How To Interpret Today’s Announcements

First, let me congratulate the Oracle HCM product team.  They’ve had a tough job over the past 5 years walking the line on Fusion while remaining committed to Oracle’s existing applications.  As regular readers of this blog know, I have long been critical of Oracle for its lack of transparency around Fusion.  As I have long said, though, Oracle has a great advantage in the market in that they have time, money, and resources…something many other companies lack.  Although this announcement is long overdue, I credit the Oracle team for what appears to be a thoughtful introduction of Fusion.  With today’s announcement, hopefully this opens a new chapter at Oracle to be more open with customers and the market around Fusion and other Oracle existing applications. 

Although Oracle Fusion Applications are code complete, meaning the baseline products  are complete and in beta testing with early adopters, general availability is scheduled for “next year” (translation…Q4 2010 is highly likely).  A couple of other highlights from today’s announcement…

• Fusion Applications can be replacement or new.  Companies will not be forced to go to Fusion and will be able to chose what “modules” to buy.
• Oracle will continue to support existing applications under its Applications Unlimited program for the next 10 years
• Fusion Applications will only be available for customer on PeopleSoft Enterprise 9.1 and Oracle EBS (presumably 12 and above)
• Fusion Applications are “SaaS-ready”.  Although they did not articulate what that means, I would anticipate Fusion will available for on-premise and hosted delivery model.  My guess is that they will offer a multi-tenant SaaS solution but it will only be available through partners (as SAP does with NorthgateArinso).  I do anticipate, though, their will still be significant work on the end customer side to pull down the new updates and enhancements and actually deploy them.  Not all customers will be on the current version, limiting the scalability and innovation cycle.

Key Capabilities with Fusion Applications include:

• Role-based architecture
• Widget-like usability
• Embedded analytics
• SOA framework

Ray Wang from Altimeter Group shares some of the screenshots below.

What Fusion Applications Means for Customers

For existing PeopleSoft customers comes the critical decision — do you re-implement to PeopleSoft Enterprise 9.1.  It appears that 9.1 will be the core foundation to which Fusion applications can be built and deployed off.  Since 9.1 was just released, it gives most companies substantial time to begin 9.1 implementation before planning for Fusion Applications.  For the 75%+ of PeopleSoft customers not on 9.0, a re-implement might be the right decision (sidenote…if you chose to migrate to 9.1, please consider process transformation first). 

One of the great advantages Oracle has with Fusion is owning the middleware stack.  This is important because as the core system of record, the ease of integration will be critical for both Fusion and non-Fusion applications.  Fusion Applications must, though, have configuration flexibility that has been previously unavailable in existing Oracle applications.

Oracle is not without its challenges with Fusion.  First, most companies will still likely customized their core, non-Fusion applications such as 9.1.  What this means is that even with tightly integrated Fusion applications, those customizations to the core will force many companies significant time for regression and user acceptance testing before any new or updated applications.  For those that remain committed to their existing versions, I would not anticipate any significant functional enhancements as part of Applications Unlimited.  Oracle does not have a recent track record for delivering “on-time”.  9.1 has been delayed and my fear is that when the Oracle Fusion Applications become generally available, their will only be a few modules available.

Secondly, Fusion is not a pure multi-tenant SaaS solution.  With the continued commitment around Applications Unlimited for the next 10 years, Oracle will be required to support many products at many customers, creating lots of distraction ultimately affecting their pace of innovation and new functionality.  I would still presume that their update paths (major releases every 2-3 years)  will not change with Fusion. 

Lastly, Oracle needs to overcome “field challenges”.  Many customers have lost their customer intimacy, particularly PeopleSoft customers, and many of those customers have become disheartened with Oracle’s strong-armed tactics around maintenance and upgrades. 

Today’s announcement will inevitably create waves in the market.  Is this the dagger in SAP’s heart?  Many seem to think SAP will not be left for dead and it will be extremely difficult for them to compete against the fortitude of Oracle offerings.  This announcement will also affect other vendors notably SuccessFactors and Workday (BTW…I think Taleo is probably the least affected vendor from today’s announcement due to their significant market share lead in recruiting).  For SuccessFactors customers, will their solution continue to be compelling against more competitive and relevant Fusion Talent Management Applications where the core can be much more highly leveraged?  I frankly think SuccessFactors is the vendor most at risk of losing customers that may switch to Fusion Applications.  Can Workday’s innovative approach to design, functionality,  delivery and customer commitment continue to outpace a more compelling offering from Oracle?

