Monthly Archives: December 2011

Has Apple reached the end of the line?

So I’m sat on a London bus going to buy a birthday cake, and I put, as I usually do, a set of boundary conditions around penning a blog. In this case, on my iPad, two short bus journeys totalling about 20 minutes.

And I’m pondering why, whilst I love my iPad 2, I very rarely use it. It is an item of beauty, of fashion and style. It is better than the original iPad by a million miles. The battery life is amazing and it integrates with all my other Apple stuff. It is always ready to use, always on the Internet with cellular Internet or Wi-Fi and never goes wrong.

So why then does it rarely get any use? When I go on holiday it is my device of choice – mostly because it is hard to work on it and temptation is kept at bay. At conferences where there is a lot of walking I sometimes use it. But the rest of the time it stays at home. And quietly downloads my email.

And then I think of Apple as a whole, I start to wonder when it last innovated. The iPod, in 2001. The iPhone in 2007. The iPad in 2009 and the unibody MacBook in 2008. Each of those were very interesting innovations. Like all good innovations, the technology wasn’t quite there to make version one a success.

What Apple has done amazingly well over the last 4 years is to execute on its past innovation. I have no doubt that their product line right now is the best, most polished it has ever been. Just like Nokia’s was in 2001. And that, you see, is the problem.

Because if Apple thinks that the new Apple TV, iPad 2 or iPhone 4S are innovations, they are dead in the water in 5 years time. The closest thing Apple have to innovation in the last 2 years is Siri, but their entire smartphone design is in such silos that Siri cannot integrate to the level it would need to, to innovate.

I don’t think that Apple is necessarily dead in the water yet, because there is time to be innovative once more – and remember that one amazing product every 5 years, with excellent execution in the middle, is still enough. The death of the innovator himself, Steve Jobs, makes that much harder for them.

Regardless of this, Apple will continue to grow because of their fantastic execution, for years to come. But unless we see a change, I predict that we will look back in 2020 as 2011 being the beginning of the end.

Why the services industry is in turmoil, and British Airways are screwed

I was sat on the sofa this morning, trying to think of a truly amazing customer experience that I have had in 2011. And if I’m being honest, I’m not sure I’ve had one. I’ve lots of OK experiences. A few good ones. And plenty of terrible ones. Maybe I’m wrong in thinking that me, the customer, should be the focus during an interaction, because I so very rarely feel that way.

And it was so that I ended up today at The Cheese And Wine Company in Hampton. It sits on the site that has housed no less than four cafés in four years. Organic this, children’s that. Each was a failed business because they had no idea what their customers wanted – usually bad home-cooked cakes and muddy coffee. Really?

Steve, on the other hand, has created a simple and oddly unique value proposition. He selles cheese, wine, and associated paraphernalia. In the store, online, you can sit and eat it or take it home. He does tastings and parties and events and has engaged his audience very nicely. And what’s more, he’s not competing with the supermarkets because he sells stuff you can’t buy there. Stuff like Epoisses soft cheese and Binfield Brut sparkling wine, that comes from a few miles from where I was born in Berkshire.

It’s a simple value proposition and his customers love it. He’s sold out on every event and I had to settle for a rather nice stilton today, because he’d sold every other cheese in the shop. Trust me, he has a truckload coming tomorrow, on the next working day of the year.

The shop next door to him shut down a few months back. As far as I can tell, Harry and Paul’s I Saw You Coming took this store to run a parody. As they say, “It’s basically a bunch of crap that I’ve tastefully displayed. And a bunch of candles”. And now it’s been replaced by a store called OhSo. Which as far as I can tell sells the same rubbish that the old store (which went bust) sold. It’s sad, but they won’t be open in Christmas 2012.

And this neatly brings me to British Airways. The airline industry is in trouble. Their consumers have less disposable income than ever before. Fuel prices and taxes are rising year-on-year. A bunch of low-cost airlines have cropped up, cutting margins further and increasing competition. And consumers are better informed than ever before, with better price comparison sites.

They have two potential differentiators to choose from: either price, or quality of service. With airlines like the US domestics (US Airways, Delta etc.) and European budget airlines like Easyjet and Ryanair, you know what you are getting. Very little, for the lowest price possible. A return trip from London to Madrid is £37 by Easyjet in January, and £114 with BA.

