SAP, the world's largest application software company, just announced the best revenue and earnings growth the company has made in many years. The company's quarterly revenues grew by 12% to over $3.4 billion Euros and profits rose by 23% to $1.6 billion. And now that the company has announced its plans to acquire SuccessFactors for $3.4 billion, the company has become a very serious player in the HR software marketplace.
SAP's Legacy in HR
SAP has quite a legacy of experience in the HR market. Going back to the early 1990's when SAP R/3 was first announced (the company's suite of ERP applications), SAP developed a global HR system and payroll solution which is in use by thousands of companies. While SAP's roots come from the financials and manufacturing segments, the company built a very robust HCM (SAP calls its HR suite Human Capital Management) years ago and developed one of the most sophisticated (and somewhat complex) approaches to competency management in the market.
In the last ten years SAP has invested heavily in its talent management modules (the company offers a whole suite of performance management, goal management, learning management, competency management, and competency management products) which are sold as part of its ERP solution. Companies like P&GE, Comcast, General Mills, AT&T, and many of the world's most complex organizations use various elements of SAP's HCM products today. SAP's learning management system (called its Learning Solutions Offering or LSO) has been through years of evolution and continues to grow as the company invests in new features for new training application areas.
With the acquisition of SuccessFactors, the company now offers a SaaS best-of-breed set of talent management products and the only piece left to do is integrate all these things together (more information on that front is coming soon). (Research members please read our detailed analysis of this merger here.)
SAP's Bigger Business Growth
But even this is all small potatoes in SAP's bigger business: selling application software and IT infrastructure solutions. In the last 5 years SAP has acquired BusinessObjects (one of the largest business intelligence software companies), Sybase (my former employer, one of the world's leading database and IT infrastructure companies), and now introduced a very exciting new product called HANA (High Performance Analytics Appliance).
HANA is actually a "database machine" – that is hardware. It brings together a lot of software technology from SAP, Sybase, and Business Objects to enable companies to replicate their database information into a very highly optimized format which can be queried at 2,000-4,000 times faster than a traditional database.
I was actually a product manager for this type of product (Sybase IQ) in an earlier life, and let me say here that this type of solution, if well implemented, can transform the way we use information. Imagine if you could query all the information in your candidate pool or employee pool and rapidly analyze sourcing quality, employee mobility, compensation variations, risk of resignations, etc. in a highly visual way. Hana, from a performance standpoint, makes this very fast.
SAP sells HANA to IT departments as an alternative to various other hardware systems (Oracle's Sun or Exadata products, IBM, Dell, etc) and even though the product is only around a year old, it is selling fast. In the new world of BigData, companies desperately want ways to turbocharge access to all this information.
Of course for those of you who follow the software industry, you know that there is a death match taking place between SAP and Oracle. Both companies are competing heavily (and to some degree so are IBM, HP, and others) to win the market for software applications, database software, and underlying infrastructure (middleware, business analytics software, and specialized hardware).
Oracle is by far the leader in database technology, but with SAP's acquisition of Sybase and SuccessFactors we can expect SAP (Oracle's biggest customer, believe it or not) to slowly but surely start moving its investments away from Oracle towards its own Sybase technology. (Read "Moneyball Comes to HR: Data Science Matters" for more information on BigData in HR.)
SAP is a Bullish Bet
Over the years SAP has been a frustrating company to work with in the HR market – their HCM solutions are extremely well engineered but hard to use and highly complex. Their user interface continues to lag the market, and the company's sales and marketing focus has not been optimized toward the needs of HR buyers.
Now, however, I think the tide is shifting. SAP's amazing momentum growth as a company, coupled with its experience in HR and the SuccessFactors acquisition, gives it a lot of potential to become a major player in all the software markets for HR. Very soon SAP will be announcing its more detailed plans for SuccessFactors, and we will all be watching to see how well they have thought out the integrated product strategy.
Making an SAP decision for HR is still a very big move. Workday continues to build momentum. Oracle Fusion HCM is now in the market. ADP is in the talent management market. And the focused talent management vendors (Taleo, CornerstoneOnDemand, Saba, Peoplefluent, SumTotal, Silkroad, and dozens of others) are all growing and innovating rapidly.
But given the latest revenue and earnings announcement from SAP, the company's growing success with HANA, and the potential for SuccessFactors (and Lars Dalgaard), I think we all have to keep our eyes on SAP as a growing leader in the $130 billion market for HR software and solutions.