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Oracle to Buy Taleo, Speeding the Shift to the Cloud

By Quentin Hardy

Oracle’s planned purchase of Taleo is the biggest sign yet of how things are changing because of cloud-based computing technology. The effects will be felt in the workplace, on Wall Street, and not least within Oracle itself.

Early Thursday, Oracle announced that it would pay $1.9 billion for Taleo, a provider of talent recruitment software delivered as a service over a cloud of computers on the Internet. The company declined further comment on the deal.

The announcement followed December’s purchase by SAP, Oracle’s rival, of Taleo’s rival, SuccessFactors, a human resources software company, for $3.4 billion. In October, Oracle agreed to pay $1.43 billion for RightNow Technologies, which handles customer service over the cloud.

Oracle paid less of a premium to the stock price for Taleo than SAP did for SuccessFactors, mainly because of a run-up in Taleo’s shares since the SAP/SuccessFactors deal. People thought Taleo was in play.

Seeing three small young tech companies sell for a combined $6.7 billion in four months is an exceptional endorsement of cloud computing when many established businesses still wonder whether and how quickly to commit themselves to the new computing system.

It may, in the short run, also create bubbly expectations for the field. These are the new benchmarks. Salesforce and NetSuite are the two biggest publicly traded cloud computing services companies so there is not a lot of information to go on, and the pressure will be to value things on the high side.

It is notable that all three of the companies Oracle and SAP bought are involved in “people-facing” businesses. One reason for this is that these functions are not considered by traditional business to be “core,” relative to things like finance or manufacturing. No one really cares if the system goes down for an hour. As people grow more confident in the cloud, there will be more offerings like NetSuite, which has some financial and resource planning functions.

In fact, these kinds of social functions may become among the most critical as businesses adapt to the cloud. As I wrote last month, many aspects of social media, including rapid collaboration and knowledge exchange, will be critical parts of cloud-based business. Salesforce has made acquisitions of its own to offer tools for what it calls “the social enterprise.”

Since human resources touches every employee, both SAP and Oracle want these H.R. companies as a way of rapidly enabling workers to have access to other applications, which they are moving to the cloud. Oracle is developing H.R. products through its Fusion program, but lacked recruitment functions. It probably also needed to have a cloud product right away, and wanted to show it was keeping up with SAP. Oracle has $35 billion in cash and has to do something with it.

One more area that cloud computing changes, going right to Oracle’s heart, is the database. Oracle rose in the working world by connecting desktop computers to servers in some closet that contained a powerful relational database. It enabled most of the big software applications of the last 20 years. In the cloud world, new kinds of databases are moving in, and Oracle may not compete as easily with just its core technology.

What Oracle does possess, however, are strong business relationships, an exceptional sales force, and a large number of software applications that it has amassed through internal development and an 10-year campaign of acquisitions. The sales team can almost certainly start offering Taleo to customers as soon as the deal closes. The applications, which are familiar to millions of workers, can in many cases be modified to some kind of cloud service.

Played correctly, the Taleo acquisition could help Oracle transition from one generation of technology, where it was a big database player that also sold applications, to another, where it is a comprehensive applications provider that also offers a database with important legacy functions. Salesforce, after all, sells software as a service through the cloud, but much of the company runs on Oracle relational databases.

Original article can be found here.

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