more than 50% of its book value clearly indicates SAP's willingness to admit the flaws in its existing cloud strategy. Some have called it a panic move, and while there is an expression of urgency in this purchase, I believe that urgency is warranted. Workday was gearing up to eat SAP's lunch in SaaS HR, and while this purchase does not change the threat that Workday poses, if SAP can execute this transition, it should give SAP a far deeper arsenal in terms of cloud leadership, experience, and customer penetration.

A couple times during today's press conference, there was a big clue as to why SAP made this move. Snabe mentioned that the reason SaaS companies have had trouble turning a profit is due to the challenges of scale. SAP feels they can scale SuccessFactors to the point of profitability at appealing margins. This revealing comment also makes clear SAP's own frustration with its cloud strategy to date.

SAP too has struggled to scale its cloud solutions, and with the challenges just getting to 1,000 ByDesign customers, SAP clearly felt that its Line of Business solutions, while very innovative in their design, would be very difficult to scale to the point of profitability. This may explain why those solutions were moving so slowly. I do hope that the baked-in design thinking and socialized aspects of these LOB solutions are not lost in the transitions that follow. The ease of use of these LOB apps, while late to the party, is likely better than anything in the SAP product portfolio, and that lesson should not be lost. SAP was using the right approaches with these new LOB solutions and perhaps Lars Dalgaard of SuccessFactors is the right guy to drive these new LOB products to scale also.

I don't know if this acquisition will pan out to the degree SAP is currently hoping, but this is the last time in a while you will hear me say that SAP is not serious about cloud. Clearly they are serious, to the tune of $3 billion. But: the real work lies ahead.
Jon Reed's profile photoRichard Hirsch's profile photoJarret Pazahanick's profile photoSven Denecken's profile photo
Hi Jon

Excellent write up and at the core it is a very positive move and shows that #SAP is committed to the cloud.

Regarding your question on Career OnDemand although I dont have any inside information all signs are pointing towards Career OnDemand not being launched. SAP already offers two on-premise performance management solutions (flexible/pre-defined) and having two in the SaaS space (ie Career OnDemand/SuccessFactors) would be to confusing to customers.

I have a lot of respect of the individuals building Career OnDemand and feel bad for them but on the flip side they seem excited as they know SAP is committed to the cloud, they will have key roles in the SuccessFactors/SAP (and ALOT of work will need to be done) and the most important is their 12 months of working with customers will given them the opportunity to infuse SuccessFactors with all the learning's to help execute better/faster/smarter on the SFSF platform.

What are your thoughts?

On a side note there is a conference call tomorrow that will add some additional insights in case everyone wasnt aware.

On Monday, December 5th, at 3:00 pm CET / 9:00 am Eastern (Dial-in numbers: Germany: +49 69 5899 90797, UK: +44 20 7190 1595, US: +1-480 629 9722, Conference ID: 4493869; Replay Numbers: UK +44 207 154 2833, US +1 303 590 3030, Germany +49 69 58 99 90 568, Access Code: 4493869#)

I think you've just about nailed it here Jon. It is a very interesting acquisition and I've talked to a great number of people about acquisition strategy and I didn't see this one coming.

I for one will be refocussing my attention at the Influencer Summit away from Mobile and in-memory, where I think I have a pretty good understanding of SAP's strategy already and towards this acquisition and what the market opportunity for integrators is likely to be.

2012 is going to be a very exciting year.
I'm not sure that CoD is on the way out. As it currently exists, it can be used as a stand alone niche product, like Sonar6 or Rypple, or be plugged into the ByD platform. I say this because it clearly represents a performance management style that doesn't exist in large organizations at this time (more real time rather than the normal 1980s ineffective annual cycles and SMART goals). I do believe that the Talent Acquisition OnDemand segment of the product, which is currently only a roadmap item, will certainly be scrapped or drastically changed.

