You Get What You Pay For - Tale of Two Acquisitions - SAP-SFSF and ORCL-TLEO

Two months ago, SAP made an offer to acquire SuccessFactors("SFSF"), the leading cloud based Human Capital Management ("HCM") company for $3.4B, a multiple of 10.2 on 2011 on expected 2011 revenue of $332M.  I published the following two blogs on this development back in December:

• Tale of Two Companies - SFSF and RNOW - Why would anyone compare SAP-SuccessFactors deal with Oracle-RightNow deal?
• SuccessFactors - An amazing tech story through its financials and a solid grab by SAP!

Salesforce followed suite and acquired Rypple, a company that employs badges and achievements to imbue the employee review process with a collaborative, social media-like experience.  Financial terms were not disclosed. (Source: EnterpriseAppToday)

Oracle was long due after the RNOW acquisition and it decided to follow SAP (for the first time) and Salesforce by acquiring Taleo ("TLEO"), the #2 company in the business, for $1.9B, a multiple of 6.15 on 2011 revenues of $309M. (Source: BusinessWeek)

As usual, folks are reaching out and saying whether SAP's SFSF acquisition is expensive due to a higher multiple it paid to SFSF shareholders and whether it rushed in too early.  I don't believe that SAP's SFSF acquisition is expensive by any stretch of the imagination.  "You get what you pay for" - this notion is quite true in this case. 

The business rationale SAP announced when it made the decision to acquire SFSF was that SFSF is:

• #1 HCM solution in the cloud
• has 15m users from company of all sizes (SalesForce has only 3m users) in diverse 60 industries from across the globe (Example: Siemens has 450K seats)
• 3,500 customers in 168 countries
• 60% recurring revenues from existing customers
• 90% of the growth is organic as oppose to Salesforce
• Has just 14% overlap with SAP customers – a tremendous upside for both companies (with total addressable market of 500m employees of all SAP customers)

On the other end, this is what TLEO disclosed it has: 

• one of the world’s largest cloud deployments with nearly 16 billion transactions per year
• manages 15 percent of all hires in the US 
• has a customer base comprised of 5,000 businesses 
• its Talent Exchange boasts 240 million candidates 
• of the top 30 career sites, nearly half are powered by its technology.

(Source: Taleo)

The two companies can hardly be compared on these business metrics, so I am going to focus purely on financials.  SAP put a forward multiple of 8 on SFSF's expected 2012 revenues of $420M while Oracle is paying a forward multiple of 5 on TLEO's expected 2012 revenues of $379M.  There is this informal "rule of thumb" in place that states that one should pay a multiple of six to eight times of forward earnings for acquiring growth companies. 

Through following series of comparison charts, one could clearly see why SFSF will fetch a higher premium over TLEO.  Everything boils down to just couple of financial metrics and these metrics are: growth and operational efficiencies:

1. SFSF is a better growth story with CAGR more than DOUBLE than that of TLEO:

2. SFSF has far better cost structure than TLEO even though SFSF has grown revenues more than TWICE as fast:

 3. SFSF has somewhat better operating structure and is rapidly becoming more efficient with every dollar it spends on its operating cost. TLEO has done a good job of keeping its cost structure the same, one must wonder, why TLEO is not becoming operationally more efficient:

4. Making money from the cloud apps has been very tough business but this is very quickly starting to change as economies of scale kick in and both companies improve their net-income. SFSF definitely has done a good job in trimming its losses: 

5. The last two charts just compare the growth in revenue for the two companies since inception:

The bottom line is that SFSF is a better growth story and is operationally more efficient than TLEO so a higher multiple for SFSF is fully justified in my opinion. 

Did you know that, Oracle paid a multiple of 10x on Endeca's 2011 revenues? It is not just other companies (SAP or HP) that pay a forward multiple of 10x.

“Though Oracle and Endeca haven't talked about the acquisition price, I reported in October that California-based Oracle had agreed to pay $1.075 billion for the company (based on a document I obtained related to the deal).” (Source: boston.com) 

Happy Browsing!