So BA try to compete on perceived quality of service. But they have a serious problem here too, because their staff hate them. They are used to being given a platinum pay package for the last 30 years, and the market can no longer support it for the reasons explained before. What’s more, the delays to Boeing’s Dreamliner planes mean that BA are operating a tired fleet of ageing planes.

And in reducing their salaries and making the shifts and perks more similar to other competing airlines, BA have made their staff hate their jobs – and they take it out on the customers in many cases. In 2011 I have experienced the following:

  1. Being charged for a ticket change after I was told I could have it for free because I was changing flights at their convenience.
  2. Being charged for a ticket change after an administrative fault
  3. A nice coat I left on a plane never made it to lost property – in a small airport
  4. My bags vandalised and my property stolen on a flight from London to Madrid
  5. Nearly missing a flight because of computer security check problems
  6. Having my complaint letter opened by the crew that I complained about – they then confronted me
  7. Flights with no water, broken heating systems, broken seats or rest rooms

And no one gives a crap. Their customer complaints department certainly don’t and from what I hear, the management team isn’t any different. When you talk to staff at the airport on a flight, they are invariably unhappy and disaffected.

And the share price shows it. They are down from 243p at the beginning of this year to 150p at the time of writing. To be fair, this is more or less in common with the rest of the industry – but what is not in common is they are barely breaking even. Lufthansa, for example, has an operating margin of 4% compared to the International Airlines Group (which owns BA and Iberia), which made 0.7% last year. I’ve not looked into it, but it wouldn’t surprise me if there were some creative accounting going on there.

Now last week, FedEx got in trouble on YouTube, when a disaffected customer uploaded a video titled “FedEx Guy Throwing My Computer Monitor”:

Now this video already has nearly 7,000,000 views and 22,000 comments. Fedex Senior Vice President Matthew Thornton III turned this into a fantastic opportunity and apologised to the customer, as a YouTube response, here:

And if BA want to survive, I believe they need to apply some customer-centricity. I’ve been told by some senior people in BA that they have a program in place to try to ensure retention of frequent flyers and offer them a good quality of service.

Now, I get a fantastic quality of service from Carl and his team at BA in Philadelphia International Airport and this is probably the main reason why I fly BA (along with the rewards points, and the convenience of London Heathrow Terminal 5). But I think this is a pocket of excellence caused by a good manager and it is not representative of my overall experience.

The risk to BA seems so obvious – there will be some major casualties of the recession. I’m already tempted to switch to US Airways, who have a very generous upgrade system (they always fill business class, upgrading passengers by order of seniority). The fact that US Airways don’t give you access to their lounge, even if you are a frequent flyer, is the reason I’ve not. It costs $375 a year.

During a visit to the NASA space center in 1962, President Kennedy noticed a janitor carrying a broom. He interrupted his tour, walked over to the man and said, “Hi, I’m Jack Kennedy. What are you doing?”. The janitor responded, “I’m helping put a man on the moon, Mr. President.”

It sounds corny, but having a company with a single vision may have something to be said for it. I work with a lot of large global organisations and it is often a problem that IT functions do not serve the wider needs of the business. One company that this is not true in is Howdens Joinery (previously the wholesale arm of MFI), which is a very interesting organisation.

For a start, everyone in the organisation is remunerated based on the same criteria. This shared sense of purpose is very visible in the CIO, David Hallett. We were talking about depot outages and he explained that they don’t operate on the basis of an acceptable failure rate: a depot which is not operating, is margin lost, and that is unacceptable.

What’s more interesting is that it appears that because everyone has a shared and common goal, they work as a team. The results are clear. Revenue in 2009 was 769m with 6.5% profit after tax. This was up to 808m and 8.2% profit in 2010. 2011 Interim results are available here but they aren’t very relevant because Howdens does much of their business in the run-up to Christmas. What is interesting is the first few pages which explains their business model.

If you do so, you will understand that Howdens is 100% customer-centric. They know who their customer is (the small builder) and know exactly what is important to them – and they deliver it, surrounded by a viable commercial model. Their massive market share is testimony to getting that right.

