Oracle gets more cloud footing with buy

The company will own a full range of cloud-based products with its acquisition of RightNow Technologies.

By Trefis Nov 10, 2011 2:35PM
Oracle (ORCL) announced its purchase of RightNow Technologies (RNOW) for $43 a share, or $1.5 billion net of cash and debt, late last month. The purchase price reflects a 20% premium over RNOW's stock price at the close of market on Oct. 21.

Oracle purchased the company to get a better footing in the cloud-based information-technology marketplace, where it competes with Salesforce.com (CRM) and other firms. Oracle also competes against enterprise software makers like SAP (SAP) and Microsoft (MSFT) in the enterprise market. Microsoft owns and publishes Top Stocks, an MSN Money site.

RightNow offers cloud-based customer service and a full range products, including sales-force automation, talent management and social networking. Given that Oracle owns Java, it should be able to substantially expand RightNow's product offerings. Furthermore, Oracle will be able to offer more resources, which should add to RightNow's organic growth over time.


Customer-relationship management is a part of the application software business that accounts for around 23% of Oracle's $40 Trefis price estimate, which stands nearly 20% above its current market price.


See Trefis Analysis of Oracle


Oracle's revenue has historically come from licenses for database, applications and middleware software (that are often deployed on the customers' local servers). But cloud computing is quickly becoming the preferred way for businesses to access these same products and services over the Web at a lower cost than pricey in-house systems.


Trefis Break-Up of Oracle Stock

Oracle's interest in cloud computing further validates the importance of the Software-as-a-Service (SaaS) industry. SaaS is largely seen as a disruptive technology and many companies are betting it will become industry standard in the coming years.


SalesForce.com is arguably the leading SaaS provider for businesses. However, Oracle's acquisition of RightNow sends a strong signal that it intends to compete head-on with SalesForce in this market.


When the acquisition is complete, Oracle will be better positioned in the emerging cloud-based marketplace. Adapting to market needs quickly through selective acquisitions bodes well for the company's long-term growth opportunities.


Shares of Oracle's stock rose more than 2.5% after the deal was announced (outpacing the overall movement of the S&P 500 index), signaling investor approval.


Expect to see more merger and acquisition activity in the information-technology industry as larger companies compete for market share in the cloud. Though this deal, Oracle is expanding its product line and becomes better able to both attract new and retain existing customers who demand cloud-based SaaS offerings. Expect to see Oracle's stock price grow accordingly.


See here for a more detailed breakdown of Oracle's share price.


This article was submitted as part of our Trefis Contributors program.


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