Oracle Gains Momentum in the HR Software Market – A Story of Patience and Focus
For more than 35 years Oracle has been a player in the software market. Founded in 1977 as a database and technology company, Oracle is now one of the largest players in all areas of business software.
I recently spent a day with Oracle’s HR software product team and this article details Oracle’s history and current products this important and fast-growing market.
(This is the first of a series of articles on the major HCM software providers. Watch for an article on SAP-Successfactors and one on Workday coming later this year.)
Fig 1: Oracle’s World Headquarters.
The History: Oracle’s 20 Years of Growth into Applications and HR
In its early days, Oracle was a database technology company (founded in 1977), popularizing the market for SQL (Structured Query Language) database products and tools.
I spent my early career at IBM in the 1980s and Sybase in the 1990s, and had a ring-side seat to watch Oracle compete with IBM, Informix, Ingres, Sybase and others in the DBMS market through focused engineering, strong marketing, and aggressive sales. Starting from its roots as a database company, the product focus over time shifted to tools, middleware, and then later to applications.
Fig 2: Artifacts of the Database Wars in the 1980s. This billboard was placed outside Oracle’s HQ.
In the database market, Oracle has been called an innovator and fast-follower. The company popularized the widespread use of SQL as an application development environment, establishing a new platform to build applications. In its founding years the company popularized the use of SQL on standard computers when IBM DB2 was a niche product and most cmopanies were running hierarchical or network databases (IMS, CICS) on mainframes. In those days application programmers had to really know how the database technology worked.
What made Oracle grow rapidly was the company’s focus on a standard multi-platform database when there were dozens of computing platforms avaiable. Oracle ran on IBM mainframes, UNIX servers, and a wide variety of other computing systems. Over time many corporate IT departments found they could build skills in Oracle and then reuse these skills (and applications) on all their internal platforms.
The company also innovated in its architecture – commercializing the multi-processor database, distributed database (IBM had two-phase commit before Oracle but it required complex IBM middleware), fault-tolerant database, parallel database, and PC-based database. (Even today the database industry continues to be competitive, with OpenSQL, non-SQL, Hadoop, and Microsoft products growing rapidly).
Oracle Enters Applications Market, Acquires PeopleSoft
As computing evolved and relational database technology became the foundation for business applications, Oracle started to build its own business applications. The company’s early apps were limited in functionality, but the company iterated and in time developed an entire suite of business applications now called Oracle e-Business Suite.
I remember many meetings with Oracle as these applications were coming to market and the company was selling learning management systems (one called Oracle i-Learning, another called Oracle Learning Management), payroll and HR applications, and later core HRMS systems.
(As part of this strategy the company also built out a middleware offering, acquiring BEA in 2008 and expanding into tools for application development and integration. Oracle has always been in the “software plumbing” business, offering both core database and tools as well as business solutions. This focus on infrastructure later led to the development of Oracle Fusion Middleware and Oracle Fusion Applications, which are tools built to enable applications in a cloud architecture.)
In the 1980’s and 1990’s the HR software market emerged as a segment of its own, driven by a prominent player, PeopleSoft. While Oracle, SAP, and many others offered HR software as part of their ERP suite, PeopleSoft, which was founded in 1987, marketed heavily to the HR buyer, offered a highly functional HRMS and set of tools, and offered a new client/server architecture. PeopleSoft ran on the Oracle database but competed with Oracle in its applications business.
In the 1990’s PeopleSoft grew rapidly and established prominence in HR. Most PeopleSoft customers also had SAP, Oracle, or another software provider for financials, supply chain, and manufacturing. As PeopleSoft grew, the company started to compete with the larger ERP players, who all started to build more advanced HR and talent applications.
This shift forced PeopleSoft to expand its focus into financial and ERP solutions. In 2003, after starting to build its own financials, PeopleSoft aquired JD Edwards, an integrated accounting system designed for mid-sized companies.
(Workday, which is founded by ex-PeopleSoft executives, learned from this history and has focused on delivering an integrated ERP solution, albeit initially focused on core HR.)
While the PeopleSoft’s ERP strategy made sense, the company was now spread thin. And while this shift was occurring, the market for talent management software (recruitment, performance management, learning) was also starting to explode. PeopleSoft found itself simultaneously trying to build financials, manufacturing, as well as a new breed of talent solutions (along with analytics and HR self-service). The company had a lot on its plate.
As often happens in fast-growing companies, new product expansion is hard to manage. While a company can pioneer one segment, it is often hard to continue this innovative position in multiple segments. As PeopleSoft expanded, some of its product plans started to slip, making the company a candidate for acquisition. Eventually, as PeopleSoft struggled to maintain its growth, in early 2005 Oracle came along and acquired it.
Oracle’s acquisition of PeopleSoft was big news in the software industry and challenged Oracle to show that the company could integrate a highly successful software company with a unique corporate culture.
History has shown that Oracle has managed PeopleSoft effectively. Today PeopleSoft products are still maintained and enhanced, and while they are no longer the platform for innovation at Oracle, the company has invested in the product, taken care of the teams, and continues to support the brand.
