Cloud computing

Oracle to acquire cloud-based-software firm for $1.9bn

Oracle Corp. agreed to acquire online-software maker Taleo Corp. for $1.9bn, its second such acquisition in recent months and the latest sign that the software industry's old guard is embracing a newer model.

Taleo makes software that businesses use to recruit and track job applicants, conduct training and carry out other human-resources functions. Unlike the majority of Oracle's software, which customers install on computer servers they own and operate, Taleo's products are delivered online and accessed via a Web browser.

The model, known as cloud computing or software as a service, is growing quickly, with sales reaching $21.6bn last year compared with $16.6bn in 2010, according to research company IDC. Traditional software is a much larger market—$334.6bn last year, according to IDC—but growing at only 6% annually.

Buying online software has become "a no-brainer," said Jeffrey Chasney, chief information officer and executive vice president at CKE Restaurants Inc. He said CKE, which owns the Carl's Jr. and Hardee's chains, has favored online software over traditional software "for all of the most recent things we've adopted," partly because it is usually less costly and faster to get up and running.

As a result, big software makers such as Oracle have started to develop their own online products. The Redwood Shores, Calif., company unveiled a number of online programs at its annual conference in October and later that month agreed to buy RightNow Technologies Inc., which makes online customer-management software, for $1.5bn.

Oracle, with annual earnings exceeding $8bn and more than $30bn in cash, can easily afford to buy its way into the online-software market. An Oracle spokeswoman declined to comment about the deal, as did a spokeswoman for Taleo.

Oracle Chief Executive Larry Ellison has made fun of online software in the past, saying a few years ago that companies that sell online software don't earn any money and dismissing the term "cloud computing" as "gibberish." But more recently he has overseen his company's push into the area.

Online software for human-resources tasks has been a particularly successful niche. Many companies use software from Oracle and its rival SAP AG for core human-resources functions such as tracking payroll, benefits and head count, but Forrester Research analyst Paul Hamerman estimates that only 20% of Oracle's customers have bought its recruitment and learning software. Instead, businesses have tended to buy these add-on products from online vendors such as Taleo and SuccessFactors Inc., which SAP agreed to acquire for $3.4bn in December.

Oracle and SAP "always seemed to me to be a step behind" the online makers, said Mr. Hamerman, who added that the acquisitions give them a chance to catch up.

Other makers of online human-resources software are rising quickly. Workday Inc., a closely held online human-resources company that also makes other software, in October raised $85m in venture financing and is widely seen as a candidate for an initial public offering of stock. Analysts said Workday is gaining traction among Oracle's customer base, and that the Taleo acquisition gives Oracle a capability that the start-up doesn't have.

Taleo, of Dublin, Calif., said Thursday it had revenue of $309m last year, up 30% from a year earlier. It posted a net loss of $14m. The company's board has approved the sale to Oracle, which the companies expect to close later this year.

(Published by WSJ - February 10, 2012)

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