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Oracle Purchases Taleo to Extend Cloud Computing


Oracle recently helped bolster its position in the battle for cloud computing supremacy with the $1.9 billion purchase of Taleo Corp. The acquisition adds Taleo’s Web-based employee recruiting software to Oracle’s vast portfolio, and many see it as a shot back at its rival, SAP, who plans to expand its cloud computing capabilities with a proposed purchase of SuccessFactors Inc. for $3.4 billion.

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February 22, 2012

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Oracle recently helped bolster its position in the battle for cloud computing supremacy with the $1.9 billion purchase of Taleo Corp. The acquisition adds Taleo’s Web-based employee recruiting software to Oracle’s vast portfolio, and many see it as a shot back at its rival, SAP, who plans to expand its cloud computing capabilities with a proposed purchase of SuccessFactors Inc. for $3.4 billion.

Oracle currently holds the position of being the world’s second largest provider of business management software, while SAP is the leading provider of conventional software programs that clients install on their computing systems.  Despite its trailing position in the traditional software market, Oracle’s cloud computing offerings have grown in recent years thanks to a proactive strategy employed by company CEO Larry Ellison.

Oracle purchased RightNow Technologies, a provider of cloud-based customer service software, for $1.5 billion last month.  According to Evercore Partners, its current $1.9 billion offer amounts to 6.5 times Taleo’s trailing 12-month sales.  SAP’s $3.4 billion offer, meanwhile, comes out to 12 times SuccessFactors trailing 12-month sales.  The aggressive moves employed by Oracle and SAP are attempts at evening out the playing field with the current cloud computing king, Salesforce.com.  Marc Benioff, a former Oracle executive, founded Salesforce.com over ten years ago.  Ellison held a position on the cloud leader’s board as one of its early investors, but he was eventually ousted by Benioff over fears of conflicting interests and overly aggressive competition with the company.

By offering customers software, computing powers, storage, and other essential services via the Web, cloud computing is being looked at as the wave of the future.  Customers can begin implementing the use of new cloud-based programs without having to perform installations usually associated with their traditional counterparts.  Cloud-based software’s faster deployment and often lower costs have resulted in its increased demand, and it looks to become even more sought-after as time goes by.  Gartner Research predicts cloud-based enterprise software to generate revenue of $17.32 billion in 2013, compared to just $5.31 billion in 2009.  Its 2013 projection would account for 5.7 percent of all enterprise software revenue.

Oracle’s purchase of Taleo marks a big step forward for the company’s cloud goals, as Bersin & Associates predicts the online recruitment software market to increase over 15 percent in 2012.  The niche market is seen as an important segment of the software-as-a-service industry, and is just another in a line of Oracle moves to establish itself as a cloud computing leader.  Oracle launched Web-based versions of Fusion Apps, its innovative line of business management software, last year. 

Oracle’s and SAP’s acquisitions do signify the companies’ commitments to a cloud computing future, but some corporate technology buyers wonder if their product portfolios have what it takes to put a serious dent in Salesforce.com’s throne.  Rick Sherlund, an analyst with Nomura Securities, said: “SAP and Oracle are still perceived as the old guard on premise and they are not 'with it' in cloud.  They want to own this space. They want to reinvent themselves for the cloud ... They are buying a position in the cloud through consolidation.”

As for the target companies involved in the acquisitions, some question their decisions to sell, especially since the transition to the cloud is still growing.  Karl Keirstead, analyst with BMO Capital Markets, believes target companies may be selling themselves due to the fact that many large enterprises are turning to more refined applications from brand name providers such as Oracle and SAP.  “We wonder if these vendors were motivated by a belief that either their core market segments were too highly penetrated and that the cost of expanding was simply too high,” Keirstead also reasoned.

A closer look at Oracle’s future in the cloud computing race shows plenty of promise.  The company sits comfortably atop its wide variety of business management programs which was boosted by last year’s introduction of its Fusion Apps lineup of cloud offerings.  SAP, on the other hand, has fewer cloud-based products under its wing, resulting in added pressure to acquire companies to expand its portfolio. 

Michael Nemeroff, an analyst with Morgan Keenan, said Oracle’s Taleo acquisition was vital in filling one of its lineup’s pre-existing gaps.  “They did not have a recruitment package. They always needed to develop or buy it, and now they have done it,” said Nemeroff.  The RightNow acquisition also helped to further complete Oracle’s cloud lineup, and Nemeroff added that Oracle may be looking to grow even more with the purchase of Ultimate Software Group or other Web-based payroll software providers.  Oracle officials offered no comment on the rumor. 

Regarding SAP’s future, company spokesman Jim Dever said its cloud plans would be leaked in the coming weeks once the SuccessFactors deal comes to a close.  “SAP is coming off the biggest year in its 40-year history. We are in an excellent strategic position to keep winning in the market, including the cloud,” Dever added. 

For more on this topic, visit http://www.reuters.com/article/2012/02/09/us-taleo-oracle-idUSTRE81813U20120209


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