SAP, the largest maker of enterprise- applications software, is set to acquire cloud computing supplier Ariba in a $4.3 billion deal which could help the company become a major player in the cloud marketplace. Yet not everybody agrees this is money well spent.
Ariba, a leader in cloud- based collaborative commerce applications, is the world’s second largest cloud vendor by revenue, connecting to over 730 000 suppliers. The transaction is expected to be completed by the end of August, pending approval by Ariba shareholders and regulators.
Cloud computing provides software, storage, computing power and other services from remote data centers via the internet, allowing companies to implement new programs faster and at lower cost than traditional products installed at a customer’s own data center.
SAP expects the acquisition will give the company a good position in a fast growing segment and help “create new models for business-to-business collaboration in the cloud.”
SAP Co-CEOs Bill McDermott and Jim Hagemann Snabe said: “The addition of Ariba will create the business network of the future, deliver immediate value to our customers and provide another solid engine for driving SAP’s growth in the cloud.”
According to Richard Williams, an analyst at Cross Research in Livingston, New Jersey, Ariba would allow the company to automate business transactions with outside companies and make more competitive cloud-based business networks.
Roger Kay, principal analyst for Endpoint Technologies Associates agrees: “Ariba is a solid business in its own right and gives SAP access to cloud computing technologies that it couldn’t replicate internally.”
But others, including Forrester analyst Andrew Bartels, believe the deal may not make strategic sense due to the duplication of products between the two firms: “The only unique products that Ariba brings are its eInvoicing product (SAP has been reselling OpenText) and its SaaS version of eProcurement and services procurement.” He sees further negatives in Ariba’s “idiosyncratic pricing model” and inability to “generate the kinds of revenues that SAP is expecting”.
The need to integrate Ariba products and systems into the SAS business may deflect management attention from product improvement and the selective filling of product range gaps with fully integrated products.
Some also question whether SAP is paying too much for Ariba, which has closed as low as $22.12 in the past 12 months. Following the SAP offer on 22 May, the price leaped from $37.64, but has since remained a little under the offer price.
In keeping with the trend of businesses increasingly storing and processing data on the Web, SAP is shifting many staple applications to the Internet.
According to McDermott: “We don’t have the DNA in the cloud.” He continued: “We’re probably the most strategic cloud player in the enterprise software industry.”
SAP first made inroads into cloud computing with the purchase of SuccessFactors Inc. for over $3 billion in December. Oracle, one of SAP’s biggest rivals, followed by signing an agreement to pay $46 per share for Taleo, a cloud- based human resource management software firm, and has also purchased social media marketer Virtue for $300 million.
But Williams said there was still potential for other bidders to emerge: “There’s a history of bidding wars between SAP and Oracle and this is exactly the kind of strategic company that would spark something like that.”
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