SAP buys ARIBA for 4.3 billion dollar

SAP subsidiary, SAP america has entered into an agreement to purchase the cloud based business commerce network ARIBA for approximately 4.3 billion dollar. This gives ARIBA a valuation of $45 per share, 20% more than the current stock price. 

SAP has been strengthening its cloud based solutions to cater to the emerging markets in cloud and to compete with Oracle and Salesforce.com. Recently SAP acquired SuccessFactors for over 3 billion dollar. 

SAP also recently announced the roadmap for its cloud applications business  focusing on managing customers, suppliers, employees, and financials, in addition to its cloud suite offerings SAP Business ByDesign and SAP Business One.

Oracle  acquired RightNow and Taleo. The cloud computing market is buzzing with activity and these recent acquisitions have validated the other cloud players. This in some way indicates that the on premise ERP (enterprise resource planning) is nearing an end in near future if not immediately. 

Here are my 2 cents on the recent buying spree from Oracle and SAP 

If both the companies continue to grow inorganically into cloud market without any real innovative ideas they may be left behind. These strategy will only vindicate the innovative players like Workday and Salesforce.com. Oracle and SAP cannot become major cloud players by just buying out cloud companies. They have to come up with innovative solutions like relational database on cloud, online ERP system etc. 

ARIBA 
The company is headquartered in Sunnyvale, California, with approximately 2,500 employees. The company provides a system for suppliers to provide the catalogs and the buyers to buy the products over the cloud.  More than a million transaction are handled by ARIBA with values in billion dollar in a month. Other products like spend management, discount management are also provided. 

SuccessFactors
The company is headquartered in San Mateo, California. It provides employee performance management over the cloud and has over 3000 customers with million of users  in over 180 countries. 

Taleo
The company is headquartered in Dublin california, with over 5000 customers. It provides talent management over the cloud. 

RightNow
The company is headquartered in Bozeman, Montana. It provides CRM solutions and has over 1000 employees. 

Big set back for Salesforce.com

IBM who implemented the single biggest implementation of Siebel CRM in the world has decided to do away with it. Siebel is a subsidiary of Oracle. Good news is that it has decided to go with a cloud solution. The bad news atleast for Salesforce.com is that  it did not win the contract. 

This is what it means for the industry 

1. Cloud is a mainstream option and here to stay. It further emphasizes that world's big companies are becoming increasingly confident of sharing their data across cloud and the cloud providers have evolved a lot from their initial offerings. 

2. Siebel and subsequently Oracle needs to up their game to come up with a good cloud solution, else they will end up playing the catch up game for a lot of years to come. They are still playing the catch up to Salesforce.com, who is the industry leader. 

3. The industry leader Salesforce.com has a new competitor. SugarCRM who won the contract  has got the mother of all deals. SugarCRM is open source and is lot cheaper than Salesforce.com. IBM justified their decision of going with SugarCRM by saying that it is an open source system and it will interface well with the other IBM systems. 

4. Salesforce.com who is still the industry leader, is under pressure to keep the high margins. However, its the most expensive option compared to SugarCRM and Microsoft dynamics. They will probably have to take a look at their pricing model after this win, if they want to make sure that SugarCRM competition is kept in check. 

5. On the other hand, for SugarCRM, this can be considered a big big win and they might decide to become public and leverage this deal. The holding pattern of SugarCRM is not clear, but it is probably held by venture capitalists. 

Conclusion
This is a good news for the industry. There are rumors which suggest that Salesforce.com did not bid for this deal and their are rumors that Salesforce.com  was not invited. Either way this is not good for Salesforce.com. Having said that, Salesforce.com has a very strong and good suite of PaaS and SaaS. They are still the industry leader and will continue to do so for at least next 3-4 years.