For my money, there will be airlines that figure out that being customer-centric first and foremost builds long-term sustainable success. And there will be those that will roll over and die. And from where I’m sitting, British Airways may be a Very British Institution, but I’m not convinced it can survive this recession.

Oracle posts terrible results – but does it matter for the rest of the tech market?

I’ve been in a period of quiet contemplation since Oracle posted bad quarterly results for the first time in… like ever. And the reaction from the markets was scathing. Stock went down 15% the day after and has slowly recovered – currently tracking at -11% since the results.

What’s even more interesting is there was a knock-on effect on other tech stocks. TIBCO was down at -11% and SAP at -6% on the same day – and they hadn’t done anything. TIBCO’s results were due the next day and SAP’s are due in mid January; the markets clearly believed that if stalwart Oracle had done badly, then presumably others would follow.

Let’s deal with TIBCO first; they posted fantastic results for Q4. 22% up on revenue. 31% up on profit. Innovation, success stories and all that; despite this, the stock is now only back up 1% above what it was before Oracle posted its results.

As for SAP, they posted blockbusting Q3 results and did the smart thing by keeping the full year advisory as it was. If they didn’t have a great Q4 then they would likely still hit the full year milestones – and if they had a great Q4 then they would smash them. Either way, investors would be happy.

I don’t have inside information on SAP’s results but Oracle blamed deal slippage. Some of the same seems to be visible across the enterprise IT space. From where I’m sitting, customers scrutinise where they spend money because they have to get value. If you’re a customer reading this – please do this. Take your time and ensure you spend it wisely – this way you will spend on the projects that help meet your strategic objectives. That can only be a good thing.

The worrying elephant in the room is further macro-economic trends We all know that the Euro is shafted. The UK economy is tightly linked to European exports so we are reliant on their – non-existant – buying power. The USA is reeling from the financial mess it has put itself in and only China is a huge buying force right now.

How much of the deal slippage can we attribute to the ailing global economy? Is everyone avoiding talking about it because they are afraid it might be true? And does this reflect on what might be a very tough economic market for 2012 and beyond?

We will see.

SAP 2011 results analysis – The Awful Economy Is Really Going To Hurt Financial Analysts

December 2011 has been a terrible month for the quality of SAP news. Or perhaps a reminder that some modicum of research and interest is required to produce a half decent article on a topic. Last week I hammered TechCrunch’s covering of the SAP and SuccessFactors acquisition with: Why TechCrunch is boring, SAP is not, and the world has gone mad.

Today I’m on the warpath at Julie Bort from Business Insider, who wrote a piece entitled: The Awful Economy Is Really Going To Hurt SAP, Says BofA. Now to be fair it is Bank of America analyst Chandra Sriraman who is at the centre of all this. Some of the article is speculation and that’s fine. It’s the facts that worry me. First, here’s a quote on SAP’s biggest innovation in 2011.

HANA was hailed as groundbreaking when it was introduced about a year ago. It sits in a computer’s memory so it literally runs while the computer processes transactions.
There’s just one problem: No one is buying it.

When SAP CEO Bill McDermott told us last year that they were going to sell $100m of HANA in 2011, we thought he was being a bullish salesman. The product didn’t even exist and wasn’t released to market until July. But over 60% of that $100m was done already done by Q3, and Q4 is traditionally SAP’s biggest quarter by far. There aren’t any official numbers yet because some deals have not closed but insiders I talk to suggest that Q4 could be as big as the rest of the year combined, for HANA.

SAP’s revenue for 2011 is likely to be around €13.5bn (actually I think it will be more, but that’s the advisory, so work with me). Of this about 22% is license revenue – about €3bn, give or take. So of course even if it’s $120m or $150m of revenue from HANA, that is less than 5% of license revenue.

But Chandra totally misses the point. First, 5% isn’t bad in my books for year one of a product that wasn’t properly available until Q3. And second, HANA is really limited in its use cases right now. It was first available as an analytics appliance, and has just been made available as a data warehouse database. But soon, it will be available as a replacement to Oracle, Microsoft and IBM databases for SAP – and non-SAP customers. The available market just increased 100 fold. Steve Lucas – Global GM for Business Analytics & Technology at SAP told me this week that he wants to be the #2 database vendor by 2015.

