SumTotal Acquires Softscape: The Gloves come Off in the Talent Management Market

Today SumTotal Systems, the largest provider of learning management systems, announced the acquisition of Softscape, the pioneering software vendor that started the market for integrated talent management software.  This move, another in a wave of consolidations taking place, creates a “gorilla” in the market for end-to-end talent management software.  (Recent acquisitions include Authoria’s merger with PeopleClick, Taleo’s acquisition of Learn.com, Kenexa’s acquisition of Salary.com, and ADP’s acquisition of Workscape.)

In this blog post, I will provide a brief outlook on the SumTotal/Softscape announcement.  I encourage all members to reference the detailed research bulletin, SumTotal to Acquire Softscape: The Gloves Are Off, for our full perspective. As always, we encourage you to call or email with any specific questions.

I also invite you to join us at the upcoming HR Technology Conference in Chicago, where we will be debuting just-completed research on customer satisfaction with TM systems in a session called Talent Management System Vendors: Leaders and Laggards in Customer Satisfaction, scheduled for Thursday, September 30, at 11 a.m.  We are also hosting The End of the Standalone LMS?, a public webinar scheduled for Monday, October 18, at 2:00 p.m. ET , during which we will discuss the impact of the recent market consolidation on the LMS and talent management markets and their implications for buyers.

Background on SumTotal Systems

SumTotal is the largest provider of learning management systems (LMS), the software used by training and L&D organizations to manage e-learning, course scheduling, training administration, and training content.  The company is well known in this market and posted revenues of around $120 Million before being acquired by Vista Equity Partners last year.  SumTotal has more than 1,600 enterprise customers and has grown through a series of acquisitions (Docent + Click2Learn + Pathlore + Mindsolve + now Softscape).

The steady stream of acquisitions has helped SumTotal expand into many markets:   Docent was a leader in sales training and channel education;  Click2Learn brought Toolbook, one of the leading development tools in the market; Pathlore was a leader in mid-market LMS systems and healthcare training solutions;  Mindsolve was a pioneer in visual performance management and succession tools;  and now Softscape brings an end-to-end talent management  solution (and a world-class performance management solution) to the company.

The SumTotal leadership team, which does not come from the HR software market, understands how rapidly the talent management business is growing and wants to  position the company into the “sweet spot” of the market.  By acquiring Softscape, SumTotal becomes one of the largest companies in the space (Softscape’s revenues were around $30M at the time of the acquisition, giving SumTotal revenues around $150M+) and now offers an end-to-end platform which is among the most complete and integrated in the market.  The company also now gains a senior leadership team with deep experience in the HR platform markets.

SumTotal’s biggest challenge over the years has been managing its multiple product lines.  The new CEO, John Borgerding, has a comprehensive plan to maintain all current products while the integrating these systems into a new, converged SumTotal platform.  The company still has many customers running Docent, Pathlore, Mindsolve, and the other platforms:  these will be maintained and migrated to the new SumTotal platform over time.  Softscape recently completed a major re-write of their platform and uses the same underlying technology as SumTotal (.net), making this transition easier.

The company plans to continue to sell and maintain Softscape’s product line (which is one of the most complete talent management systems in the market) and has a multi-year plan to bring the various products together.  This will not be a fast or easy process, but if the company manages this transition well, Softscape customers will be happy and new prospects will have the option of purchasing Softscape or SumTotal’s existing integrated platform.

One of the biggest “knocks” competitors will claim (I can just see the PowerPoint slides now), is that SumTotal is not an organically built set of technologies and the company’s engineering team is split between multiple product lines.  At this point in the market, this argument hardly holds water since almost every vendor has multiple acquired products in its offering.    (Saba-Centra, Plateau-Nuvosoft, Peopleclick-Authoria, Taleo-Vurv-Learn.com, Oracle-Peoplesoft, etc.)

Rick Watkins, co-founder and CTO of Softscape, has a proven track record of developing innovative and integrated user interfaces and building a highly integrated product set.  As in all acquisitions, time will tell – but I have confidence that Vista knows how to manage this scenario and today most software vendors grow through such acquisitions.

Background on Softscape

I developed a particular fondness for Softscape over the years.  This company, which was essentially family owned, is a passionate, innovative, customer-centric organization which has slowly and steadily built a complete end-to-end software platform for all aspects of HR (beyond talent management).

Softscape was actually the first company that conceived of “integrated talent management” and I remember the first time I saw their platform five+ years ago.  At that point they were well ahead of the market and were evangelizing the need for an end-to-end HR Talent Management system (with the pieces built to work together).  Over the years they steadily succeeded in this quest and now provide a complete HR platform to some of the largest companies in the world (Nike, Sony, Seagate, and many others).   Our research shows that Softscape’s customers are, on average, the largest customers of any talent management software provider – so this is a truly global enterprise platform.

Because of its history, the company also built many advanced features which other software vendors have yet to conceive.  Three years ago Softscape introduced its HRMS, a critical part of a “people management” solution, which is becoming the next hot part of this space.  (Today the only talent management vendors that truly have an HRMS are Oracle, SAP, Silkroad, Ultimate, and Lawson.)  Two years ago Softscape introduced a set of tools for employee HR portals and self-service.  Last year the company introduced a module to manage talent mobility (a critical high-impact strategy in HR today).  And the company has had advanced features for applicant tracking, performance management, succession management, compensation, and even an LMS for many years.

I have talked with many Softscape customers over the years and they all express high degrees of satisfaction with the integrated, quality nature of the product and the company.  As a smaller private company, Softscape took each customer seriously and built a seasoned implementation team to help customers implement a solid, long-term solution.  Seagate, one of the pioneers in integrated talent management (Seagate was the first company who truly “got” the idea of cascading goals and development plans as a strategy for success), replaced its standalone talent management tools with Softscape several years ago and is now one of the most successful case studies in advanced talent management in the market.

The problem Softscape faced was simply one of limited capital, management depth, and scale.  As this market accelerates in size and growth rate (and yes, the market  is actually expanding), Softscape was having a harder and harder time keeping up.  Dave Watkins, the founder, is one of the smartest and most visionary people in this business – but did not have the “killer instinct” needed to compete with the likes of SuccessFactors, Taleo, Oracle, SAP, and the rest of the big-guns out there.  Softscape’s technology, service, and strategy has always been excellent – and now, with the help of SumTotal and Vista Equity, I expect to see the Softscape platform become far more successful in the market.

Bottom Line:  A New Force in the Marketplace

As I stated above, this acquisition creates a major new force in talent management software.   SumTotal is now a large, credible player and can meet the needs of any RFP (SumTotal now becomes one of the top ten vendors in TM revenues).  Armed with Softscape’s  mature product and success with large enterprises, I would expect SumTotal to aggressively ramp up its sales and marketing.

Remember also that the days of a “standalone” talent management platform are slowly coming to an end.  While most companies still have the need for highly specialized training systems (and most companies still have several LMSs), there is a growing recognition that all the core talent management software should integrate seamlessly together (today 75% of all buyers tell us they would like to bring all these tools into a single vendor offering).

When customers look at the integrated nature of the Softscape solution, they are likely to be pleasantly surprised  – it is one of the most integrated, end-to-end, complete solutions on the market.  With SumTotal and Vista now behind this product line, I think the gloves are really off and we will see a major new entrant in the battle for market share.

A final note:  we are soon to be launching our newest research with market share, customer satisfaction information, and vendor profiles in this critically important part of HR.  Please join me on October 18 as we host a webcast to discuss the impact of mergers on the LMS and talent management market.

As always, I look forward to your questions and comments.

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