One thing I do know is that with today’s announcement, enterprise decisions have become even more difficult and companies lacking a sound and unified long-term strategy will drown under the organizational complexities of process and technology. 

Now that I’ve shared my comments, what do you think?  If you have any specific questions, please feel free to reach out to me via email or Twitter (@jcorsello).

The prospective acquisition options are all over the map.  They could acquired another talent acquisition vendor to really expand their market share and leadership position.  They could acquire another talent management suite provider.  They could enter into new categories such as workforce planning or social collaboration.  They could extend into  new emergent  “edge” technologies that surround the talent acquisition core.

Acquisitions are never easy.  One must assess a company’s profitability or potential profitability.  One must analyze how shareholders will response to the acquisition.  One must complete significant due diligence in the technology and identify how it will fit into the acquirer product portfolio.  The list goes on. 

One could buy a company for the “now” which means it will likely be accretive and increase the acquiring company’s earning per share (EPS).  These acquisitions tend to be favorable for the company’s share price because the price paid by the acquiring firm is lower than the boost the new acquisition will provide to the acquiring company’s EPS.  The challenge is that their aren’t many company’s out there in our space that fit this bill and those that do typically have older technology that will require either retrofitting or sunsetting (such as what Taleo did with Vurv).

One could buy a company for the future.  This means the company will likely be smaller and the technology less proven.  In this scenario, the acquiree will often demand a price premium.  The potential upside and market opportunity, though, could provide significant differentiation and innovation.  This can be a riskier strategy since these acquisitions tend to be less favorable with shareholders since they do not generate immediate cash.

The last alternative is buying a distressed company where the assets or “pieces” are purchased at a fraction of what has been invested.  These acquisitions tend to be cheap but often worthless at the end of the day because the technology and customers prove ultimately worthless.

If I was Taleo, I would chose Door #2, or look at acquiring some of the new emergent technology company’s out there.  Jobs2Web comes to mind as a company with great momentum and a growing, market-accepted product  In fact, the company was recently recognized as one of the fastest growing private companies by Inc. Magazine (#228 on the list to be exact).  [Sidenote: Knowledge Infusion was also on the Inc 500/5000 list]. Of course, its easy for me to say this sitting from the sidelines without having to answer to shareholders.

With all of this said, Taleo is likely already staring their next acquisition in the face as they currently have a strategic investment in Worldwide Compensation (WWC) with the option to purchase the company outright in the near future.  They did focus their last earnings call on how well the partnership with WWC was going.  A signal?

Acquisitions are alway fun foder for folks like myself but I always caution customers to pay much attention because they can have many  long-standing ramifications (both good and bad) to their client relationship.

If you were a Taleo customer, who would you like to see them buy next?

This year the conference is Sep 30 – Oct 2 in Chicago.  We all know the economy stinks and budgets make it difficult to travel and attend conferences.  I think the conference is so important for HR decision-makers I wanted to offer two additional incentives to attend the conference. 

First, we have a promotional code that can save you $470.  If you register now, enter the promotional code KNOW, before September 18 to redeem your savings.  Second, for the first 20 people that register with our promotional code, we are giving away a 6 month premium membership to the Knowledge Infusion Center of Excellence.  How can you not pass up this offer?

If you are attending the conference, don’t forget to stop by my New Technologies session on the first day.  We have some fun things planned for it.

Private Equity & HR Technology

More recently, a few notable private equity firms have made acquisitions in the HR technology space including:

2007  - Kronos acquired by Hellman & Friedman

2008 – Authoria acquired by Bedford Partners

2009 – SumTotal acquired by Vista Equity Partners

I am no financial expert so I’m not going to pretend to know or even describe the complexities of the investment model.  Below is a simplified view of how private equity works.

  Source: Wikipedia

What I do know though is that when private equity  firms take full control of a vendor, it is not without purpose – whether its restructuring the company, a buyout in attempt to preserve revenue and margin, or a complete reorganization to maximize the assets and value.

Why Should Customers Care About Private Equity Acquisition of their HR Vendor?