In addition, much of the intellectual property and knowledge of HR embedded in PeopleSoft has been extended into Oracle HCM Cloud (Oracle’s newest suite of HR applications).
Explosion of Talent Management, Moving to Cloud Computing
In the early 2000’s the market for talent management software exploded (recruiting, learning, performance management, compensation). Companies like SuccessFactors, Taleo, SumTotal, Saba, Plateau, CornerstoneOnDemand, and Authoria were growing rapidly and PeopleSoft was not keeping up. The category itself was now considered a major buying segment and these smaller companies started to consolidate.
At the same time, cloud computing (originally called SaaS), also took off. Oracle, likely feeling pressure to build cloud-based applications, promoted Fusion middleware as its strategy to build cloud-based applications, but the solutions were slow in coming. Workday, SuccessFactors, Taleo, and other cloud HR software vendors were growing rapidly.
SAP, one of Oracle’s largest competitors, faced a similar challenge. SAP’s HR software products were highly integrated with the company’s ERP system, but were not popular with HR managers and also lacked talent management capabilities. They, like Oracle, had competed with PeopleSoft and clearly saw Oracle as a threat.
In December of 2011 SAP made a bold move. SAP acquired SuccessFactors, one of the leaders in cloud-based talent management.
At that time SuccessFactors was a fast-growing cloud-based talent management company that began its life in performance management software (employee appraisals). It had expanded into recruiting and learning (acquiring Plateau, one of the more scalable learning management systems), and was now selling an employee records management system called Employee Central.
SAP paid $3.4 billion (10x sales) for the company, making it one of the larger deals at the time – creating a buzz about industry consolidation. SAP went even further, stating that SuccessFactors was going to become the core of the company’s HR software offerings.
The SuccessFactors acquisition set off a new set of challenges for Oracle. Its biggest ERP competitor now had a fast-growing cloud talent management business, Workday was growing rapidly, and the Fusion strategy was slow to mature. Oracle needed to evolve.
Oracle decided to make another strategic acquisition. Within a few months the company announced plans to acquire Taleo, the #2 talent management software vendor in the market and the clear leader in talent acquisition (applicant tracking systems) software.
Now well along with the PeopleSoft integration, Oracle announced that Taleo would be integrated into its HCM strategy. (Taleo was also located in Pleasanton, California so many of the Taleo team were friends and alums of PeopleSoft employees.) Taleo had thousands of recruiting customers, had recently built a performance management product, and was busy building more. The company had recently acquired Learn.com to become the company’s cloud-based LMS.
Suddenly, through these acquisitions, Oracle had become the #1 HCM cloud-based software vendor in the market (measured by number of customers).
Oracle HCM Today: Becoming An Integrated Suite
While it may seem easy to acquire a software company, in reality it is dauntingly complex. Products and architectures must be integrated, key people often leave, and customers become confused about the brand, support, and long term direction. And competitors, many of which are quite capable, pounce on customers and spread fear, uncertainty, and doubt.
In the years since the PeopleSoft and Taleo acquisitions, Oracle has worked hard to bring the products together. Our recent look at the end-to-end suite shows that Oracle HCM Clous is now an integrated set of products, with innovative and industry-leading features in several areas.
Let me cite a few of the key things we learned:
- Oracle now has more than 6,000 HCM customers (combining all the products) with 45 million licensed end-users (Oracle public statements)
- Oracle now has 650 HCM Cloud customers (not clear how many have gone live however)
- The company has redesigned its user experience, so all the modules look and feel integrated
- New Oracle HCM apps are now built on mobile first, to create an integrated mobile experience
- Time and labor, workforce management, compensation, and advanced analytics are all updated
- Oracle has launched three new employee life/work apps: Employee Wellness Management, Reputation Management, and Competitions
- Oracle’s new learning management (Oracle Learning Cloud), is based on a video-based interface similar to YouTube.
Fig 3: Oracle HCM Cloud Product Scope
Many have wondered when Oracle’s core HRMS and payroll would run completely on the cloud. The company has now reached that point. One of the customers we talked with (a global technology company with 3,000+ employees) told us they got the entire new HCM system up and running in 4 months (with no customization). While Oracle’s market share in cloud-based HRMS is well behind that of Workday, the company is now signing up clients.
In the area of analytics, Oracle has been investing for years (including acquiring IRI Express and Hyperion, two early pioneers in multi-dimensional analysis software). Oracle Business Intelligence, the company’s analytics and data warehousing software, is now available on the cloud. While Oracle uses proprietary parallel processing and analytics tools, there are now proven open source analytics tools available (Hadoop, Spark, Mapreduce, and others), enabling competitors to move rapidly. Both Workday and CornerstoneOnDemand, for example, have analytics solutions based on Hadoop.
The big trend in HR analytics today is predictive modeling (ie. correlating people data to business outcomes to make better management decisions). Workday and Cornerstone each have proven products in this area, focusing on problems like flight risk, career pathing, and compliance risk prediction. Oracle developed a predictive analytics solution called Oracle Workforce Predictions which tries to predict employee attrition and employee potential, which we believe is based on Oracle proprietary technology. We have not yet talked with a client using the software but it has been in the market for a few years.