“Although we remain positive on HANA, it contributes less than 3% of 2011 licenses and will not be able to offset any slowdown in the core applications market,” says Sriraman.

Well SAP’s license revenue for 2011 year to date is $2.2bn, up from $1.8bn in 2010. Thats 23% increase on 2010 (overall revenue is 16% up) and SAP have put an advisory for meeting the original 9% – rather than uplifting the revenue advisory. This is likely to be due to the worrying macroeconomic trends in the Eurozone meaning there is no up-side to increasing the advisory. My thoughts are overall revenue will be closer to 16% than 9% with a good chunk of that coming from software licenses.

The reason for that is multifold. First, the last of the old ERP licenses out there are being replaced with Enterprise Agreements – because support for the old R/3 software runs out in March 2013 and a lot of customers are planning upgrades. Second, Business Analytics is phenomenally strong under Lucas’ leadership and they made 50% of Line of Business sales in 2010. Third, Mobile and HANA will have added 6-8% to the top line.

Now it’s theoretically certain that ERP license sales should be on the decline, although SAP is still performing pretty well in that area too. But let’s say they do decline. If so, the question is can SAP increase revenue from Analytics, Mobile, in-Memory, Cloud and whatever else they decide to get into by acquisition or innovation – faster? Based on the evidence above, I say yes – and I wouldn’t have been this bullish myself, a year ago. And if you don’t believe me, meet Steve Lucas and his equivalent in Mobile, Chris Maclean.

Although SAP has been the “best performing Software and IT Services stock in our coverage portfolio up 15% YTD vs. the sector down 23%”

Yes – quite.

As a final note, I talk to a number of financial analysts on a regular basis and exchange notes on the markets. It’s a great gut check because they see life from a different perspective. They also don’t like to talk about this but the financial analyst market is under massive pressure and there will be big redundancies next year (I heard 50% of all analysts will leave the market for good). So in a few weeks you may end up reading: The Awful Economy Is Really Going To Hurt Analysts, Says BofA.

Why does the tech community hate Enterprise IT?

I have a serious case of writers block, and a more serious case of insomnia. I wrote an blog on Tuesday entitled Why TechCrunch is boring, SAP is not, and the world has gone mad, and it went viral. I received more page views in a day, than my combined page views on my blog, ever. It was read by people from individual developers and the SAP management team alike. And now, like a musician writing a second album, I don’t know how to follow it up.

15 years ago I was studying Computer Science at Cambridge. These were heady days. We theorised on Richard Stallman and The Cathedral and the Bazaar. The open source community was starting to rear its head and we felt on the cusp of a revolution. We installed Linux by hand and RedHat was just starting to emerge. We hacked code until 5am, drinking Jolt Cola and listening to 80s rock, exposing vulnerabilities in Windows NT. I had a Digital Alpha running Linux under my bed. Microsoft was the devil. Times were good.

And I remember the process of leaving college and receiving interviews. CSC, Oracle and Microsoft would woo us with their graduate programs, offering booze, pens and the promise of the good life. We scorned them and took the junkets. Colleagues went off to banking, software development. The lucky ones went off to startups where they applied their Linux skills and programmed in ML. Some sold their soul to the devil and went to work for Microsoft, SAP or Oracle.

In the meantime, I went through a career where I have done many things. I spent some time in Analytics, I’ve programmed C++ and perl and 20 other languages. And now, I’m a parody of myself, running a consulting practice in SAP Enterprise IT. I’m sitting here wondering what my 19-year old self would think of me now.

So it came to pass that for some reason, my article hit Hacker News and it went viral; as a result I got a very different audience reading my content. When I write about enterprise, I get a small but engaged audience reading about SAP. They say nice things about what I write and I feel warm and fuzzy. On Tuesday, I found a new audience, and some of what was written is akin to hate mail:

“Get a life, stop wining about how a tech b2b company that you are more interested in isnt getting the same amount of press… it is a boring company. and seems like less profitable too.”

