Oracle announced it would acquire Taleo for $1.9 billion, in a move widely interpreted as a reaction to SAP's $3.4 billion acquisition of SuccessFactors. Also in the last few months, Salesforce.com acquired Rypple, a maker of social software for employee recognition and performance management.
These moves reflect the growing importance of cloud computing to enterprise software, as well as recognition that software built around people – rather than documents or transactions – holds promise as a source of profiles for social software and a means to engage employees in social collaboration.
The question is whether established enterprise software companies like SAP and Oracle are the right ones to deliver on that promise. Very quickly following Oracle's announcements, Taleo competitors began floating offers to rescue Taleo customers from Larry Ellison's clutches and migrate them to alternative cloud services for applications like online recruiting.
Jobvite launched a "Make the Switch" program, offering free activation and an assortment of free services to Taleo customers who switch within the next few months. JobScience, which provides "talent relationship management" applications that run on Salesforce.com's cloud platform, came out with a similar offer, focused on free data migration through a partnership with integration specialist Jitterbit.
Ted Elliott, CEO of JobScience, said he figured out several months ago that Taleo was likely to be acquired by Oracle, but he says Oracle is waking up to the importance of the cloud too late. "Cloud computing is yesterday – everything is now transforming around the idea of social and trying to make your applications as social as possible," he said.
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JobScience has been winning some large customers with its approach of treating recruiting as a sales and marketing product that can benefit from leveraging core elements of the Salesforce platform, along with other third-party applications built on that platform, Elliott said.
A panel of Constellation Research analysts who met to consider the meaning of this wave of talent management acquisitions agreed that the market is changing, as enterprise vendors recognize the threat posed by cloud vendors like Workday and Ultimate Software. Workday, co-founded by Dave Duffield, founder and former CEO of Peoplesoft, is a cloud-based human resources management system.
A lot of recent innovation focuses less on back-office processes than on applications for recruiting, tracking, and reinforcing performance, and connecting people within an organization through social networking. Those are areas both Taleo and SuccessFactors were focusing on, to various degrees of success, and also where Rypple made its mark.
In a webcast, Constellation's Alan Lepofsky, R. "Ray" Wang, Yvette Cameron, and Frank Scavo debated the likelihood that Taleo and SuccessFactors will thrive under their new masters.
Cameron noted that SAP gave a warm welcome, saying it would put SuccessFactors CEO Lars Dalgaard in charge of its cloud business, whereas "the Oracle-Taleo news had a bit of a different feel, more command-and-control," making her question how well Taleo's innovations would be integrated. Some SuccessFactors and Taleo customers who liked working with a smaller company may indeed flee, she said, although most likely the support they will receive post-acquisition will be good enough that they "don't have to have a knee-jerk reaction."
Scavo doesn't expect a mass migration, however. "Customers don't just switch talent management systems, or any other enterprise systems, that easily. I think a lot of this is wishful thinking on behalf of the competitors," he said. Existing customers will probably sit pat, although the altered landscape "may affect deals in the pipeline," he said.
Wang said that although the major enterprise vendors "sometimes surprise us, in reality all the innovation is happening outside, at the edges." Your organization may or may not want to make a change, depending on its priorities, Wang said. One specific recommendation: avoid "bundling" of contracts for different products, which could limit you flexibility for future changes. "Keep them separate if you can because if you bundle them, they're going to make it so hard for you to unbundle," he said.
SuccessFactors and Taleo were purchased partly for their cloud power but also for social software prowess, Lepofsky said. "SuccessFactors was one of the first companies to jump in there with activity streams and to add social elements to what they were doing. Socializing this new world of HCM is the big topic." Business processes like end-of-year reviews are becoming more social and transparent, he said.
Social business "is the way of the future, it is the way work gets done" in leading companies, according to Cameron. "It's the way people connect and find and share wisdom," she said. Software for managing employees, recruiting talent, and training can be a good starting point as a rich source of profile data, she said, but many established players are struggling with the transition. "For Taleo, I thought their number one gap was that they didn't have strong social in talent management – they had it in recruiting, but not talent management."
Lepofsky said social is also important as a unifying force for processes that otherwise tend to be siloed off in their own areas. It's becoming easier for conversations to span the organization, touching on different processes – for example, an employee recognition for a sales representative published to the social stream can include links to the relevant sales performance records. "That's a key component of why we're seeing billions of dollars spent in that area."
At the end of the call, each analyst offered a prediction.
Lepofsky said an acquisition from Microsoft is imminent. "I won't tell you who, but they're going to jump in," he said.
"We're going to continue to see social aspects added to each of these product portfolios," Wang said. "We're going to continue to see the big guys adding social as the glue that ties all the other pieces together, and the big guys will continue to buy up some of these smaller collaboration players."
Scavo noted that Workday had partnered with Taleo for online recruiting, and he predicted that won't last long under Oracle (which captured Duffield's old company Peoplesoft in a hostile takeover). Workday will build its own recruiting software rather than choosing another partner, to avoid this problem going forward, he predicted.
Cameron said the partnership between Workday and Taleo might continue as "coopetition" for some time, but agreed Workday will want to fill that hole in its portfolio. Even for a strong software development organization like Workday, building a competitive recruiting application would be a lot of work, she said. An acquisition would make more sense "if they can find a good fit under the covers," she added.
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