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Micah Fairchild A Deeper Look at Oracle's Acquisition of Taleo

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Oracle Bets Big on a New HR Software Market Buy; But Why Taleo?

Ask anyone that keeps decent tabs on the HR and HCM software market and chances are they'll reference that the biggest news to come out of the HR technology space was SAP's massive payout for SuccessFactors (SFSF). "It's huge", many analysts said; "It's a game-changer". And of course it was a major purchase in a growing industry, but I must admit that I was dubious this acquisition would do anything that major to the market.

While SAP had been tinkering in the innovation shop (with in-memory analytics taking up the lion's share of their business growth strategy), the fact was that within the HR software arena, SAP needed the SuccessFactors cloud know-how and technology. Not so much in terms of getting into the cloud, but rather in developing out a next-generation end-to-end HCM software product. Yet one of the most oft-cited market reactions of this investment wasn't what this acquisition would do for SAP's product line (or consequently what would happen with SAP's brand), but rather what the purchase would compel other software vendors to do…namely Oracle.

Analyst queries papered the blogosphere, highlighting questions such as: How will Oracle react to SAP's SuccessFactors buy? Will the software behemoth follow suit and similarly seek out a smaller talent management vendor to acquire? Speculation reached such a fever pitch that soon questions revolved not around if Oracle would be investing in additional HR software solutions, but rather which solution the vendor would ultimately pursue. Of course, being versed in Oracle's latest technology advances in both hardware and their newest HR software offering Fusion HCM, I believed these conjectures to be simply blog fodder with questionable merit. After all, in contrast to SAP, other than rounding out its Fusion HCM suite with recruiting and learning modules, how could Oracle actually benefit from acquiring another HR software solution?

This past Thursday, I was proven wrong, as Oracle announced intentions to purchase Taleo (a leading provider of cloud-based talent management software) in what appears to be a clear reaction to the SAP/SuccessFactors deal. To say I was flabbergasted would be an understatement, as unlike the bulk of my industry colleagues, I didn't think that a) Oracle was in the market for this robust of a purchase, and b) that Taleo would have made it to the top of the list. Seriously, why Taleo? I mean, aside from the obvious fact that Taleo has Recruiting and Learning capabilities (which would potentially plug gaps in Oracle's talent management software strategy); I can gather few reasons as to why this particular vendor would have been the answer to perceived deficiencies in Oracle's HCM technology.

While the purchase is a done deal (and Oracle hasn't exactly been busting down my door to get my opinion anyway), I still think it's important for prospective customers to understand what this ultimately means; regardless of whether an organization is considering Oracle or any other vendor's solution. So, let's address how this deal's potential benefits that are being marketed actually shape up.

1) Oracle gets a best-of-breed Recruitment software solution with Taleo

While undoubtedly a solid recruiting solution, Taleo is far from best-of-breed. Yes, Taleo's TalentExchange helps to address sourcing (inarguably one of the most important aspects of any recruiting software), but the solution pales in comparison to similarly-situated HCM software vendors. In large part the reason for my take on Taleo's inadequacy is the movement within the market towards a more recruiter-focused solution. That is to say that, much like Customer Relationship Management software has migrated towards offerings more in line with customer-focused positions, so too have innovative recruiting software vendors made the move away from static Applicant Tracking Systems (ATS). Don't get me wrong, ATSs are still important (especially in the context of "core" HRMS), but the market is moving towards a place where SMEs own the functionality—with mobile, social, and a bevy of additional functionalities being seen as much more highly-valued capabilities. Oracle needed a robust ATS and that's what they got, but best-of-breed it's not.

2) Oracle gets a best-of-breed Learning/Development Software Solution with Taleo

Absolutely not. The proposition that Oracle shores up deficiencies in its Learning Management software catalog with Taleo is about as far left from the truth as you can get. In fact, a closer look at any number of analyst firm research reports (e.g. Gartner) shows that Taleo is not even in the same ballpark as some of the other niche vendors in this space. For instance, Saba, Cornerstone OnDemand, and SumTotal, all have stronger functionality than Taleo in terms of Learning Management technology. Further, each of these vendors provides equal or greater capabilities outside of learning management; and unlike Taleo bring far less technical debt to contend with (Taleo has acquired/integrated 7+ learning solutions). Much like recruiting, while this buy does provide Oracle with a Learning Management software solution, it does not wield any type of competitive strength in this area.

3) Oracle gets a well-rounded Talent Management software suite with Taleo

While true, the major question that still resides in the context of a talent management is why Taleo? Aside from my above questions on Recruiting and Learning, Cornerstone OnDemand, Lumesse, and Halogen all beat out Taleo in terms of the feature sets that can be provided for other talent management applications such as Employee Performance Management (EPM). Further, when it comes to compensation management technology and succession management software, Oracle has more than enough firepower with Oracle Fusion HCM to handle even the most complex of issues—a fact that seems to indicate that purchasing Taleo for needed talent management tech is a red herring. Even Gartner's first take on this purchase seems less than bullish; as the research firm highlights that "Taleo's other talent management applications [other than recruiting] have fewer customers, and overlap significantly with existing and planned Oracle applications. As a result, Oracle will face challenges integrating, rationalizing and communicating multiple SaaS product architectures and road maps".

4) Oracle gets a deal by acquiring Taleo at a fair market valuation

Even a cursory glance at the valuation numbers of Taleo, shows that Oracle (at $1.9B) significantly overpaid for this investment. At a more granular level, Bloomberg references that, "Oracle is paying about 136 times earnings before interest, taxes, depreciation and amortization, compared with the median of about 14 in 45 similar transactions over the past 5 years". While SAP's purchase (at $3.4B) of SuccessFactors (SFSF) was massive (and equally over-priced in my opinion), the numbers for that acquisition are still far more palatable.

Bottom-line, I have a hard time giving an enthusiastic thumbs-up to this acquisition, as it appears to have been driven as an ill-conceived response to SAP. While Oracle has had some success in their buy-versus-build strategies, this purchase has an all-too-familiar feel as a repeat of Oracle's PeopleSoft investment way back when—only this time their bid involves a company that many are already referencing the dreaded "legacy" moniker about. That's not to say that Taleo has one foot in the grave already, but cutting edge the company is most definitely not; and unfortunately could prove to be more of a liability to Oracle than a boon to their talent management software offerings. In fact, given Taleo's latest struggles with positioning its broader talent management applications, this acquisition helps Taleo's market positioning much more than it helps Oracle's.

Ironically enough though (and lack of enthusiasm aside), Oracle's acquisition of Taleo does further the industry conversation about vendor consolidation. And in almost exactly the same vein as the SAP/SuccessFactors buy, one has to wonder: will Oracle's latest investment force further acquisitions in the HCM technology space? We've come full circle back to questions asked after SAP bought SuccessFactors, but whether we're closer to finding answers is still yet to be seen. End

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"Even Gartner's first take on this purchase seems less than bullish; as the research firm highlights that "Taleo's other talent management applications have fewer customers, and overlap significantly with existing and planned Oracle applications. As a result, Oracle will face challenges integrating, rationalizing and communicating multiple SaaS product architectures and road maps".

 

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