New Internet Bubble hits Talent Management Market

Remember the bubble of 1995-2000? I do, and it’s back again. But this time it has a new face, it talks about SaaS, highly connected social applications, mobile apps, and talent management software. Talent management software? Yes, SaaS-enabled talent management apps have become one of the hottest investment areas in enterprise software.

The proof is this week’s stunning public debut of CornerstoneOnDemand (CSOD).  The company went public on Thursday with an “eye popping” valuation of around $900 million (this is about 15-times bookings, or 50% greater than the multiple of SuccessFactors, which had been the industry’s darling).  This puts the company at almost 70% of the valuation of Taleo, which has more than four times the bookings and grew at 68% in Q4.  All I can say is “congratulations” to the CornerstoneOnDemand team, for well-positioning itself as the hottest new public software company in our marketplace.

We know Cornerstone very well, and this is a very successful company that started life as a training content provider, evolved into a SaaS LMS company, and then pioneered the concept of an integrated SaaS-based learning and talent management suite.   While Cornerstone looks like Plateau, Saba, or SumTotal from a functional standpoint, the company is very different because its entire roots are SaaS, enabling them to grow very quickly and rapidly add new capabilities.  We have talked with many of Cornerstone’s customers and the company does an excellent job of staying very close to its clients and rapidly developing the features they need.  Last year Cornerstone totally revamped its IT infrastructure and now claims to have the lowest cost per transaction of any SaaS talent management vendor.

We will be releasing a set of detailed bulletins on Cornerstone in the next month, so I won’t go much further in this post – but I wanted to point out that this public offering really demonstrates how important and “hot” the talent management software market has become.  Most major financial analysts are now actively following this market and nearly every software vendor in the HR space is now scrambling to build, buy, or partner in the area of talent management.

While I cannot vouch for stock market valuations, we do believe that the talent management software market (which is now nearly 10% of the total ERP software market) is going to continue to grow for years to come, and will slowly merge with the market for core HRMS systems.  Each of the four pillars (recruiting, performance and succession, compensation, and learning) are rapidly evolving and becoming integrated more each day.

Interestingly, as we will be unveiling at IMPACT 2011 (our research conference, please join us), the talent management market is going through a tremendous shift, as highly innovative social recruiting tools are being integrated with more traditional enterprise software tools.  We see this market taking on a new life of growth as the war for talent gets hotter (read our Q1 2011 TalentWatch report if you don’t believe there is a war for talent again) and social recruiting tools start to add rocketfuel to traditional recruiting systems.  Likewise social learning tools are providing rocketfuel to the slow-growing LMS market.

Anyway, times are good in the talent management software industry – and my hat is off to Cornerstone for building a great company, reading the market very well, and executing a flawless public debut in the middle of a very tumultuous week in world events.