During the past year or so, HR software company Taleo has swallowed up rival Vurv Technology, launched an attention-grabbing performance management product and laid out a vision to become a key hub for discussions around talent management.
But the Dublin, California-based firm, with roots in applicant tracking software, faces hurdles as it seeks to become the top player in the fast-growing talent management arena.
Taleo may struggle to shift former Vurv customers to the Taleo software, lose sales to larger competitors in the economic downturn and find it difficult to compete with existing industry forums, analysts say. Recently, the company the company’s stock plunged nearly 30 percent after it said it was reviewing its accounting practices and would delay filing a quarterly report.
What’s more, Taleo’s claim to sell "unified" talent management software is a bit shaky. Zach Thomas, senior analyst at advisory firm Forrester Research, notes the company lacks its own compensation and learning management tools.
"I view them still primarily as a recruitment company with great products," Thomas says.
Taleo chief marketing officer Al Campa, though, points to a recent pact with Worldwide Compensation that lets Taleo offer compensation software.
The deal includes a Taleo investment in the firm, and Taleo has the option to buy Worldwide Compensation outright. Campa also says Taleo’s software delivery model gives it an advantage over industry giants, and he argues that the vendor has plenty of time to develop its Talent Grid talent management resource plan into a central meeting point for customers.
"These are early days for talent management," he says. "The space is really poised to take off."Growth in Question
Taleo was founded in 1998. Initially called Recruitsoft, the company changed its name in 2004 to its current, less-recruiting-centric moniker. Still, for years Taleo concentrated on software to automate recruiting tasks, competing against such rivals as Peopleclick, Authoria and BrassRing, now part of Kenexa.
Taleo has reported fast growth, but its financial results have come under question. On November 10, Taleo said its independent accounting firm asked it to reevaluate whether the company's historical and current practices with respect to the timing for recognition of application and consulting revenues were appropriate. Taleo said it is reviewing the issues raised by its auditors to determine if an alternative accounting treatment should be adopted.
Taleo also said it delayed filing its quarterly 10-Q financial report with the U.S. Securities and Exchange Commission pending the outcome of its review.
“This is a timing issue, and does not impact the total amount of revenue that Taleo has under contract,” Taleo CEO Mike Gregoire said in a statement Nov. 10.
Investors, though, punished Taleo stock the next day, sending it down $3.22, or 29 percent, to $7.83.
A shareholder suit followed, accusing Taleo of a scheme to defraud investors.
Taleo called the litigation without merit and premature.
Still, investment firm KeyBanc Capital Markets downgraded Taleo shares from “Buy” to “Hold” in the wake of the accounting news. “[W]e think the most probable outcome is an extensive contract-by-contract review lasting four or more months and leading to a potential restatement of historical results and reduction in the revenue and (earnings-per-share) outlook,” the firm said in a Nov. 18 report.
On the other hand, Lisa Rowan, analyst with research firm IDC, downplays the revenue recognition issue. She argues it shouldn’t affect Taleo’s product quality or service. “I think it’s a small deal,” she says.
Talent management taking off
Taleo has a number of different product lines for different-sized organizations. It says more than 3,800 customers use Taleo software to attract, hire and retain talent. Research firm Bersin & Associates calls Taleo the market leader in recruitment management.
Unlike some vendors that have remained focused largely on recruiting systems, Taleo has expanded into other dimensions of talent management. Talent management generally refers to key HR tasks including recruiting, employee development, performance management and compensation management.
Vendors of talent management applications usually pitch their products as integrated "suites" of software, which can allow organizations to gain greater insight into their workforce and reduce the complexity of their software systems. Research firm Bersin & Associates estimates spending on talent management software will rise 20 percent in 2008 to $2.3 billion.
Last year, Taleo introduced its Taleo Performance product to rave reviews. In contrast to some HR software tools designed more for "power users" that have cluttered work screens Taleo’s application had a simple look and feel, with work teams represented by "baseball cards" of individual employees. Taleo says the application helps make employee assessment less an annual chore and more of an ongoing practice.
"Taleo Performance is truly a next-generation platform," Bersin analyst Leighanne Levensaler said in a recent report. "The company’s approach to employee performance management is very different from what we found with the first generation of administrator-focused, transactional performance management systems."Competition
Still, Taleo faces plenty of talent management competition. Other vendors include specialist firms such as SuccessFactors, Authoria and Plateau Systems. Then there are the big guns of the business software world, SAP and Oracle, which sell a wide variety of HR applications.