First, because it often changes the vendor very quickly and can have immediate, impacting results.  In nearly every instances, the vendors focus  is placed more on financial performance than product enhancement and innovation.  In addition, and more importantly, the private equity firms are making an acquisition because they anticipate a larger return on the investment.  As a result, return on investment requires an exit event which means the firm must sell the company either to another company or via an IPO.  It is important to note that private equity investors are not typically long-term investors and often seek to achieve their return objectives within 4 years.

In the case of Kronos, the changes weren’t necessarily significant, but it has allowed them to reorganize the company.  I wouldn’t be surprised if the company attempted to go public again (they were a publicly-traded company before H&F acquired them and took them private).  Conversely, Authoria’s investors, Bedford Partners, quickly sacked the management team and have seemed to lose a lot of momentum in process.  Right now, much speculation is circling around SumTotal as their private equity investors have stated their focus to preserve existing the maintenance stream (my words not theirs) and loo to increase margins.   Just last week, and immediately following their merger completion, SumTotal let go of their CEO in favor of solely a new president. 

Is Private Equity Good for HR Technology Vendors?

The easy answer is that it varies.  I have concluded that private equity acquisition is only good in the HR technology market where:

1. The vendor is highly mature and profitable
2. The market is well-defined and has little fragmentation
3. The market is highly mature and well beyond an early adoption or early majority stage (see below)
4. The vendor faces few competitive threats

Source: Knowledge Infusion, 2009

In my opinion, private equity acquisitions in talent management is very risky today because the market is still relatively immature, very fragmented, and littered with lots of competition.

What do you think?  Is private equity investment in HR technology a good thing or bad thing?

Our friends at Bersin & Associates are conducting some great research to identify customer satisfaction and experience among the Talent Management vendors. 

Please help and complete the Survey Now.

My post on Twitter at 11:40A…

…within one minute, @ComcastBill responded to provide assistance…

…a few communications later, he diagnosed my issue…

…resulting in schedule a tech to my house the next day in a 2-hr window.

If you are not on social media platforms such as Facebook and Twitter– listening and engaging with customers– you are missing a great opportunity to build a solid client relationship.

Thanks @ComcastBill!

The branding of “SaaS” or “in the cloud” has quickly become table stakes for all vendors.  Right now, though, we are seeing lots of  wolves in sheep’s clothing.  Every vendor under the sun, including the big ERP vendors, are now branded some or all of their applications as Software-as-a-Service (SaaS).   This proliferation of “…look at me, I am SaaS” is creating more buyer confusion than ever.

As a result, I offer three questions every buyer of HCM software should ask any vendor walking in their door to determine if they are truly a SaaS vendor:

• Do they offer utility-based pricing? - Is the vendors pricing model based on how the application is being used?  Most vendors today offer subscription-based (per employee, per month) as the standard for utility pricing.  Utility-based pricing is important because allows customers to easily and cost-effectively ramp up or ramp down usage of the application.
• Do they have a multi-tenant infrastructure? - Is the entire infrastructure completely share (including a shared data model)?  While many would argue multi-tenancy has less relevance for large, global companies, a shared or multi-tenant infrastructure model is important for a vendors’ cost efficiency but even more important as it enables the vendor to maintain its architectural integrity and easily deliver new product releases to many customers at once.
• Are their product updates seamless? - Meaning are the product updates automatically pushed to customers and requiring those customers to accept the new version? (Note: the functionality of new updates are typically turned off and configurable by the customer).  Seamless updates ensure all customers are operating off of the exact same code base.  If a vendor says they do not force updates, they are not SaaS, because this means they are running multiple versions of the product code for different customers.  I think this is the kiss of death, and even worse than an on-premise delivery model, because the vendors is forced to support and maintain each customer uniquely.

Right now, I think only a few HCM vendors (less than 5) would qualify under my views to be true SaaS.  Sure…I’m a purist but too many vendors sales reps are misrepresenting how they are doing SaaS and most buyers today are overwhelmingly unknowledgeable about the long-term repercussions of the impacts of their SaaS deployment.

Thoughts?