My question is more on the SF side. What will happen to their existing HR product (separate from their Talent offering). It could be an interesting boost to the SAP product suite and could appeal to larger organizations looking for a more Workday like experience; however, that solution has struggle to take hold in the market and, to my knowledge, has no real reference-able customers.
+Jarret Pazahanick I largely agree with your comments, and thanks for sharing the dial in for tomorrow for folks who didn't know about it. +Jeremy Amos I hear what you are saying about CoD and it's too early to know for sure, but I thought Snabe's comments on the call were pretty definitive on this topic. I tend to agree with +Jarret Pazahanick that having two different HR SaaS solutions will be too confusing to customers. But whether some of that functionality can be incorporated in SFSF and also into ByD remains to be seen. Jeremy, in terms of the existing SFSF HR offering, separate from talent, this is pure speculation but I would expect SAP to expand that HR functionality to better compete wtih Workday's cloud-based HR solutions. Time will tell.

We may not be able to get all the answers in Boston (we don't yet know who from SFSF will even be at the event there), but I do think we can get a definitive answer on CoD that week. We'll see. +John Appleby it's funny because on the HANA podcast taping we did the night before this announcement we all wanted to talk about cloud and we all expressed our interest in getting some cloud insight from SAP in Boston. You in fact said on the podcast that SAP was primed to do something big in the cloud. Well, this is pretty big eh? :) It's gunna make for an interesting time at the influencer event for sure.

- Jojn
Excellent analysis. I agree that SAP was lacking the momentum behind its SaaS strategy. Moreover, Workday has become a strong competitor in the HCM space and ByD just didn't have the depth to compete. This acquisition addresses both challenges to a certain extent. However, it certainly creates more challenges for the future due to product overlaps and architectural heterogeneity .

On the product architecture side, alough SFSF is built on JBOSS/Oracle, joint partnership with VMWare was announced recently to use CloudFoundry PaaS for custom development to extend SFSF. That may not go much further now given SAP's investment in its own Java PaaS.

Oracle, we can predict safely, will be replaced by HANA.

ByD, as clearly mentioned in the call, will remain an SME solution. However, the likes of SoD, CoD, ToD, etc present very good use cases for partners/customers to develop their own next gen collaborative applications. SAP's Java PaaS needs to offer the tooling support to match LoB app UIs. CubeTree+StreamWork might help here but lets see if SAP still decides to buy another company in this space.

All in all, good move by SAP.
Good comment +Shehryar Khan, I think you have hit on some key points that further flesh out the issues. In terms of collaboration tools, again we're back to SAP's commitment level more than anything else. I'm not sure an acquisition there would make a huge difference as much as just pushing the investment in the existing tools. But that will be a story to watch. Note that the LOB SDK will be ultimately part of the ByD SDK as SAP has envisioned it, so some of the add-ons to LOB on-demand would likely be developed using the Microsoft tools SAP uses for ByD extensions. But, some of that remains to be seen. Your point remains: partners/customers will need accessible ways to develop on these platforms. Standardization of platforms and tools will be a big piece of the puzzle here. We'll see.
The question will be whether the SuccessFactors architecture ( is an ideal fit for Netweaver Neo. +Shehryar Khan is correct in stating that this architecture is JBOSS / Oracle based. Indeed, it looks like SuccesFactors' UI functionality is heavily linked to the JBOSS SEAM Web framework. It might be difficult for a 1:1 port to Neo. If SuccessFactors heavily used JBOSS-specific functionality, then a port to the more standards-based Neo might be a challenge. I think Vishal definitely sees SF as being an 'Edge' application, so I assume that porting it to Neo is going to happen.

I'll be curious to see how SF's Hybrid Multi-Tenant Database Architecture is mapped to Neo. Initially, SF's database architecture could probably be reused without using Neo's built-in persistence-related features but if a move to HANA is planned, then someone will probably have to look at the offerings of both platforms to find the best design.

