Oracle Sticks Head in the Cloud

Oracle, having lagged behind startups, is spending billions to move into cloud computing.

Image: iStockphoto

A $1.9 billion purchase announced by Oracle this morning shows the largest business software companies aren’t willing to give up their market to rising startups without a fight.

Oracle announced that it planned to purchase Taleo, a provider of cloud-based personnel services, for $46 a share.

"Human capital management has become a strategic initiative for organizations," said Thomas Kurian, executive vice president of Oracle Development, in a release. "Taleo's industry-leading talent-management cloud is an important addition to the Oracle Public Cloud."

The announcement shows that the biggest business software providers are waking up to the threat posed by such growing cloud-computing companies as Salesforce, Yammer, Jive, and Box.net. At the end of last year, Oracle’s main legacy rival, SAP, agreed to buy SuccessFactors, another cloud-based human-resources software company. That deal has been delayed as U.S. regulators investigate it.

The planned purchases show the biggest players in business software are waking up to the threat posed to them by companies that provide software to businesses over the Internet rather than installing it on other companies’ servers.

Software sold over the cloud is often less expensive than that provided by legacy players like Oracle, since it allows firms to use the software without buying the expensive equipment to run it.

But as such companies as Salesforce grew, Oracle’s boss, Larry Ellison, said they didn’t make much money.

Well, apparently they make enough that Ellison has had to change his mind. In addition to the Taleo purchase announced this morning, Oracle has in recent months announced that it would make more of its software available in the cloud, and has also announced the purchase of RightNow, a cloud-based customer-service management software company, for about $1.5 billion.

SAP has, in addition to its planned purchase of SuccessFactors, become an investor in cloud-storage startup Box.net.

What all this means for the new companies that pioneered providing business services to the cloud is mixed. They’ll face competitors with very deep pockets like Oracle and SAP.

But an Oracle or SAP, in addition to being a formidable competitor, could also be a very generous purchaser of companies whose founders and investors are looking to cash out.