Talent Management Systems (TMS) Update

Author: Steven Zolman

Last July, NET(net) analyzed the consolidating Talent Management Systems market following SAP’s acquisition of SuccessFactors in December 2011 and Oracle’s acquisition of  Taleo in January of 2012.  Since then, our prediction of further market consolidation continues to materialize.  The most recent update is as a result of IBM’s acquisition of Kenexa for $1.3 billion in August, which appears to position IBM to compete more directly against Oracle / Taleo and SAP / SuccessFactors.  Kenexa has been struggling to make money since 2007.  Last year, they generated revenue of $283 million (a 44% increase year over year), but still managed to post a $3.8 million loss for the year.  During the first half of 2012, Kenexa’s revenue was down $4 million from the previous year on revenue of $164 million.

We are still expecting to see increased activity in this space from Salesforce.com, whose acquisition of Work.com (formerly Rypple) indicated its intention to offer HCM, and may also indicate that it intends to be a market consolidator of TMS offerings.  We also expect to see some additional activity from Workday, but likely not until after it completes its IPO, still scheduled for this October.

By comparison to Oracle’s $1.9 billion price tag for Taleo – which is 6 times its annual revenue, and SAP’s $3.4 billion price tag for SuccessFactors - which, is 11 times its annual revenue, IBM’s acquisition of Kenexa scores very well at about 5 times annual revenue.  The recent downward trend in revenue is more concerning than the inability to make money for IBM, but the belief is that Kenexa needed IBM to expand the visibility of its offerings more now than ever – especially after the SuccessFactors and Taleo acquisitions.

We believe further industry consolidation will continue 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 IBM, SAP or Oracle if they want to continue to block others from gaining a significant market share foothold.

We further believe that emerging market players will try to capture considerable space in this market, and are seeing feverish development efforts from the likes of work.com and others.  With many of our clients listing HCM and talent management among their most strategic initiatives, it’s no wonder why.

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