Let the cloud wars begin

February 9, 2012: 11:59 AM ET

Oracle's $1.9 billion acquisition of cloud-based talent management software maker Taleo is a shot across the bow to rival SAP.

oracle_headquartersFORTUNE -- Take that, SAP. Oracle just announced it is buying Taleo, maker of cloud-based talent management software, for $1.9 billion. The move comes just two months after rival SAP said it would acquire HR software provider SuccessFactors for $3.4 billion.

Both tech giants have been buying their way into the cloud. Last October Oracle (ORCL) bought cloud-based customer service provider RightNow Technologies, and now it is rounding out its human services software-as-a-service offerings with Taleo.

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A recent report from JMP Securities analyst Patrick Walravens sums up the strategy well. "We believe that larger enterprise software vendors such as Oracle, SAP and IBM have been losing share to their smaller, faster growing SaaS competitors that are increasingly being accepted in the market. Increasingly, we believe these companies are viewing acquisitions as a way to stem market share losses and position themselves better in the competitive SaaS marketplace."

So-called talent management software (and other tools used to manage employees) are particularly attractive to large players like Oracle and SAP (SAP) . While most enterprise customers won't switch their core financials or supply chain software to the cloud, they're much more willing to make the plunge with HR tools.

Taleo has been around since 1999 -- before people were talking about the cloud, as the company likes to point out.  Its software allows HR departments to handle recruitment, performance management, learning management, and compensation. It also has some social collaboration features baked into its software. "Oracle is moving aggressively to offer customers a full range of Cloud Solutions including sales force automation, human resources, talent management, social networking, databases and Java as part of the Oracle Public Cloud," Thomas Kurian, EVP of Oracle Development, said in a release. "RightNow's leading customer service cloud is a very important addition to Oracle's Public Cloud."

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The Taleo acquisition leaves one large, independent player in the human capital management space: Workday. But as attractive as Workday is (it has reportedly turned down multiple acquisition offers), all signs point to the company filing for IPO sometime this year. As for Oracle's acquisition of Taleo, the deal is expected to close mid-year. Let the cloud wars begin.

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About This Author
Michal Lev-Ram
Michal Lev-Ram
Writer, Fortune

Based in Silicon Valley, Michal Lev-Ram covers enterprise and mobile technologies for FORTUNE. Prior to joining FORTUNE, she wrote for CNNMoney, Fast Company, Popular Science and other business and technology publications. She was also a staff writer at Business 2.0 and holds a B.A. in journalism from San Francisco State University.

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