I know why this is and I’m pretty certain my 19-year old self would have chimed in with the accusatory language. But that’s not what’s important. What’s important is that I believe – like in 1996 – we are on the cusp of another revolution; one where the Enterprise IT and tech communities can – if they want to – meet in the middle ground of the Consumerization of IT. Here’s why:

From what I can gather, the tech and open source communities hate SAP for a number of reasons; the worlds evil and antichrist came up a lot in my blog comments. My inner hacker knows exactly what they are:

1) Idealogical. SAP protects software patents, has an army of suited sales executives and lawyers. It’s not cool.

2) Community. SAP is implemented by armies of consultants charging high day rates. It’s a boys club and the community is hard to get into.

3) Integration. SAP is an information silo and it is hard to get stuff in and out of it.

In order for any of this stuff to change, there have to be socioeconomic factors which are a catalyst; I think in 2012 we will be in exactly a time where an inflection point is possible.

1) Economy. Let’s face it, the global economy is screwed. Budgets are tighter than ever and there is no end in sight. It will be business as usual to work to get Even More for Even Less.

2) Pervasiveness. SAP is here to stay; 65% of the world’s business transactions touch SAP. It is the most successful Enterprise IT software. Even if SAP becomes irrelevant like IBM AS/400, many SAP environments will be around for 20-40 years.

3) Consumerization of IT. We all expect Android and iPhone user experiences. We want it for our business interactions. I use my personal MacBook Air as my primary business machine. The dam has broken on this and we can’t fight it. This is a real pain as SAP’s user experience traditionally sucks.

4) Business Networks. Much of the world now operates as a living breathing business network. Invoices, sales, supply chains – many of these operate automatically and electronically. Integration is necessary.

5) Big Consulting. SAP want to break up the Big Consulting Systems Integrator model of the 1990s. For every $1 of SAP license spent, there is $7 spent on consulting and hardware. The big consulting houses have been ripping off customers for years. Customers clench when they hear the words “change request”. There is an irony that SAP and IBM created this business model, but the world has changed.

You may be able to see where I’m going here. If you are in the main tech industry let me tell you what is going on in the SAP world that makes it relevant:

1) Open Standards. SAP’s relatively recent CTO, Vishal Sikka, has been championing open standards. The new in-memory database, HANA, only runs on Linux and on commodity x86 hardware. The modelling tool is Eclipse-based. It supports ODBC, JDBC and MDX for integration. The new Gateway integration layer allows REST-based integration with any SAP function.

2) Developer Ecosystem. Work is afoot to cut red tape and open the ecosystem. This is very hard in a big organisation and I don’t envy them, but it is happening. I challenged the SAP management team to measure how long it takes to become a SAP developer from start to finish – and make it as good as Apple and Google. The new developer website – SCN – will be launched on Monday 12th December. It too supports open standards.

3) Technology. SAP have produced technology with big developer potential. The Unwired Platform allows secure integration for mobile devices and supports open standards like REST, Apple, Android etc. Plus, systems will be available in the cloud for developers to use without having to install gobbing great big SAP systems at home.

You may get the sense that I’m pro-SAP here; I am. And I think, with good reason. Because, SAP have – unlike any of the other Enterprise IT players like Oracle – listened to the advice that they have been receiving over the last few years. And I think this dramatically plays into the hand of the wider tech community.

Because, if you are willing to put aside your ideological problems with working along side The Antichrist, there are enormous and interesting opportunities out there. For instance, you could write a Ruby on Rails web app that exposes a web shop – continuing to use an existing SAP ERP system for sales order processing and pricing. Or mobile apps for time and expenses that run on iPhone and Android. Don’t let me constrain you – you can do anything your mind can imagine.

And the wider tech community already has the skills and will be able to get into the SAP Ecosystem easily. The issues around community and integration can evaporate. And we can do away with some of those awful legacy interfaces that people have to put up with. SAP has embraced design thinking and is making much better looking solutions lately, but imagine the power of a community which is 10 times the size that it is now?

The question is – are people willing to put aside the ideological problem? I’m not sure what the 19-year old John would have said. Bring on the hate mail.

Why TechCrunch is boring, SAP is not, and the world has gone mad

It’s cold by the way. Winter finally arrived, I realised as I pondered SAP’s acquisition of SuccessFactors on the run into work. I can still feel the cold imbued from the run into the metal palmrest of my laptop as I write this.

