Talent Management Systems (TMS) Market Analysis
Author: Steven Zolman
Much has changed since our first detailed analysis of the talent management markets back in 2008. The software oligopoly of SAP and Oracle have significantly changed their views from their previous position that HR software was best served up as part of a monolithic software suite that was on premise in their customer’s data centers to now offering cloud solutions through SuccessFactors and Taleo by acquisitions, respectively.
Oracle CEO, Larry Ellison is sort of infamous for his outright dismissal of the cloud, only to later capitulate on his earlier provocative statements and launch Oracle high into the cloud with both arms up as most recently and clearly evidenced by the $1.9 billion acquisition of cloud based Taleo in January 2012, which offers employee performance management SaaS. This move continued Ellison’s shift on this issue which was also noted with Oracle’s previous acquisition of cloud based RightNow Technologies, which offers customer relationship management (CRM) SaaS.
Oracle’s higher flight into the clouds with the Taleo acquisition may have been a defensive reaction to SAP’s $3.4 billion acquisition of SuccessFactors in December 2011, widely regarded as the market leader for cloud based providers that offer employee performance management SaaS.
In NET(net)’s experiences previous to these two notable acquisitions, we had been seeing SAP and Oracle lose head-to-head battles with HR cloud company Workday, as well as smaller SaaS based companies like SuccessFactors and Taleo in areas like employee performance management, and it is our view that SAP and Oracle did not want a repeat of the significant success of Salesforce.com, which captured huge market share gains against Oracle’s CRM offering Siebel, and SAP’s CRM as well. From our perspective, these moves are clearly designed to prevent the next Salesforce.com from emerging and capturing significant market share, costing SAP and Oracle significant opportunities in the process. Continuing market movement to cloud based solutions and SaaS providers adds more fuel to the fire in regards to companies that are choosing to deploy more flexible solutions like these, rather than buy more SAP engines or Oracle modules.
In many cases, clients already own the SAP or Oracle software, but when they evaluate the costs of implementation alone, they are commonly surprised to learn that those costs alone often outweigh the total costs of the SaaS offering, which includes facilities, networking, servers, storage, virtualization software, application and database software, backup and recovery options, and application support and management services. Due to the significant costs of even deploying enterprise software from SAP and/or Oracle, more nimble cloud based SaaS providers are capturing market share.
Oracle sure likes to win, and in this case, they may have done it again. Oracle’s $1.9 billion price tag for Taleo is 6 times its annual revenue, versus SAP’s $3.4 billion price tag for SuccessFactors, which is 11 times its annual revenue. Oracle’s acquisition of Taleo also potentially plugs gaping holes in Oracle’s capabilities, notoriously known for being very weak on recruitment and on-boarding, two areas where Taleo is strong. Also, even though Oracle will combine parts of Taleo into its own HCM, it will continue to offer Taleo as a stand-alone solution, which conceivably allows even core HRMS SAP customers to continue using Taleo for Talent Management. What other choice did they have really?
With both SAP and Oracle committed to this space, it’s almost certain that this industry will continue to consolidate as SAP and Oracle aren’t readily willing to allow smaller and more disruptive firms to gain significant market share unchecked. For now, Workday seems safe as it is focused on an October IPO – which, if successful, could actually make it a firm that has a strong ability to consolidate other industry players and offer a true SaaS only solution model to compete head-to-head with SAP and Oracle in HRMS. Also interesting to consider is Salesforce.com, whose acquisition of Rypple indicates that they may have their own ambitions in HCM, and may themselves become a market consolidator of TMS offerings.
Who will win this race towards industry consolidation? It’s hard to say, but it’s also hard to bet against Oracle. They seem to always make better, smarter, more cost effective acquisitions, and their financial health remains a huge asset for this type of market consolidation activity. Workday and Salesforce.com are also very interesting as they seem to have the advantage from a pure SaaS model perspective. SAP has been somewhat surprising in that they have made decisive, market leading moves, most notably with the acquisition of SuccessFactors. In previous years, SAP had not been well known for making market leading or even successful acquisitions for that matter.
What about industry consolidation in the TMS space? Key players to watch in our view include Saba, SumTotal and SilkRoad among others. With solid TMS offerings, they may offer an attractive option to Workday or Salesforce.com if they want to accelerate their market positions, and they may serve as a good defensive play for SAP or Oracle if they want to continue to block others from gaining a significant market share foothold.
In the end, cloud based SaaS solutions have done well in this category, and now that the market leaders have been acquired by the software oligopoly of SAP and Oracle, it likely indicates continued industry consolidation. With the emergence of Workday and the continued performance of Salesforce.com, it is setting up an interesting next phase, which will likely continue to change the landscape of this market considerably.
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