Software Licensing & Master Service Agreements : Chicago Software Licensing Lawyer & Attorney : Sam Conforti Law Firm : Master Service Agreements, Negotiations, Outsourcing : Cook County, Illinois

SuccessFactors makes software used to manage employee performance, which helps companies decide which employees to retain and how much to pay them. Their stock soared 51% and at the end of trading on December 5, 2011 closed at $39.75 as reported in Ragnhild Kjetland’s and Aaron Ricadela’s article in Bloomberg Businessweek entitled SAP Shed M&A Shyness as Oracle Rivalry Moves to the Cloud. Another good article to read is Ragnhild Kjetland’s article in Bloomberg Businessweek entitled SAP to Buy SuccessFactors for $3.4 Billion to Match Oracle. 

SAP is the world’s largest developer of software for the business community. The premium they paid for the purchase of SuccessFactors demonstrates their commitment to compete head-to-head with Oracle in the Cloud Computing market space. This specific acquisition will aid SAP in selling its full suite of “human capital management” software to its installed base.

Ray Wang, head of San Francisco-based Constellation Research, said in a phone interview,

 “This is a much-needed move by SAP. What SAP had in human resources -- basic transactional software such as payroll -- was good enough for the old era.  In the new era, performance reviews and talent management will be important.”

SuccessFactors has:

·         3500 customers

·         15 million subscribers

·         Present in 168 countries

·         $332 million in revenue for 2011

·         $502 million in revenue predicted by 2013

Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon said,

“We saw Oracle buy RightNow Technologies just a couple of weeks ago at 5.5 times that company’s next year revenue and SAP is going to pay almost 8 times 2012 revenue, but these guys are growing much faster than other people in software on demand, this is a marvelous addition for SAP.”

The new management team at the helm of SAP, co-CEOs Bill McDermott and Jim Hagemann Snabe, are not as reticent to growth through acquisition as compared to the prior management’s philosophy of organic growth internally. Since taking over, they have made three large acquisitions: Sybase, a mobile device maker; Business Objects, a BI developer; and now SuccessFactors. These purchases pale in comparison to Oracle’s $42 Billion buying binge over the last 6 years, but all seems to be coming together as the market evolves from the capital intensive data centers with their huge cash outlays for hardware to software delivered over the web.

SuccessFactor’s CEO, Lars Dalgaard, will oversee SAP’s full line of SaaS (“software-as-a-service”) products, including its Business ByDesign Web programs for midsized companies.

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There has been a lot happening recently. I have found three articles I think will be of interest to all of you. The first presents anecdotal evidence that SaaS is steadily becoming accepted in the IT world, but doubts still linger regarding security. The article presents some interesting clues on what’s important from a contracting standpoint. The second article provides some insight into the global marketplace’s emergence from the slump of demand for IT (i.e. companies increase spending for IT services). And the third article is a very witty compilation of the Board Room melodramas over the past few months. Space constraints prevent me from a full analysis of the three articles, but I think I can give you enough information to whet your appetites for more, and of course I’ll provide the links.

I.                    SaaS Adoption Continues:

Patrick Thibodeau provides examples of the continued adoption to the SaaS cloud based system in his article in Computerworld.com entitled IT shifts to the cloud; anecdote by anecdote. It appears that the reasons given by the CIO’s and IT Managers are of no surprise. Mark Stone, the CIO at Safety-Kleen Systems Inc. states:

“With a cloud-based approach, he said, "I can go today to a variety of SaaS providers and put in software that's every bit as functionally rich as anything I've developed on-site" -- without having to worry about the upkeep of an IT infrastructure.”

Lien Chen, CIO at RAE Systems Inc. had an Oracle ERP system that she wanted to integrate with Salesforce CRM. She could have purchased an integration package, which of course would necessitate hiring consultants to implement (i.e. factor in those costs as well). Instead she opted for the less costly cloud-based integration from Informatica. Security issues prevent her from moving all apps to the cloud.

From a contracting perspective the comments I found most informative were from Robert Scott, managing partner at Scott & Scott LLP, a Dallas-based law firm that advises clients on IT contractual issues. He acknowledges the angst over security concerns. His advice when developing the contract for cloud-based services is “You own everything you bring and everything you pay for.” Scott went on to say:

“That means, for instance, that if a cloud vendor undertakes integrations and customizations or builds templates and layouts, users have to be certain they can take that work with them if they move to another provider. This could have a big impact on your ability to switch."

II.                  Infosys Profits Up: Forecasts revised

As for evidence that the slumping world economy and in particular global enterprises’ spending estimates for IT is on the way back, see Ketaki Gokhale’s article in Bloomberg Businessweek entitled Infosys Profit Beats Estimate; Increases Forecast. It appears the rebound may be a double edged sword for India’s second largest exporter of software. Yes, Net Income is up 13% for the first three months of their fiscal year, and yes, Infosys joins the likes of Intel in reporting that IT spending is likely to increase in the coming year. However a stronger rupee is stifling the return of those monies earned abroad back to the owner’s in the country of origin, India. Infosys derives 66% of its revenue from North America and 23% from Europe. Gokhale reports on the latest from Forrester Research Inc. that “Worldwide information technology spending, which includes computer equipment and software purchases, will grow 7.8 percent to $1.58 trillion this year after falling 8.9 percent in 2009, according to July estimates.”

III.                IT Street Fighting Hollywood-Style

As an attorney involved in the intricacies of software contract drafting, I have a special place in my heart for lists. For a very informative and also enjoyable read, I highly recommend Thomas Wailgum’s article in CIO.com entitled 10 Lessons Learned from the HP-Oracle-SAP-NY Times Saga. In case you haven’t noticed there have been some very high-profile and entertaining board room antics for the past several months. It appears that the CEO, now the ex-CEO, of HP might have been involved in a dalliance that caused the HP board to summarily dismiss him. Not to worry his tennis partner and uber-rich CEO of Oracle, Larry Ellison, hired him in an instant as co-President. Apparently a New York Times columnist wrote nasty things about SAP’s former CEO and this columnist’s girlfriend is employed by the law firm suing SAP. And it seems everybody is taking pot-shots at HP’s board and HP’s board is fighting back. And what about IBM? Looks like they want in on all the tomfoolery. 

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