To test and scale the technology, Oracle is now also using its HCM software internally.
Oracle’s New Work/Life Apps for the Digital Workforce
The HR software market is expanding into many new areas every year, including employee-facing applications to make work easier.
In this category, Oracle recently launched three new apps. These are called My Wellness, My Reputation, and My Competitions. They fall into the category of “making work better, more fun, and more enriching,” which I call “Making HR a Force for Good.”
My Wellness manages exercise and fitness activities and collects data from FitBit, Apple Watch, and other fitness devices. While it is not clear whether employees will want their fitness data stored in their employer’s HR system, we know that many organizations are looking for these kinds of tools as employee benefits and wellness solutions.
Fig 4: Oracle HCM Cloud MyWellness App
My Reputation gives employees tools to develop, promote, and manage their social presence. This application has the potential to help employees expand their presence on social networks (Facebook, Twitter, etc.), and can also help improve a company’s employment brand. We discuss the trend toward the integration of personal employee data with corporate data in the article “People Data Everywhere” in our 2015 Deloitte Human Capital Trends.
Fig 5: Oracle HCM Cloud My Reputation App
The MyCompetitions app lets companies create team awards and competitions for walkathons, donation programs, or other employee group activities.
While none of these applications are fully complete yet, they represent Oracle’s intention to innovate and stay ahead of the HR software market. I see a major shift in HR software away from back-office to employee-facing tools, and Oracle is now focused in this area.
Oracle’s New Learning Cloud
One of the trickiest parts of Human Capital Management software over the years has been learning management. Enterprise learning management is a complex area with hundreds of arcane features (compliance, certification, scheduling, training units, analytics etc.). While the market is 20+ years old and well established, incumbent vendors have struggled to stay current with new market needs. Today, while there are more than 200 different LMS companies, there are only a few market leaders (Saba, SumTotal, CornerstoneOnDemand, Oracle, and SuccessFactors) with more than 5% market share each.
The LMS market has evolved significantly: from that of a classroom management system in the 1980s, to an online learning catalog in the early 2000s, to a system to host, manage, and publish videos and a wide variety of content. Compelling new learning portals look like YouTube, not course catalogs – and this has challenged the LMS vendors.
Oracle, as I discussed above, has years of experience with LMS systems. The company now owns i-Learning (an older e-learning platform), Oracle Learning Management (the traditional LMS included in E-Business Suite), Oracle Learn (the Learn.com platform acquired through Taleo), and is now developing a new product called Oracle Learning Cloud. According to the product team, Oracle Learning Cloud will be the new strategic offering for Oracle HCM Cloud. While it is missing much of the functionality of the other products today, the team is using it as the new development platform for all advanced features.
Fig 6: Oracle Learning Cloud
The product is focused initially on video-based learning and video sharing, and will be extended with more social features and formal learning management over the next few years.
People, Support and Staff
Perhaps more important than the products is Oracle’s investment in the people to make HCM successful. Oracle now has dedicated HCM sales and service professionals around the world and has also hired a team of senior HR professionals to advise clients. Oracle’s internal HR team, which is now using the product, is also part of the customer set advising Oracle’s product group. (We met with one of the senior VPs of HR at Oracle who helped explain the product to us.)
The product people we met with are experienced, knowledgeable, and many come from PeopleSoft heritage. They understand the market and plan to innovate in the space.
The Journey Will Not Be Easy: Competition is Strong
This is not to say that Oracle’s journey will be easy. Oracle’s large customer base of PeopleSoft and Taleo customers creates tremendous complexity, much of which has not gone away. The company must take care of all these customer relationships (with product fixes, features, support, and consulting) while simultaneously evolving its products into a new cloud-based suite. Competitors frequently point to the old software Oracle has to maintain.
But as this history points out, the company has built an arsenal of products and deep experience in the market. While there is still a lot of legacy software behind the scenes, Oracle is managing the product transitions and remains focused on bringing all new functionality to the cloud. With $566 Million in cloud revenues in total (in all Oracle product areas) growing at over 30% per year, the company is already a major cloud player.
The HR software market, which is well over $20 billion in size, is very competitive. Workday and SAP have quite a lead and companies like ADP, IBM, Ceridian, Infor, and other ERP players are investing heavily. In the HCM market, many innovators have entered, including fast-growing Ultimate Software, Zenefits, and Namely, which focus on mid-market companies.
In the talent management market, vendors like CornerstoneOnDemand, Skillsoft-SumTotal, Saba, PeopleFluent, Halogen Software, iCims, Jobvite, SmartRecruiters, and many others continue to grow. We estimate that there are more than 200 LMS, recruiting, and talent management vendors and each is innovating in special and unique ways.
Despite this competition, however, Oracle is now well positioned. The company has engineered its way into the market through acquisitions and focus, and is positioned to grow in the years ahead.