There is a #SAPChat planned for Wednesday ( that is focused on SAP's cloud strategy with hosts Sven Denecken and myself. I'm sure that the SuccessFactors acquisition will be a large part of the discussion. If you want to engage with SAP on this topic, the #SAPChat will be the perfect opportunity to ask those burning questions that you've been dying to get off your chest.
+Richard Hirsch thanks for the excellent response, the most insightful yet on the issue of where SFSF fits into SAP's on-demand architecture. As you state, "I think Vishal definitely sees SF as being an 'Edge' application, so I assume that porting it to Neo is going to happen." From his comments on the press conference, I definitely think you are right, and it will be interesting to learn how feasible this is going to be. If it works out it will certainly lend a lot of weight to SAP's decision to have two on-demand platforms ("core and edge") rather than just the "core" they built for ByD and LOB.

I'm now looking forward to hearing your take on StreamWork and CubeTree and how you think that will shake out. Maybe we can talk about that in Boston. I'm not sure I"m going to be able to make the chat Wednesday, but if I can I will be there. To be honest I'm not sure all the questions can be handled either so soon or in a Twitter type format, but I'm sure it will be a great discussion either way. If you think of it,@mention me on one of the chat announces that day and I'll help retweet it. Thanks for the comments.
Totally agree, G+ works well when it creates a persistent thread that brings in contributors. Great example of that here.

Nice post and a lot more detail than anyone else has gone into yet. It was needed.
Thanks John as I was up to 3am writing it so lets just say the 6am wake up call came pretty early this morning.
+Jonathan Reed Easily one of the most well-rounded and well thought through posts on the acquisition.

As far as a leg up on collaboration goes (with the addition of CubeTree), I dont see this acquisition offering any real and immediate disruption to the enterprise collaboration vendor landscape. As a platform, CubeTree wasnt able to own its space as a standalone or with the distribution help from SFSF and so that alone wont change under SAP. Moreover, none of the HR vendors have had rip roaring success with convincing customers that they in fact have more crediblilty when it comes to offering people engagement systems.

The big value to SAP here is less about a Jive or Yammer or Moxie competitor to play in the social business space. Its more non-organic know how on how tomorrow enterprise business software needs to be designed. Its about how the interaction with systems of record data from within an application changes, the flexibility required today to bring in (in this case), non HR people to collaborate on standard Human Capital processes and finally, how to play nice with the overall collaboration fabric. Its this non-organic thinking that can complement SAPs existing efforts to understand how social plays nice with process across all business applications. And the added flexibility that comes when offering both systems of engagement and systems of record in the cloud for the end customer. From what I know, most of the CubeTree team isn't even around any more. The value comes from what the core HR product teams at SFSF learnt about the use of collaborative constructs a) to improve HCM processes fundamentally, and over the longer term, b) how Lars and team can translate that know-how across the larger cloud portfolio he just inhereted and c) his stature as an executive board member to influence and execute this change across all cloud business apps offered by SAP going forward.

It's tempting to think of how this could be SAPs answer to say Oracle Social Network, but I dont see that as so valuable or even applicable. The reality that SAP might acquire a standalone collaboration application if it wants to compete in that space is as probable today as it was last week and a number of candidate applications come to mind. But in todays market, you can't look at collaboration is a silo'd employee collab utility - it needs to permeate employee, customer and partner relationship facilitation and using that lens, it would need to do a lot more than what the last iteration of CubeTree facilitated.
+Sameer Patel excellent summary and makes sense to me, I knew you'd bring the collaboration meat to this one. :) I will say I'm looking forward to my next talks with the StreamWork team...I think you nailed it with: "it needs to permeate employee, customer and partner relationships." SAP has a long road ahead there. I give SAP credit for not hyping its social/collaboration plays in keynotes of late, but I'm looking for a better story here. I'm sure they are too.

