One year later, SAP hasn't blown it with SuccessFactors

April 12, 2013: 7:13 AM ET

But the software giant has set ambitious goals. Can it reach them?

Hasso Plattner, SAP co-founder and chairman of the company's supervisory board

Hasso Plattner, SAP co-founder and chairman of the company's supervisory board

FORTUNE -- It's been over a year since German enterprise software giant SAP shelled out $3.4 billion for SuccessFactors, a Silicon Valley-based maker of human resources software. Since then, engineers on both sides of the Atlantic have been hard at work getting SuccessFactors's cloud-based apps to work alongside SAP's on-premise offerings, so that customers can more easily adopt the newer software.

What else has changed? At the time of the acquisition, SAP (SAP) said SuccessFactors would continue to run as an independent company, but that strategy has shifted. SuccessFactors has been folded into SAP's newly formed "Cloud Business Unit," which also includes a handful of other cloud-based applications. SuccessFactors CEO Lars Dalgaard now leads the company's entire cloud business (with the exception of another recent cloud acquisition, business commerce network Ariba, which remains independent). To help him oversee the new business unit, Dalgaard recently hired two new presidents: Jeff Lautenbach, who is responsible for the company's cloud-based customer relationship management software, and Shawn Price, who heads up SuccessFactors's flagship HR software. (Meanwhile, some executives have departed post-acquisition -- Doug Dennerline, former president at SuccessFactors, left last year, as did the company's former CFO and CMO).

The new leadership needs to convince SAP's customer base to buy SuccessFactors (and other cloud-based) products, and to convince customers that SuccessFactors was brought in to buy into other SAP offerings. To get sales reps to work together and sell both cloud and on-premise purchases, SAP has been "double comp-ing" all cloud deals, meaning it is paying a commission to both the traditional software reps and cloud salespeople.

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But can all of this rejiggering and integrating get SAP to reach its stated goal of 2 billion euros in cloud revenue by 2015? The company says its annual cloud revenue run rate is already approaching 850 million euros, though cloud revenue from its most recently reported quarter was still a small fraction of the company's overall sales (SAP next reports earnings on April 19). And even if Dalgaard and the company's new cloud business presidents are able to meet their revenue target, it's not clear what that will do to the number of highly lucrative, on-premise deals SAP is known for.

Some customers, though, seem happy with the new arrangement.

"It used to be that the two [SAP and SuccessFactors] were competing on many fronts," says David Crumley, a VP at Coca Cola Enterprises, which uses a number of SAP's on-premise and cloud-based applications. "Now they're coming together and we're seeing better product integration between the two suites."

In addition to its newly formed cloud business, SAP is also pushing a new in-memory database technology called HANA and selling mobile products to enterprise customers, all part of the company's plan to move beyond its legacy business and invest in newer technologies. Shelling out $3.4 billion -- a significant premium -- for SuccessFactors and its CEO Dalgaard was a big part of that plan. With SuccessFactors now officially folded into the larger company's cloud business unit, a growing leadership team that reports to Dalgaard, and sales people who are actively selling both traditional and cloud-based software, we may soon find out whether that bet will pay off.

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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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