Dull no more, the German giant is suddenly outgrowing Oracle. Watch out, Larry. Here comes Lars
Lars Dalgaard is pacing the hallway outside a private dining room at Alexander’s Steakhouse in San Francisco. He’s just left a group of Web entrepreneurs and journalists at a dinner during which he did a lot of running off at the mouth. Dalgaard does this often, but this time he is wondering aloud if he said too much.
Everyone wanted to know what’s going on with Dalgaard since he clinched in early December a $3.4 billion agreement to sell his HR-software company, SuccessFactors, to German giant SAP. Dalgaard told the dinner audience he got to keep his San Mateo, California headquarters and has a blank check for acquisitions. Dalgaard told them that SAP was going to double its commissions for selling SuccessFactors software. SAP is the world’s largest seller of business applications, with $19.3 billion in revenue last year, double the app sales of runner-up Oracle. Salesforce.com is a little less than one-ninth its size.
Dalgaard was just getting warmed up. “Watch out, Larry Ellison. Watch out, Marc Benioff. This ain’t your grandfather’s SAP,” he bellowed to the guests. Dalgaard walked out of that room a hero to the entrepreneurs gathered there.
But minutes later, out in the hallway, Dalgaard changes mood. His booming voice softens as he leans forward, compacting his 6-foot-4 frame: “I cried when I told our employees we were selling. I couldn’t help myself,” he says. “How uncool is that? Crying. I was on my knees, literally. But you know, no one can control what I do or say.”
Not even Dalgaard can control what he says. He’ll probably get an executive board seat at SAP. In exchange, SAP is getting the loud voice it badly needs. Having Dalgaard in the trenches lobbing propaganda bombs at Oracle and Salesforce.com, two companies very skilled at grenade-launching, is a clear sign that the formerly stolid German software company is breaking out of its Teutonic shell.
Despite its size, SAP has rarely been part of the conversation in Silicon Valley, costing it buzz and ease of recruitment with salespeople and developers. The company’s enterprise resource-planning software had long been considered a necessary evil for big companies, not an area of innovation. SAP twice tried and failed to launch supposedly nimbler Web software called Business ByDesign, which was dubbed kludgy.
SuccessFactors brings to SAP the culture and expertise of a company that knows how to build software for the Web. Dalgaard’s role at SAP will be coming up with and building new software. He is the least German business exec you could imagine. A kooky, unfiltered 44-year-old Dane with a distinctive accent, he signs e-mails ‘Semper Fi’ to show loyalty and devotion, even though he was never a Marine.
SAP’s acquisition of SuccessFactors is part of a broader consolidation of business software companies that operate ‘in the cloud,’ delivering their services via Web browser. Oracle is in the process of buying RightNow for $1.5 billion. Two weeks after SAP grabbed SuccessFactors, Salesforce acquired Ryppl, a startup that offers employee-performance-tracking software.
While Dalgaard is happy to take on the role of SAP’s hit man, its co-CEOs, William McDermott and Jim Hagemann Snabe, play it straight to keep the company growing at, what has only recently been, an even pace. In January, SAP pre-announced that fourth-quarter results had beat its previous forecast. Revenue was up 10 percent to $5.7 billion. For the entire year, revenue was likely up 14 percent. Compare that with Oracle, which had a mere 2 percent top-line growth in its quarter ending in November, a result that fell well short of Wall Street forecasts.
Oracle blamed the miss on a product transition in its hardware business, as well as an increasingly difficult environment for closing large deals. Salesforce, meanwhile, is still growing impressively, but its recent sales projections didn’t satisfy investors. After the company reported quarterly results in October, investors lopped 30 percent off the stock price in a few days.
SAP is benefitting from brisk sales of the mobile and database technology it bought via the $5.8 billion acquisition in May 2010 of ailing database firm Sybase. Sales of SAP’s HANA data analytics software, which claims to process data 100 times faster than standard methods, reached $200 million this past year.
Another key to the company’s recent revival is a shift in how the company sells software. Traditionally, SAP sold big deals to big-company chief information officers. A little over a year ago SAP started a sales group that focusses entirely on selling lower down the organisational chart.
McDermott believes this new focus on selling to individual corporate units, plus the rapid growth in fast analytics, accounted for a considerable share of the new customers last fall. Of SAP’s software license sales, he figures 40 percent came from customers new to SAP.
“Whether I meet with customers in Abu Dhabi or Sydney, they are telling me they want a consistent platform to run their business on,” he says. “They never want to invest in something they can outgrow. And they want it to be simple.”
SAP’s recent history has been anything, but simple. Before McDermott and Snabe took over as co-CEOs in February 2010, SAP was run by Léo Apotheker, who was widely disliked for his un-Germanic sacking of 6 percent of the workforce and one too many Web product flops. Apotheker himself was sacked after barely a year on the job. (He was later tapped to run Hewlett-Packard and bombed out there after just under a year.)
After he and Snabe took over as co-CEOs, McDermott was flying around the world to see customers and convince them SAP was an innovator.
Meanwhile, Oracle was working toward convincing a federal jury in Oakland that SAP was a thief. A newly acquired SAP subsidiary called TomorrowNow had been accused of stealing code from Oracle in an attempt to win over its customers. In November 2010, the jury awarded Oracle $1.3 billion in damages. A federal judge in September cut that award to $272 million. Oracle may still seek a new trial.
SAP’s biggest threat may come from old foes. PeopleSoft co-founder David Duffield and a protégé Aneel Bhusri are set to take their cloudbased business-software firm, Workday, public this year. With sales around $300 million, doubling from 2010, Workday is as big as the company Dalgaard just sold to SAP.
But SAP isn’t worried. It has its Danish pit bull now. Dalgaard says that Salesforce, which is mostly still a sales-automation software company, is a “one-trick pony.” Salesforce Chief Marc Benioff shoots back that Dalgaard doesn’t know what he’s in for. SAP is “a large German bureaucracy run by a union,” says Benioff. He wishes Dalgaard the best: “Other innovators haven’t fared well there.” As for Oracle, Dalgaard says it screwed up when it bought Sun Microsystems. (Oracle refused to comment.) “Hardware is a sh**ty business. Look at HP and Dell,” says Dalgaard, dumping on two companies that happen to be rather large partners with SAP. You can disagree with Lars, but no one tells him what to do or say.