Big Four and the Battle of Sentiments - Oracle, IBM, Microsoft and SAP

In this battle of sentiments or opinions for the four software giants - Oracle, IBM, Microsoft and SAP, SAP is generating a lot of positive buzz with its message of "innovation without disruption" and leading the pack with a 95% sentiment score.

Tag	TweetsFetched	+ve Tweets	-ve Tweets	Avg.Score	Tweets	Sentiment
@IBM	198	49	45	0.081	94	52%
@Microsoft	893	307	78	0.484	385	80%
@Oracle	297	90	17	0.313	107	84%
@SAP	98	55	3	0.673	58	95%

Few days ago, I published this blog "Updated Sentiment Analysis and a Word Cloud for Netflix" and the underlying R code.  I used the same R program to compare the sentiments for the four software giants.  Now, technically speaking, IBM and Oracle are not pure software companies anymore since they both package hardware (server and storage hardware) along with the software but the rivalry between these four companies persuaded me to put a comparative analysis  here.  I originally included HP in this analysis but then dropped it as I didn't consider HP in the same league as these fours in the software category.

What surprised me the most was the lowest score IBM received, lower than Oracle!  What went wrong here?  I am also surprised to see Oracle occupying the second spot with 84% sentiment score.  So besides all the negative publicity Oracle attracts, the sentiment is overwhelmingly positive.

The one improvement I would like to make to this analysis is to get more tweets.  Twitter API restricts the number of tweets that one can fetch and doesn't allow you to fetch older tweets.  I would love to run this analysis over a year worth of tweets and also show a time series of sentiment score.  That will be fantastic!

Here are the four histograms, one each for four candidates, showing the distribution of opinion scores:

SAP

IBM

Microsoft

Oracle








Happy Analyzing!


The underlying data can be downloaded here.

Mobile Analytics - A Game Changer!

Mobile Analytics (a.ka. Mobile BI) has been the hottest strategic topic and a top focus for many enterprise software organizations as customers, small and large, grapple with the big data onslaught and throw everything at it to become even more efficient, both on top-line growth and bottom-line optimization, in an economy struggling to grow and a continent unable to stop a contagion from spreading and once again threatening the global economy.  

Customer's perennial struggle and in-turn a cost-saving approach translates into big analytics opportunity for enterprise software companies to shift customers from traditional analytics solutions to Mobile and Cloud based analytics solutions.

On the premise explained above, I did a business case about 9 months ago to develop a FULL picture of Mobile Analytics market.  I used a ton of research and analyst reports and interviews and invested upwards of hundreds of hours to develop and present a complete story on Mobile Analytics including developing my own proprietary models related to assessing the size of this opportunity. 

I am summarizing my findings at a very high level in following bullet points and have made available the synthesis slides on slideshare (link is printed below).

• Big Data - According to IDC, data is doubling every two years and is expected to reach 1.8 ZB (a trillion GB) in 2011.
• Eight mobility related mega trends are locked in a virtuous cycle and will be the bedrock for growth and adoption of Mobile BI solutions and for  the overall Enterprise Mobility.
• Mobile BI market could grow at 20% plus CAGR over the next 5 years and could likely become over a $2 billion market by 2015.
• According to Gartner, more than 33% of Analytics will be consumed using mobile devices, a prediction well supported by the 8 mobility related mega trends discussed here.
• Therefore, by 2015 more than 15% of Analytics revenues could come from Mobile Analytics solutions. This should be a serious strategic priority for every Analytics vendor if not already.
• Advanced Analytics including geo-spatial for  Mobile Consumers is growing as computing power and form factor of mobile devices change rapidly. 
• Shift to “active production model” from a “passive consumption model”  is expected to happen allowing mobile business users to assemble dashboards and produce/edit reports on the go.

Download slides from Slideshrae - Mobile Analytics (Mobile BI) - A Game Changer

Special thanks goes to Gartner, IDC, Boris Evelson of Forrester, Cindy Howson of BI Scorecard, and Howard Dresner of Dresner Advisory Services for producing excellent research on this topic and answering all my questions and to all my colleagues and friends across the world. 

