Last updated: October 24, 2011 6:44 pm

Oracle to buy RightNow for $1.5bn

Oracle has mounted one of its biggest acquisitions yet in the fast-growing field of cloud computing, a business that was once denounced by chief executive Larry Ellison as “complete gibberish” and merely the product of technology industry fashion.

The US maker of database software on Monday announced an agreement to buy RightNow, a US company whose internet-delivered service is used by companies to manage customer services, for $43 a share in cash, or $1.5bn after taking RightNow’s net cash into account.

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The deal came on the same day that Workday, one of the best known among a group of private “cloud” software companies, announced it had raised $85m in a fundraising round that one person close to the company said had valued it at $2bn.

Both companies are engaged in software-as-a-service, which involves providing a service to companies for a regular subscription rather than selling them software to run on their own computers.

For Oracle’s outspoken chief executive, the RightNow deal represents the culmination of a rhetorical about-turn that has been under way in recent months. Mr Ellison denounced early talk of cloud computing as “idiotic” and claimed it was nothing more than the marketing hype that often accompanies new advances in corporate technology.

“The computer industry is the only industry that is more fashion-driven than women’s fashion,” he said two years ago.

Growing interest among companies in farming out parts of their computing needs to other companies rather than handle them all in-house, however, has led Mr Ellison to change tack and increasingly adopt the marketing language as well as the technologies of cloud computing, most recently with Oracle’s announcement last month of what it called its “public cloud” service.

The purchase of RightNow will throw Oracle more directly into competition with Salesforce.com, the leader in selling salesforce and customer service software as a service and a company in which Mr Ellison himself was an early investor. It also puts more pressure on German software maker SAP to move more aggressively into cloud computing, according to Rick Sherlund, software analyst at Nomura.

The high valuation accorded to Workday, meanwhile, marks the latest vindication of the course taken by Dave Duffield, an old rival of Mr Ellison, after Oracle bought his former software company, PeopleSoft, after a hostile battle in 2005. With Workday, Mr Duffield set out to reinvent the PeopleSoft applications software business as a cloud-delivered service.

Oracle said its offer for RightNow, which represents a 19 per cent premium to the closing price at the end of last week, was expected to close late this year or early in 2012. The Bozeman, Montana-based company reported profits of $194,000, or 1 cent a share, in the second quarter on revenue of $58.4m.

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