Those titans could squeeze Taleo and its peers during the current economic downturn, says recruiting consultant Peter Weddle. Many large companies already own HR software from SAP and Oracle that can handle tasks such as recruiting and performance management. "Best of breed" players such as Taleo typically woo customers by saying they offer more advanced functionality.
"That’s going to be a harder argument to make in this kind of cost-cutting environment," Weddle says.
Chris Tratar, Taleo director of solution marketing, counters that getting to basic recruiting functionality is not necessarily cheap with "enterprise resource planning" products, the broad-ranging business software tools sold by Oracle, SAP and some other vendors. A costly and time-consuming upgrade to the latest software release may be required, he says.
Taleo’s embrace of the increasingly popular "software as a service" model is another reason the company has a leg up on SAP and Oracle, Campa says. Software as a service refers to delivering applications over the Internet via a Web browser and charging a subscription fee. This approach—sometimes dubbed "on demand"—is seen as having a lower upfront cost, shorter implementation times and reduced maintenance headaches compared with the traditional model. The traditional method involves installing software on a company’s internal computers, charging for a perpetual license and collecting annual support fees.
Oracle and SAP have introduced versions of their products delivered over the Internet. But Campa argues they will not adopt software as a service in a significant way.
It’s not in their best interest,” Campa says.
Taleo, though, has its own on-demand challenge related to its Vurv acquisition. Earlier this year, Taleo bought Vurv for about $129 million in cash and stock. Vurv also called itself an on-demand vendor.
But not all of its 1,700-plus customers were running the same version of Vurv’s software. That meant customers could access different sets of features that better fit their business methods, but also created greater expense for Vurv. Taleo, by contrast, has kept all of its large customers on the same code. And it plans to stick with that approach.
Taleo says it will support Vurv recruiting products for large organizations only until July 2011. Campa says Taleo intends to incorporate popular Vurv features into its software, but makes clear the company is not going to adopt Vurv’s approach of keeping customers happy through separate product versions.
"We can’t support multiple code lines for very long," he says.
Forrester’s Thomas says it’s possible that Taleo can manage to bring all of the features the Vurv customers need into the Taleo product.
"If they do that successfully, I don’t see a downside," he says.
But Jason Corsello, vice president at advisory firm Knowledge Infusion, suspects Taleo won’t be able to get every feature into its software that some highly specialized Vurv customers like Disney will require.
"I think they’re going to be forced to support" some customers by maintaining distinct software lines, he says.
Campa says that so far, no large former Vurv customers have left the Taleo fold.Interactive initiatives
One of Taleo’s latest attempts to serve its customers and secure its future in the talent management field is what it calls the Talent Grid.
Using the analogy of the power grid that undergirds the economy, Taleo says its Talent Grid is a plan to provide resources useful for talent management. Among these is a Solutions Exchange where products from Taleo vendor partners "can be evaluated, rated by users, downloaded and activated."
There’s also the Talent Exchange, a database where job candidates using Taleo software can share their talent profiles with employers. Companies also can publish new jobs through the exchange.
And Taleo is launching the Knowledge Exchange, an online community where it hopes its users will discuss talent management topics.
Corsello finds the Talent Exchange intriguing. But he has his doubts about Taleo’s Knowledge Exchange taking off. Corsello notes that his own firm has worked to make its Web site a hub for HR-related conversations, as has Electronic Recruiting Exchange, a Web site focused on recruiting matters.
"We’re doing that. ERE is doing that," he says.
Campa says Taleo’s new Web site can coexist with others.
But it’s clear the company aims to be at the center of the action. Gregoire said as much in a statement November 10: "Taleo continues to accelerate along many vectors, as we develop innovative new products, penetrate new markets domestically and internationally, and build a platform and community that will define the future of Talent Management."
This article has been revised to reflect the following correction:
Correction: June 17, 2009
Because of a miscommunication with research firm Bersin & Associates, Workforce Management reported that spending on integrated talent management suites would grow 20 percent in 2008 and would reach $2.3 billion last year. In fact, the estimates for 20 percent growth and a $2.3 billion market were for talent management software spending generally—including purchases of separate talent management components such as performance management software.
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