+Jarret Pazahanick I agree, this was a neat way to try to use G+, for a post where I had many open questions, it was cool to be able to ping people exactly at the point in the post where their input would help and then to have all three of you guys respond, that adds huge value. Thanks guys.
I would be a facile and overly simplistic comment to say that even if SuccessFactors doesn't continue to make its own mark (which I think it will) then SAP has managed to purchase some very creative minds who are able to think outside the box in the HCM space (especially if like me the box we are used to is the one that is HCM in the SAP Business Suite.) Simplistic as the comment might be I think that combined with the Career OnDemand ideas - there is a possibility to have something that is more than averagely innovative. I think this by itself will be a plus for SAP.

On the other hand with so much investment in HCM outside of the suite - it looks as though the suite will be very much the poor cousin of any HCM development for the future. I would really like to hear if others see it in a different light - the glass half full side of me wants that the HCM cloud developments feedback and get integrated into the suite - but I don't see that happening, unless there is a HANA use case which could mean delivery of functionality as a separate HANA application (still not BS development really - but at least on premise) - otherwise I see very modest improvements in BS HCM in the near future. But I wait to be proven wrong!
The best debate in the Blogosphere on SAP's acquisition.... by a long shot. Thanks Google Plus
+Rahul Sood, glad you feel that way, I'm impressed by the "high signal" aspects of this thread and it makes me want to try this a bit more often here. I was psyched I tricked so many smart peeps to chime in. :)
+Chris Paine - You bring up a great point and I think customers would be wise to wait until they get a clear picture of the product roadmap before they move forward especially in the many areas where there is overlap between the SuccessFactors cloud offerings and the onPremise. Do you think SAP can continue to develop the overlapping onPremise Talent/LSO/Performance applications while at the same time tackling the integration between SuccessFactors and onPremise that customers will demand and at the same time continuing to innovate SuccessFactors to stay a talent managment best of breed leader. My guess is something will have to give and it will be the "free" innovation that comes to the Business Suite though I hope I am wrong and SAP can do them all.

PS Feeling special that +Jonathan Reed "tricked" me into contributing :-)
+Jarret Pazahanick With integration back to BS already designed for (and perhaps built) for By Design and CoD, it may be relatively(?) simple to port some of this over to SuccessFactors - certainly those components about securely transferring employee information etc. must have been considered.

As I see it HCM in the suite will for the foreseeable future be HCM that supports the HR function as a cost of doing business. If you want HCM that allows for HR as a business advantage/enabler then you'll head outside of the suite functionality to a SaaS solution. There are many big companies that still see HR as a cost of doing business rather than a competitive advantage - the suite will continue to be refined so that it only looks 5-10 years behind the latest in HR thinking whilst the SaaS solutions will attempt to be just a couple of years behind.

This fits well with the two models - with SaaS there is limited opportunity to enhance (especially seems to be the case with SuccessFactors) but if it is best practice and up-to-date with latest ideas then that's not a problem. Whilst an on premise solution allows for extreme customisation to allow completely new ideas and different ways of doing things, whilst still being backed by a solid well understood solution.

"Enhancement without disruption"?

As for business suite development - it was reasonably clear to me that the build and design of new suite functionality are a very separate activities when looking at how the recent WDA MSS functionality has been delivered. So I can't see that from a resource perspective that SAP would need too much investment to "share" some of the really good HCM ideas back to the suite - how they'd eventually be implemented would be a different thing.

My real question would be - with an integrated SaaS solution that is so much better than the suite offering - why would SAP improve the suite? Where is the business case? That's what worries me. But hopefully there is a business case and can drive BS improvement.
+Fred Verheul Yes it would make more sense for SuccessFactors as a LOB app to sit on the "core," but architecturally there isn't a fit there which is why I think Vishal in the presser talked about putting SF on the Java side. For what it's worth, I think SAP is moving off the core versus edge language anyhow and this would obviously accelerate that transition. :) Having said that a much bigger issue, which +Richard Hirsch dug into a bit, is that it's not a done deal how the future SAP on-demand architecture will work. Ideally, SF plugs into SAP's Neo/River Java stack but that's hardly a done deal at this point. I'm sure Dick will be on the case in Boston. :) We'll see what we can learn.