The highlight of the weekend was Alexis Tsotsis’ faux-gonzoistic impression on TechCrunch. I say faux, because it has the attitude of gonzo journalism but not the style. From what I get of her article, if it’s not Apple or a startup, she’s not interested – and therefore the SAP acquisition of SuccessFactors is not worth reading about:

…you can never be too sure with these incredibly dull companies. I am too bored to Google it. In fact, I am literally bored to tears writing this, like I am seriously crying here in my local coffee shop and everyone is looking at me weird…

Really, this says a lot more about what’s wrong about TechCrunch, and actually the world as a whole. And so last night, I was discussing this point with a bunch of Enterprise Irregulars on Twitter. I’m going to disagree with Dennis Howlett (who used to be an Irregular), which is always a good way to start the morning.

@dahowlett: @applebyj giving idiots ANY play is plain dumb

Sameer Patel chimes in with a reminder that the Facebook acquisition of Gowalla – a FourSquare-style location based service, got much more airtime.

@sameerpatel: @applebyj @dahowlett not shocking. Most of yesterday tech meme led w/ reruns of Gowalla FB acquisition for an undisclosed sum vs a $3B buy.

And Frank Scavo got the feel of the enterprise community spot on:

@fscavo: I stopped reading TechCrunch years ago. @alexias’s recent post reminds me why. cc: @dahowlett @applebyj

But actually I think that Timo Elliott nailed it. Yes Timo, this is the real world.

@timoelliott: Strangely, this techcrunch post about the “boring” SAP acquisition made me very proud:… #dudethisistherealworld

And let’s just be reminded about how real this world is:

Facebook SAP
Revenue $4bn (estimated) $12.46bn
Profit $1bn (estimated) $1.18bn
% of world’s transactions Ermm? 65%
Users 800m 500m
Market Capitalization $82bn $72bn

If you compare Facebook even by their own metrics, they are still insignificant compared to the behemoth that is SAP. Billions of people interact with SAP on a day to day basis – every transaction with giants like Barclays Bank. 90% of the world’s beer is produced by SAP. And since SAP’s Chief Marketing Officer Jonathan Becher took the time to point it out, I’ll quote him:

@jbecher: @applebyj Amused by Don’t forget 65% of world’s televisions, 86% of athletic footwear, or 70% of world’s chocolate

Who says that SAP isn’t cool, with such accolades! And yet Facebook has the greater market capitalization. Why is this? High growth and cool factor. But Facebook has not proven that it has a sustainable market model.

Why does this mean there is something wrong with TechCrunch?

Well it strikes me that TechCrunch gets Consumer IT and is all over the topics that generate a lot of traffic, like Apple, Facebook and Google, and there’s nothing wrong with this. I do however think there’s two major areas where TC has a problem:

First, Founder and former co-editor Michael Arrington sold out to AOL then whined about their involvement. What amazes me here is first, his naivety, and second his desire for self-importance.

Second, it’s fine if you don’t understand Enterprise IT. But don’t whine about it being boring – because if you read Alexia’s article you will see that there are (currently) 99 comments, all of which criticise her and her journalism. Don’t write a crap piece of journalism and then follow it up with “I was just being honest” on Twitter – and then delete the Twitter post.

06/12/11 Correction – Alexia’s “I was just being honest” was in the comments area, not a Tweet. She didn’t delete it. My bad.

And what’s wrong with the world?

Well for my money SAP is possibly the most interesting technology firm in the world right now. I make my money out of the SAP industry so perhaps I would say that, but it’s also born out by facts.

They have the leading enterprise mobility platform, integrated back into an incredibly complex suite of software that covers 65% of the world’s business transactions. They are leading the world with in-memory technology.

And to add to that they have just made a major cloud acquisition, which might be the third dimension to prevent the risk of their becoming irrelevant in 5-10 years time.

What’s wrong with the world is that they are so focussed on Apple, Google and Facebook – with their over inflated IPOs and everything that comes with that. The world was not built on technology bubbles – it was built on hard work and honest money.

For a small number of lucky individuals there is a bubble with an IPO and a retirement salary. For everyone else, the world is a very tough place to live. My advice: stop being bored by the stuff which makes the world turn.

