Oracle's $1.9bn Deal to Buy Taleo

We believe that this acquisition is furthermore evidence of Oracle's continued focus on its cloud computing infrastructure. The acquisition is expected to expand Oracle's public cloud offering. The public cloud, which originally comprised existing products including fusion applications, expanded the company's penetration into the SaaS application space.

Earlier, Oracle had locked horns with SAP AG for acquiring California-based cloud-computing software company SuccessFactors Inc. , a developer of software used by firms to evaluate employee performance. But, afterwards losing out to SAP, Oracle was on the lookout for a similar buying possibility in the SaaS space.

The increasing adoption of cloud computing

SaaS has gained immense importance due to the increasing adoption of cloud computing. According to market innovation firm Gartner, sales of online software, which touched $10 billion in 2010, is expected to more than double to $21.3 billion in 2015, much faster than traditional software.

Moreover, according to technology firm Forrester, cloud computing revenue is expected to increase from roughly $41.0 billion in 2011 to $241.0 billion in 2020. In the meantime, Gartner projects revenue of $148.8 billion by 2014, higher than Forrester's forecast of $118.7 billion for the same period.

The acquisition front

Oracle remains very active on the acquisition front and as a rule targets companies that can be integrated within its existing or new product lines. From place to place, the company as well acquires organizations with competing technologies with the intention of eliminating rival products. We believe that acquisitions in the field of data management and cloud computing will be beneficial for Oracle over the long term.

However, Oracle faces significant integration risks due to the rapid pace of acquisitions within a short span of time, in our view. We as well note that Oracle is a late entrant in the field of cloud computing compared to peers Salesforce.com and Microsoft Corp .. Hence, it might face tough competition. In addition, diminishing margins from its new software licenses and sluggish hardware sales are nearly-term headwinds.