News Analysis: Further HCM Industry Consolidation as Oracle buys Talent Management Vendor Taleo for $1.9B

Following moves by rivals SAP and Salesforce.com, Oracle expands its offering in Cloud-based HCM with competitive acquisition of leading recruiting and talent management vendor Taleo.

Event: Today Oracle Corporation (NASDAQ: ORCL), the world’s second largest business applications maker, announced its intentions to acquire Taleo Corporation (NASDAQ: TLEO) for $46.00 per share, or an equivalent of $1.9B. This purchase price represents an 18% premium over prior closing price of $38.94, and values Taleo at almost 5 times its estimated sales for the year. (A sizeable premium, but not as high as SAP’s payment of almost 7.5 times SuccessFactors’ estimated annual sales). The deal is expected to close mid-2012. This latest acquisition brings the total to more than $40B that Oracle has spent across 70+ acquisitions.

Taleo, founded in 1999, is a leading provider of cloud-based talent management solutions to over 5000 enterprises worldwide. Its heritage solution is recruiting software, and today it is a clear leader in the talent acquisition market, managing 15% of all US hires and processing up 74M transactions per day. Over the years Taleo has expanded beyond its heritage to deliver a comprehensive talent management suite including performance and goal management, succession planning, compensation management (which it acquired in 2009 through Worldwide Compensation), and learning and development (also acquired in 2010 from Learn.com).

Analysis: This acquisition is the latest in a string of moves by major players, among the most significant in recent months being SAP’s announcement in December to acquire SuccessFactors for $3.4B and Salesforce.com’s announcement in December to create an HCM Business Unit headed by industry veteran John Wookey. In a market which, according to IDC, is expected to reach $8.1B by 2015, these moves make sense as players look to consolidate market share and capitalize on the shift in deployment preferences from on-premise to cloud-based services. An initial analysis of this transaction reveals:

“Taleo brings complimentary solutions to the Oracle Public Cloud.”

Point of View (POV): Taleo’s strength in recruiting and learning fills a significant gap in the Oracle HCM portfolio, which, despite investments over the years, has been unable to attain a market-leading position. Other areas of the Taleo suite face significant overlap with Oracle’s core and Fusion offerings. Taleo was already in the midst of consolidating its various platforms, and this acquisition only adds to the number of platforms under Oracle’s management. I expect Oracle will continue most planned investments in their on-premise solutions (across Oracle EBS, and Oracle PeopleSoft) while accelerating integration between Fusion and Taleo for a more complete cloud offering.

From a cloud perspective, we have witnessed Larry Ellison move from denouncing cloud computing as “nonsense” in 2010 to investing $1.5B in 2011 to acquire RightNow Technologies (cloud-based CRM solution aimed at combating Oracle rival Salesforce.com) and announcing Oracle’s Public Cloud. With this acquisition of Taleo, Oracle adds new and duplicative cloud-based HCM to its stack, and receives much needed expertise in the area of managing a cloud-based business. The image below demonstrates Oracle’s positioning of this acquisition.

With the acquisition, Oracle has a viable alternative to SaaS-based Workday, enabling it to deliver market-competitive SaaS solutions across the people management spectrum, and hopefully stemming the tide of PeopleSoft HCM customers moving to Workday or other SaaS vendors in lieu of a complex upgrade and Fusion integration.

“The Oracle/Taleo combination delivers powerful intelligence and a complete social experience.”

Point of View (POV): The combination of business intelligence from Taleo’s suite coupled with Oracle’s latest analytics functionality can make for a highly differentiated offering in the market. Additionally, Oracle’s Social Networking (and specifically Fusion Network at Work) capabilities can bring much needed social collaboration into the Taleo suite, filling its most pressing competitive gap across its talent management stack. Taleo’s product roadmap prioritized investments in social technologies at the platform level and in turn at the product level to transform traditional processes into highly collaborative solutions focused on end-users. With this acquisition, I expect these investments will cease or at least take a back seat to the integration of Oracle’s social technologies with the Taleo stack. Oracle’s challenge will be to deliver integration that enables innovation beyond simple connectivity between the two technologies.

“The Oracle/Taleo merger improves the employee experience…simplifies on boarding and quickly aligns employees to company goals, and empowers employees with access to learning and career management tools.”

Point of View (POV): The resulting end-user experience will, for the foreseeable future, be a combination of the Taleo and Oracle capabilities, and as such will depend upon integration. Core data integration (HR data with Taleo’s talent data) is straightforward. What will really improve the employee experience will be a unified user experience (common look & feel, integrated and seamless process flows). Oracle does not have a good history in this area, electing to keep its HCM acquisitions largely silod and relying instead upon emerging Fusion applications to provide that unification layer.

For its part, Taleo comes into the acquisition with its own series of disparate solutions. The Learn.com platform is not yet fully incorporated into the Taleo platform, and other solutions aimed at different recruiting markets continue to run essentially in silos. Clearly, there is a tremendous amount of work ahead for the Oracle/Taleo teams, not only in defining an innovative and market leading roadmap, but also in rationalizing a now broader collection of technologies.