Upcoming blog on Agile Analytics

A crowded Mobile Analytics (Mobile BI) Competitive Landscape - Is the opportunity really that big?

Quite a few challengers in the market. The following list is a just a first stab at the number of companies looking to capture a piece of the action. The Mobile Analytics market is going to be a big opportunity which also nicely ties into the Big Data story and the Enterprise Mobility trend. More on the size of the opportunity and mobile analytics trends later. For now enjoy this graphics I built using the Dresner study -

Also see the magic quadrant from Gartner on BI. Some overlap between the companies on the two graphics indicating that there are new challengers on the market like LogiXML and Bitam. See my earlier blog on HTML 5 on LogiXML - 

Fast Emerging, Developing and Developed Trends in Business Intelligence (BI)

1. Emerging - Social and Collaborative
2. Developing - Location Analytics (Augmented Reality for Mobile Devices)
3. Developed - Mobile

Facilitators:
- Huge amount of investment in collaborative software to optimize performance
- One obvious one - explosion in Mobile device and heterogeneous devices are accepted in the organization
- Strong desire to tie the analytics to its source, where did the event happen - zero in on the location. 

I get to live, rationalize, strategize, visualize, evangelize and everything else to influence build real BI solutions.
More on this in my follow up blogs, for now, enjoy following excerpts from a Gartner report -
....
Within two years, 15% of BI deployments will combine collaborative and social decision making-environments.
....
With the rapid development of handheld functionality and mass adoption rates across enterprises, by 2014 33% of business intelligence will be through mobile devices. 
....
Source: Gartner Predicts Business Intelligence Will Go Mobile and Social

Big Date Beneficiaries - Sybase, Netezza, Exadata and more!

So my last post was about big data. Let's talk what kind of companies are going to benefit from the data explosion and mind you, the big data opportunity can't be discussed in one single blog. Now, the big data story started in 2010 and there are already few beneficiaries:

• SAP acquired Sybase;
• IBM acquired Netezza; and
• Oracle acquired Exadata.

Going into 2011, the big data story is only going to get bigger. Here is an article that I read earlier (from a series of such articles) that discussed 3 predictions for 2011 based on big data - 3 "Big-Data" Predictions for 2011

Prediction #1: Not all data is created equal. Traditional relational database management systems will be challenged in 2011. (other flavors of repositories including columnar, in-memory, Hadoop/MapReduce, and other NoSQL approaches made popular by Google, Facebook, and other large-scale Internet applications.)

Prediction #2: Cloud architecture deployments will grow, specifically for long-term data storage and retention.

Prediction #3: Enterprises will search for sustainable storage.

Highlights:

data retention and management software will benefit from this trend

Informatica

Teradata

The Era of Big Data is Upon us!

No kidding - if you didn't know this already, read this article from The Economist - Data, data everywhere.

Here are some mind boggling stats from that article:

• Wal-Mart handles more than 1m customer transactions every hour, feeding databases estimated at more than 2.5 petabytes—the equivalent of 167 times the books in America’s Library of Congress.
• Facebook is home to 40 billion photos.
• Decoding the human genome involves analysing 3 billion base pairs—which took ten years the first time it was done, in 2003, but can now be achieved in one week. (May be few hours now with SAP's HANA)

Another interesting insight The Economist:

Only 5% of the information that is created is “structured”, meaning it comes in a standard format of words or numbers that can be read by computers. The rest are things like photos and phone calls which are less easily retrievable and usable. But this is changing as content on the web is increasingly “tagged”, and facial-recognition and voice-recognition software can identify people and words in digital files.

So, what does this all mean? Opportunity for incumbent companies which offer software tools to analyze world's structured and unstructured data. Companies like SAP, IBM, Oracle, Informatica of the world find themselves in the eye of the storm. This is the decade of big data and enterprise mobility that means big opportunity for lot of software and hardware companies.

I will be publishing blogs on the topic of Enterprise Mobility and Mobile Business Analytics going forward and will be looking forward to collaborating with other visionaries out there to spread the word on Mobile Business Analytics.

So Long!