When it comes to delivering HR applications via cloud computing, executives at technology multinational Oracle have recently undergone a major change of heart. Jessica Twentyman reports.
For years, their position was clear: HR software worked best when it was purchased outright by customers and deployed on their own in-house servers. Oracle boss Larry Ellison roundly dismissed cloud computing – where software is hosted and run by a provider on remote servers and accessed by customers over the Internet or “cloud” – as “idiocy” and “nonsense”.
So in early February 2012, its $1.9 billion acquisition of Taleo, a provider of cloud-based talent management applications, represented a bold step away from that thinking.
It wasn’t the first sign of a U-turn: that came last year, when Oracle unveiled Fusion HCM, the latest generation of its HR application suite, and announced that these modules would be made available for access over the internet on a subscription basis, using the software-as-a-service (SaaS) model.
At the same time, however, Oracle continued to hedge its bets: the Fusion HCM line-up is also available for deployment as a traditional, on-site HR system.
The Taleo acquisition, which is scheduled to be completed in mid-2012, sees Oracle dip its toe in the waters of SaaS-only HR tools for the first time. (It’s the second SaaS acquisition the company has made, following on from its purchase of customer relationship management provider RightNow Technologies in January 2012.) In making a bid for Taleo, Oracle has clearly reacted to rival SAP’s December 2011 purchase of another SaaS talent management provider, SuccessFactors, as well as the rapid growth of SaaS-only HR company, Workday.
“We believe Oracle needed a tactical response to SAP/SuccessFactors and to Workday’s rapid growth, because Oracle Fusion applications still have few production customers,” says a recent report on the deal from IT market research firm Gartner.
Talent management purchases
Between Oracle and SAP, Oracle would appear to have struck the better deal, or at least the less costly one. Taleo’s $1.9 billion price tag may be more than six times its annual revenues ($309 million in 2011), but SAP forked out $3.4 billion, or eleven times revenues, for SuccessFactors.
Since then, the speed at which both Oracle and SAP have outlined their plans for their talent management purchases “is a sign of how desperate they are not to lose out to each other, and to the likes of SaaS-only providers Workday and Salesforce.com,” says TechMarketView analyst Angela Eager.
Putting those publically stated plans into action, she adds, could well take longer. In a 24 February webcast, Oracle president Mark Hurd appeared alongside Taleo CEO Michael Gregoire to insist that the deal adds to Oracle’s plans for Fusion HCM, but for customers planning to update their Oracle systems this should not affect their plans.
“There’s no change to our strategy or our Fusion roadmap and release schedule,” he said, adding: “Taleo is incremental to Fusion.”
Employee recruitment and on-boarding modules
Customers will benefit from the strength of Taleo’s employee recruitment and on-boarding modules – significant weaknesses in Oracle’s current line-up. These modules will be offered to all Oracle HR customers as “preferred solutions” and will be integrated into Fusion HCM, both SaaS and on-premise versions, as will Taleo’s applications for learning and development.
Elsewhere, however, there are significant overlaps in features and functions. The Taleo performance management application, for example, will be merged with the Fusion HCM performance management application, to create a single product. Oracle’s vice president of product development, Thomas Kurian, boldly claimed that this will “allow for a seamless upgrade for all customers”.
Public Cloud service
That said, the entire Taleo suite will be available via Oracle’s Public Cloud service, on which Fusion HCM also runs. This means that customers running rival HR suppliers’ products as their core HRMS can continue to use Taleo as a standalone suite of software for talent management functions. It also means that the Taleo applications will benefit from new capabilities in identity management, social networking and analytics, according to Kurian.
The Taleo Business Edition product, aimed at smaller companies, will continue to be offered, although no future development plans for the system have been discussed so far.
Acquired technology quietly shelved
Taleo customers may draw some comfort from these early statements, as sketchy as they are. But, as TechMarketView’s Eager points out: “timelines and ability to execute are what it really comes down to, so judgment should be reserved until we see some concrete developments”. The fact remains that, in the vast majority of software deals, elements of the acquired technology are quietly shelved or binned over time, whatever the purchaser says when the deal is first announced.
Taleo’s Michael Gregoire knows this better than most; he was working for PeopleSoft at the time of Oracle’s 2004 hostile takeover of the company.
Embracing the cloud
Oracle is clearly embracing the cloud – but only now that the SaaS successes of companies like Workday, Ultimate Software and even ADP have made it clear that it needs to move at the same speed as they are. Many organisations are now choosing to invest in cloud-based applications, but a significant number will quickly find providers snapped up by larger competitors, as Taleo customers have found.
Workday, for example, looks set to remain independent as it gears up for a 2012 initial public offering of its stock, but the money raised could make it a potential acquirer in its own right. SaaS market leader Salesforce.com, meanwhile, kickstarted its foray into HCM software with its December 2011 purchase of social performance platform company Rypple. This year, it’s likely to want to build out its capabilities in this area with further HCM acquisitions.
In the meantime, the question for Oracle is whether or not it can either become a hosted HR software pioneer in its own right, or beat these agile SaaS competitors to the punch when it comes to buying up expertise?