Bottom Line for Customers and Prospects: Proceed with Caution.

According to the press release, “Oracle is currently reviewing the existing Taleo product roadmap and will be providing guidance to customers in accordance with Oracle’s standard product communication policies. Any resulting features and timing of release of such features as determined by Oracle’s review of Taleo’s product roadmap are at the sole discretion of Oracle.” As a result, customers and prospects should consider the following:

  • Taleo will continue to operate as an independent vendor until the transaction closes. Current Taleo customers are advised to lock in maintenance and subscription rates as far out as possible, and ensure they are not reliant upon future functionality promises to deliver on business imperatives, as the future pace of innovation on this stack is currently unclear.
  • Following the closure of the acquisition, Oracle will be that single “throat to choke” with regard to product, service and integration issues.  Joint Oracle and Taleo customers should apply pressure appropriately to ensure that seamless interoperability is high priority in the future roadmap.
  • For current Oracle customers, this acquisition brings market leading recruiting functionality and robust learning capabilities to the Oracle stack, as well as comprehensive SaaS-based talent management suite. Oracle customers, especially those PeopleSoft customers considering upgrading to latest releases of PeopleSoft or implementing Fusion, will soon have a viable alternative to moving to a 3rd party solution. However achieving a fully unified HCM/TM solution in the cloud is likely years away, compared to the pure-play Saas vendors like Workday and Ultimate, which are building this combined functionality natively rather than through acquisition and subsequent integration. Weigh your needs for integration, functionality and a simplified technology stack in light of the new risks and opportunities from this acquisition.

Bottom line for the HCM Market: Talent Management as a category is disappearing

The HCM market is shifting away from a feature/functionality focus to integrated HCM, with the remaining talent management vendors competing for a shrinking opportunity in light of the moving market. While Oracle (like SAP) lost HCM revenues to best of breed talent management suites in previous years, an increasing number of customers are looking back to their core ERP vendors to re-evaluate their options for an integrated suite. Over time, acquiring Taleo will give Oracle the best of both worlds – market leading functionality delivered in an integrated environment, delivered from a single vendor.

We’ve now heard from market leaders SAP and Oracle. Infor (the #3 ERP vendor) made its move last year to acquire Lawson, including its market leading HCM technology. SuccessFactors has announced its move into the HCM marketplace. Workday continues its drum beat of increasing momentum, and others such as Ultimate and ADP continue to add pressure around SaaS HCM. We can expect further consolidation in this space, perhaps from organizations such as IBM or Salesforce.com making additional acquisitions. Who are the likely targets? Certainly the few remaining publicly-traded companies offering cloud-based solutions, such as Saba, Kenexa, Cornerstone OnDemand and Ultimate. Other privately-held vendors are also potential targets, including an emerging breed of players focused on helping organizations “get work done” every day through SaaS-based productivity tools.

Today’s Oracle/Taleo announcement may herald the end of talent management as a separate category of HCM technology, but on its heels may be emerging a new category of vendor, launching again the cycle of innovation, growth and consolidation.

Your POV:

This acquisition has been rumored for some time. Are you surprised by it? Are you a Taleo customer? What is your reaction? Will you embrace Fusion to achieve advanced workforce analytics or social capabilities? Oracle customers: will you move to Taleo’s recruiting solutions, and how might this impact your adoption of Fusion technologies?

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4 Responses

  1. Will the rumored IBM acquisition of Saba finally take place? It has been whispered about for over 5 years now, what is the hold up?

    • If i had that crystal ball….Like Oracle/Taleo, an IBM/Saba deal makes sense. The two have certainly been deepening their strategic alliance in recent years and IBM is infact reselling Saba LMS today. I expect CSOD to be pitched as well. The multiples we’re seeing are certainly pushing up prices, and so if this was a factor for any of the targets in the past, it may not be in the future. We’re certainly not done with the interesting acquisitions this year

  2. Great analysis Yvette! This is exciting for those of us building the next generation of HR and talent management solutions, like Teamly http://teamly.com

  3. Yvette: good analysis thanks for sharing. There are two things that caught my attention.

    1) Taleo’s roadmap prioritized social media. Have not seen any substantial launches from Taleo in this area. As you know, they do one major release a year, a great ERP mold, certainly not SaaS and it speaks a bit to their heavy architecture.

    2) “….robust learning capabilities”. I think it depends on the definition of robust. You rightly identify that the Learn.com platform is not integrated, sales seem to be flat from prior information fom TLEO, and there are various points of evidence/statements out there that say this is clearly not Enterprise grade.

    Overall great analysis, I don’t see UI improving and this acquisition shows that ORCL is comfortable buying predominantly ERP software with very large implementation cycles (which you allude to in your analysis).

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