SAP acquires SuccessFactors – is it all hot air in the cloud?

This time last year I was on a flight to Santa Clara, where SAP was hosting its Influencer Summit. It’s a shindig where SAP communicates and listens to a group of analysts and influencers and last year, there was a clear focus: cloud.

SAP had the excellent John Wookey, who at that time was heading SAP’s on-demand strategy and he was positioned front and centre. There was an entire day dedicated to cloud and SAP’s core cloud product, an ERP system called Business ByDesign was aggressively marketed to the audience.

Now for two of SAP’s strategic areas – Enterprise Mobility, and in-Memory software, 2011 has been a fantastic year. The key products – the Sybase Unwired Platform for mobility, and the HANA in-memory platform – have had fantastic success. At the time of the Influencer Summit, Marge Breya – EVP of SAP’s solution portfolio, was on her way out – eventually headed off to join her old boss Leo Apotheker at HP.

But for the cloud side of the business, 2011 has been very lacklustre for SAP. Wookey left SAP and in a cruel twist of fate, ended up at Salesforce after his gardening leave was complete. The noise around HANA and SUP meant that the cloud messaging was quiet in the market as a whole, and also at SAP’s flagship conference, SAPPHIRE NOW.

There has been quite some criticism of SAP’s cloud strategy in the interim, with some suggestions that they are haemorrhaging customers within Line of Business to organisations like Workday and Salesforce.

So when I was invited back to the Influencer Summit, this time on the 12th December in Boston, I was surprised to see that once again, there was a whole day dedicated to cloud. Given the relative lack of progress and visibility in the last year, this caused me some surprise.

And today we heard the news that SAP is in the process of acquiring SuccessFactors in cash for $3.4bn. That’s 170,000,000 used $20 bills in a giant black briefcase. I hope Bill McDermott has been lifting weights. Note that they are massively overpaying – some 49% above stock value. Which sounds totally nuts.

But for my money, SAP’s senior management team has made two excellent acquisitions with Business Objects and Sybase. And for that reason I’m minded to consider that they’re acquiring SuccessFactors for some very good reasons. Here’s what I think they are.

The first is talent. SAP has lost some talent, notably John Wookie, but also various others. Jeff Stiles is leaving SAP in January and cloud marketing was high on his agenda. I believe that SAP doesn’t know how to create, market and sell (profitably) a cloud platform and all of the solutions built so far have lost SAP a ton of money. So acquiring a leader in Line of Business cloud allows SAP – like it has done with Business Objects and Sybase – to acquire great leaders. SuccessFactors CEO Lars Dalgaard will become the EVP of cloud at SAP.

Second up is credibility. Under the leadership of Aneel Bhusri, Workday have started to do in the Human Resources Line of Business what did to the Sales & Marketing Line of Business. Workday don’t have the global reach of say SAP or Northgate Arinso but SAP must be terrified that Workday could get there. This acquisition gives SAP better cloud credibility and the ability to compete with Workday and Northgate Arinso.

Third up is diversification. There’s very little overlap between SAP and SuccessFactors customers and this means they acquire 3500 new customers and 6m users, up front. SAP’s intention appears to be to keep SuccessFactors as a separate business unit and that sounds like it makes sense in the first instance.

What’s also interesting is that SAP America has acquired SuccessFactors, which presumably means that SAP is keeping it away from the SAP AG management structure. I’m pretty certain that this is not a coincidence and SAP is looking to push the balance of power away from the legally constrained German organisation with its arcane labor laws.

In the end, the proof will be in the pudding and acquisition strategy is one thing, and execution is something else entirely. SAP’s ability to execute and integrate SuccessFactors will define its ability to compete in the cloud. Because SAP has overpaid for SuccessFactors, it needs to ensure that the acquisition is a force multiplier to SAP’s ability to execute in cloud, and not just a means to add a few hundred million of revenue to the top line.

My prediction is this is a good move and the SAP senior management team have got what it takes to make it to work. But this is just an initial reaction and as we get into the Influencer’s Summit in Boston, we should get a better feeling for what SAP is really up to. It will certainly be an interesting 2012.