+Chris Paine +Jarret Pazahanick Chris and Jarret thanks for some further key points on HCM functionality in the cloud versus the suite. It's a tough question but given that Success Factors already has a fair amount of SAP integration, I'm guessing SAP will focus on building out the SF functionality in the cloud versus expanding HCM functionality in the suite that would duplicate what SF offers in the cloud. I would expect SAP to concentrate its on-premise HR functionality development on core HR payroll/transactional processes and use the cloud for more advanced workforce management, succession planning and talent management. But it will be interesting because customers will have something to say about this also. During the call, Snabe talked about Business Suite innovation in terms of quarterly Enhancement Packs, but they are doing to have to make choices where they expand their functionality footprint. The role of Nakisa in all this will be interesting to watch as well. Still early. :)
+Jonathan Reed Indeed it will be very interesting to see how Nakisa which delivers on premise solutions manages to compete. It has a little foothold in the suite now that a component is part of the standard MSS delivery (org charts). But it would be a real question for anyone considering investing the considerable amount that is a full Nakisa build. As for more rapid enhancement packs - just because there are more of them does not mean more functionality delivered! EhP6 for example is hardly delivering any new functionality in HCM compared to both EhP4 and especially EhP5. I will wait and see. :)
+Chris Paine I don't disagree with you about your point on EhPs and the difference between rapid deployment versus deliverying real functionality...I'm basically trying to state in this case what Snabe said in the initial SF call. It seems at this point we have to wait and see what plays out. I did get a bit more info on the follow up call that happened Monday, I'll post that in a sec.
So I checked out the second SAP SF call, you can hear the replay here now:

The two calls weren't too different though some of the questions were the same. Again in his comments Jim Snabe mentioned Travel, Sourcing, and Sales OnDemand but not Career OnDemand. Although I expect SAP won't make any firm comments on the future of any products until this purchase goes through next year, the writing is clearly on the wall for Career OnDemand.

Vishal re-iterated at the 28:00/29:00 mark even more clarity that Success Factors will fit into the Neo/River "edge" Java platform. Of course, there are questions, I expect a blog from +Richard Hirsch on this any second - Dick post the link here as soon as it's live. :)

Note that Dick and +Sven Denecken are doing a Tweet chat on the topic of SAP OnDemand today at 10am EST. Sven as an SAP employee can't comment on SuccessFactors so keep that in mind. :) Here's the link with more info on this chat:

One more interesting tidbit: I had speculated to colleagues that Peter Lorenz, who heads up SAP OnDemand now, would likely report to Lars now. This Business Week article clearly states this for what it's worth:

"Dalgaard, 44, will have the job of overseeing SAP’s broad software-as-a-service efforts, including its Business ByDesign Web programs for midsized companies. Peter Lorenz, an SAP executive vice president in charge of the group of products, will report to him, McDermott said.

“Lars will oversee the entire SAP cloud,” McDermott said. “This is our catalyst.”

Obviously it's still early so changes could happen but this is where we stand now. Lorenz will be at the Influencer Summit next week in Boston (hashtag #sapsummit). However, SAP has made clear that there won't be any talk about SuccessFactors from the SAP perspective aside from keynote mentions due to acquisition rules so the cloud deep dive day will have to skirt around this issue. :) Nor will there by any SuccessFactors executives at the Summit for legal acquisition reasons.Still, I think we will learn some interesting things in Boston and I'll share anything interesting...
+Richard Hirsch fantastic post - can't wait to see the next one on SF-SAP integration possibilities and scenarios. Loved the digging that went into that. The fact that +Naomi Bloom gave your post the quality seal is no small feat, she is a very discerning reader on HCM techncial architecture!
Excellent article +Richard Hirsch and with the product & architecture overlaps don't underestimate what a monumental task SAP has it front of it with integrating SuccessFactors. My guess (and hope I am wrong) is we dont hear much in Boston though I plan on asking some questions in the Mentor only meetings.
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