What impressed me about SuccessFactors back then was that they were different.  The product was intuitive, simple and easy to use…all characteristics that were truly leading the market at the time.  They were on the bleeding edge of usability and their  SaaS delivery model, although not unique, was true multi-tenant.  They were also pioneering the market in talent management functionality…goals, performance and succession management. 

Fast forward to 2009.  The market has changed.  Competition is coming from every angle.  Modular functionality, like performance management, has been somewhat  commoditized and replicated in some shape or form by most every talent management vendor.  But has SuccessFactors continued to be “different” while everyone was catching up?

Over the past few years, many would argue SuccessFactors has not maintained their innovative ways.  Sure, they have gone wider (more modules) and deeper (great functionality within the modules) than most of their competitors.  With recent ho-hum releases recently such as EasyReviews, Business Performance Accelerators, and Stack Ranker, though, the company’s innovation has been relegated to what one client has recently described as, “…forms and changes in provisioning to support marketing programs”.

Is the innovative culture still there?  I think so but it will be interesting to get a pulse on the company this week at their user conference in NY.  With the highest growth rates of any SaaS vendor, a large and growing customer list (did you seen the Siemens announcement?), and subscription users surpassing 4.5 million, it is obvious the company has been doing something right.  I do think, though, the regulations of being a public company combined with the growing demands that come from servicing 2,000+ customers has stifled some innovation.  Frankly I think the next wave of growth for SuccessFactors, or any talent management vendor for that matter, will be predicated on stickiness (going back to the application every day instead of every year) and intuitiveness (taking process out and adding intelligent decision support).

Where does SuccessFactors go from here?  Does the recently release of Employee Central, for all intensive purposes a lightweight HRMS solution, signal the direction of the company?  Will they ever get serious on social collaboration like many of their competitors?

All good questions for debate later this week in New York.  If you are going to be at SuccessConnect New York let me know and we can discuss these and many more topics live. 

• Writing a good blog takes time.  I pride myself in providing insightful value and have never focused on quantity versus quality.  I simply haven’t had the time to put together good posts.
• My “bonus time” has been focused on building deeper content on the Knowledge Infusion Center of Excellence.  If you haven’t visited recently, I would encourage you to check it out.  We have added domain communities and continue to add more research, surveys, and webcasts.
• Twitter has changed the way I communicate.  Twitter allows me to share thoughts quicker and more immediate and has stolen mindshare way from my blog.  If you have tried, check it out and follow me if you dare. 

I plan to return to blogging more frequently so please stay tuned.

Today, Vista Equity Partners announced the proposed acquisition of  SumTotal Systems for $102.3 million.  Vista Equity already owns a 12.7% stake in SumTotal, making them the largest active shareholder.  Josh Bersin offers a great recap on the proposed acquisition.  I agree with Josh that this is a significant event in the evolution of the LMS market for a couple of reasons…

1. Traditional learning is shifting to more informal, social collaboration and knowledge sharing and companies have less demand for a “LMS”
2. The traditional LMS market has been essentially running on auto-pilot for 3 years.  The market has lacked growth, the vendors have struggled to compete against its talent management peers, and the technology legacy (long, costly implementations) have made innovation and functionality improvements more capital intensive.  Investors like Vista Equity have grown impatient of the lack of return on investment as noted in their letter to SumTotal CEO, Arun Chandra.
3. Multi-tenant SaaS has proven difficult to execute for traditional on-premise vendors like SumTotal and Saba.  It is presumed that SaaS subscription revenues are less than 10% for both companies.  Additionally, the hybrid delivery model, or ability to deliver software on-premise, hosted or on-demand/SaaS, has proven costly to architect, support and maintain with an existing code base.

Most importantly, for institutional investors like Vista Equity, they would prefer a “show me the money” now versus an investment in the long term success and future.  A focus on “preserving the maintenance fees” outweighs a more committed approach to investing in innovation, robust product delivery and enhanced customer service.

My bet is that SumTotal will likely accept the offer as the significant premium (+62%) on Friday’s closing stock price ($2.01) is too much to pass up for the board and its investors.   SumTotal has some great assets includes a solid customer base, a significant maintenance stream, solid brand recognition and a relatively low market capitalization…all traits that appeal private equity investors. In today’s market, institutional investors have little patience in  business model shifts.  I would anticipate more private equity interest and investment in other traditional HR and learning management vendors.  The questions is…who’s next?