Wednesday, March 10, 2010

SaaS Myths Series - Part 1

This post will be the first in a series designed to expose/discuss/debunk myths, or at least extreme exaggerations, about SaaS business applications. I am very much a SaaS advocate, but expectations are so grossly out of synch with reality that I felt it time to "bust" a few SaaS myths.

Myth #1

SaaS vendors have to earn your business every subscription period (month, year, etc.) or we will be easily replaced with a better vendor, therefore you can trust us to be more focused on your success.

The Truth

This is a particularly pernicious myth because it has its roots in a few grains of truth. Myth #1 is true, ONLY for applications that don't do very much or are used by very few people in a given organisation. However, if your SaaS application is strategic to the business, used widely, functionally deep, or heavily integrated with other IT assets, changing it will be far more costly than a few extra months of subscription fees to cover the overlap. And, the larger the organisation, the more costly it will be.

Don't think SaaS companies don't understand this either. You may not find it in their marketing, but quite often the SaaS business model is "acquire customers at almost any cost, retain them, and cross sell them your new products." It's lovely to believe that SaaS vendors have to "earn your business every day", but after you've spent five months and half-a-million dollars/pounds/euros implementing your shiny new SaaS HRMS, you won't be very keen on repeating the experience.

While I applaud RightNow for its aggressive approach toward giving customers more rights, I have to point out that absent pricing information, their marketing push is rather irrelevant in reality. Contract termination at customer convenience, marvelous, but at what price? RightNow is savvy enough to know that terminating is not at all easy for their customers nor anyone else's. Furthermore, after around three years, a SaaS vendor is really going to start making serious money compared to a traditional on-premise ERP type vendor over the long term.

One implication for all of us though should be the recognition that if a SaaS vendor is replaced or terminated, the state of affairs with that customer had to be very bad indeed. Buying organisations need to be aware that choosing a SaaS vendor for strategic business software is still a process of picking a long term partner that is not easily discarded. Choose vendors carefully and with proper diligence. It's just not that easy to get a new one.

Now for the good news. At least it wasn't eighteen months and three million dollars/pounds/euros spent implementing a dinosaur ERP like Oracle, PeopleSoft or SAP.

Thursday, March 4, 2010

It's gettting very busy out there

NorthgateArinso buys Convergys HRO business for $100M. Skillsoft going private for $ far. Authoria (Bedford) buying PeopleClick for $100M. SuccessFactors buying Inform for $40M. All this M & A action and we have just entered the month of march. This has to be some sort of record for M & A in the HR software space.

A few quick thoughts on these very different deals:

  • HRO is just a shitty business. Sorry if I offended anyone, but it's the truth. A struggling ATS vendor, PeopleClick, gets priced at 2x ttm revenues. Convergys HRO gets priced at ~0.4x ttm revenues. That's right! The same price was paid for PeopleClick doing $50M in revenues vs. Convergys HRO doing $250M. Good luck NorthgateArinso, at least it was cheap.
  • Skillsoft going private via a LBO. I don't follow this company too much as it's on the edge really of the HR technology market, but I don't think this situation is similar at all to the SumTotal nor the Authoria "take privates". Some learning analysts have speculated that the courseware market is tapped out and that Skillsoft will alter their business model as a private company. I think that there is something to this idea, primarily because Skillsoft was hardly a damaged company. Upon review of its financial data, its growth has slowed dramatically, but it is still highly profitable and fairly well valued. This one could be really interesting.
  • PeopleClick Authoria. All I can say is that I have privately spoken to many people about this since it was announced, and to a person, they have felt that this is a ridiculous deal. Some of those folks are well know industry pundits, who published generous assessments publicly. I too think it is ridiculous and that Beford Funding hasn't a clue. I think Jason Corsello was very fair in laying out the issues in his post on his blog
  • SuccessFactors...see my previous post.

The question continues to be "who and what is next?"

Wednesday, February 10, 2010

SuccessFactors completes a "practise" acquisiton

SuccessFactors buying Inform (InfoHRM) was certainly something I did not see coming. But, the most interesting, and seemingly overlooked, part of last week's announcement was the appointment of Judy Blegen as VP of M & A Integration. Such a position is surely not required to integrate an organisation as small as Inform. And, with more than $300M USD still available in its war chest, it seems obvious that SuccessFactor's shopping excursion is only just beginning.

As to the value of Inform, I think it is mildly complementary to SF's business, and certainly fits from a market positioning perspective. But, as Bull Kutik rightly points out, there is a large amount of professional consulting services that comes with implementing a workforce planning and analytics business. This part of Inform's business is not well aligned with SF's heritage.

On the other hand, I think the real value for SF will be practising on a "starter" integration before selecting a main course. I stand by my last post regarding Stepstone, especially its value to SF, but the timing of the Inform acquisition throws a spanner into the works that really opens up the targeting for SF. They have their pick, but what will it be? And what will Taleo do in response?

To me, it is like reading the first chapter of a good novel. I'm hooked, and I can't wait to see how it plays out.

Friday, January 15, 2010

Closing the book on StepStone

Today marks the official end of listing for StepStone ASA, which now renders StepStone a wholly owned subsidiary of Axel Springer AG. While Axel Springer is a public company trading on the Frankfurt Stock Exchange, StepStone's business will make up such a small portion of Axel Springer that the rest of the world will have no financial visibility into the former StepStone business.

Of course, what those of us in the the HCM technology business want to know is, what will become of StepStone's HCM solutions business? If the, now rampant, rumors are to be given creedance, SuccessFactors has these assets squarely in their gunsights. And why not? I strongly suspect Axel Springer is, at best, ambivalent about them, and SuccessFactors badly needs to increase its market share in both recruiting/applicant tracking and Europe in general. The StepStone solutions business (the HCM software part) was a breakeven proposition with relatively slow growth. As SuccessFactors struggles with identifying where it will grow next, buying market share in Europe and Recruiting in one fell swoop would seem most attractive to me if I were Lars Daalgard. The kicker would be the ability to sell its newfound assets into SF's existing North American customer base, especially if it were at Taleo's expense.

The challenge of this scenario for SF is that the StepStone recruiting products, iGrasp and EasyCruit, are dated technologies and questionably functional products. It would also leave SF with three recruiting software assets, and some technology decisions to make. On the plus side, SF has a substantial software development organisation and lots of cash, so unifying the technology should not be that difficult. I would think that the ETWeb assets should fold far more easily into SF's software portfolio.

If there is truth to this rumor, then the next question, "what does Taleo then do?", is quite the head scratcher. Some the companies I mentioned in my previous post on second-tier ATS providers could come into play, but other analysts and bloggers have posited that Taleo might respond with several "disruptive" small acquisitions. Certainly they have the cash resources to do so. Kenexa also has strong access to cash, so they could stir things up even more.

Let us all touch wood and be thankful that our industry is enmeshed in such a dynamic phase.

Tuesday, January 5, 2010

That didn't take very long

Five days in to 2010 and Authoria and Peopleclick merge. The first domino has fallen. Who is next?