* Analysts say SAP lags behind Salesforce, Oracle in cloud
* SuccessFactors CEO Dalgaard to join SAP executive board
* Dalgaard to run cloud business,lead charge versus rivals
By Jim Finkle and Georgina Prodhan
Dec 5 SAP AG's (SAPG.DE) purchase of Web-based
software company SuccessFactors Inc SFSF.N could be the
catalyst the old-school German technology giant needs to try to
catch up to rivals in the fast-growing cloud computing market.
SAP has struggled for more than five years to create
business applications that are hosted on the cloud, or Web, and
the company lags behind pioneer Salesforce.com Inc (CRM.N) and
larger rival Oracle Corp ORCL.O in the so-called software as
a service (SaaS) market, analysts say.
One of the key assets that SAP trumpets in its planned $3.4
billion purchase of SuccessFactors is the U.S. company's chief
executive, Lars Dalgaard, an energetic 6'4" Dane who is one of
world's top evangelists for cloud computing.
Dalgaard, 44, a former pharmaceutical sales representative,
founded SuccessFactors 10 years ago and built it into a leading
provider of cloud-based human resources software. It went
public at $10 a share four years ago, and is now worth $40 a
share under the SAP deal.
Some analysts say SAP is overpaying for SuccessFactors. SAP
says it's not just buying a product line: Dalgaard will manage
its cloud computing business, have a seat on its executive
board and lead the charge against industry leader
"Lars is going to definitely be a change agent," said
Michael Nemeroff, an analyst with Morgan Keegan who follows
SuccessFactors. "The question is - how much change can SAP deal
with by taking on Lars?"
At SAP, Dalgaard will face the challenge of getting the
nearly 40-year-old company to change the way it develops and
sells software. He will also need to figure out how to best
integrate SuccessFactors' technology mesh with that of SAP to
make it easy for customers to combine products from the two
SAP has to sell more software as a service to fuel growth,
because the cloud computing market is a rare bright spot in an
otherwise lackluster tech industry. Web-based software is
popular because companies can vet the products extensively
before buying, pay by the month, and do not need to make
expensive hardware buys.
Sales of cloud-based SaaS applications will hit $17.3
billion in 2013, up 41 percent from an estimated $12.3 billion
in 2011, according to Gartner. The research firm forecasts that
sales of traditional programs, which make up the bulk of SAP's
revenue, will grow just 14 percent during the same period.
After SAP launched Business By Design, an all-in-one,
cloud-based business management suite for small and mid-sized
businesses four years ago, it ran into problems making money
off the service because it hadn't figured out a cost-effective
way to host software for multiple clients.
SAP also had trouble convincing companies to buy cloud
products using the sales approach it has traditionally taken,
which was to establish long-term relationships with senior
corporate executives instead of with users on the ground.
"For cloud computing, it's the other way around," said
Forrester Research analyst Stefan Ried. "People start with free
offers, then hopefully convert users into customers, and then
upsell large enterprise software."
One of SAP's biggest disappointments in SaaS has been in
customer relationship management (CRM) software, an area where
it trails far behind Salesforce and Oracle. SAP co-CEO Bill
McDermott conceded that the company's last cloud CRM product
has fared poorly in the market, but said in an interview on
Sunday that he expects its next one to do better.
He said that SAP plans to start heavily promoting that
product, Sales on Demand, after Dalgaard takes over the
Dalgaard, who studied business at the Copenhagen Business
School in Denmark and Stanford University Graduate School,
told Reuters that Sales on Demand is so cool that he "went
bananas" when he first saw it.
He said he spent six hours playing with it at the end of a
long day of travel. "I can't wait to bring it to the world,"
Dalgaard said by phone.
Marc Benioff, chief executive of Salesforce.com, told
Reuters that SuccessFactors uses CRM products from his company
so he was "surprised" to hear Dalgaard praising SAP software.
"SuccessFactors is standardized worldwide on
Salesforce.com," Benioff retorted. "To my knowledge, they don't
use any SAP software of any kind." SuccessFactors did not
respond to a request for comment on Benioff's statement.
The battle for CRM customers will be intense because that
accounts for the largest segment of the SaaS market. About a
third of the nearly $10 billion in cloud applications sales
were from CRM applications, according to Gartner.
"Customers are howling for cloud solutions with Web
interfaces," said M. Eric Johnson, a professor at Dartmouth's
Tuck School of Business who advises large corporations on
technology investments. "Happy with iPhone and Android
interfaces, users are just not willing to put up with
cumbersome old interfaces."
Dalgaard has created an unconventional, fast-paced work
environment business culture at his Silicon Valley company,
where he has advised employees to take calculated risks, make
mistakes and learn from them.
The company's value statement calls for "No jerks" and
tells workers that they should produce measurable results: "Get
it done. Do whatever it (legally) takes."
Analysts said they are looking to see just how Dalgaard
fits in at SAP.
"Lars is the type of guy who when he sees a problem, he has
to fix it immediately," Nemeroff said. "Maybe this is
McDermott's way of saying 'We have to move faster.'"
(Reporting by Jim Finkle and Georgina Prodhan. Additional
reporting by Nicola Leske. Editing by Tiffany Wu, Bernard Orr)
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Keywords: SAP SUCCESSFACTORS/DALGAARD
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