SuccessFactors Q2 2011 Financials – Plateau Moves to SaaS Focus
SuccessFactors just announced another stellar quarter (48% YTY growth in revenues, 42% YTY growth in billings), and the CEO Lars Dalgaard talked extensively about the company’s progress with the acquisitions of Infohrm, Cubetree, Jambok, and Plateau.
First, from a financial standpoint SuccessFactors continues to grow at an amazing rate. The talent management software market is becoming more penetrated (our research shows that nearly over 20% of buyers have some form of talent management software in place now), but the market has consolidated significantly and the top ten vendors are now capturing more and more of the opportunity. (Our 2011/2012 Talent Management Systems Market research will be coming out in September.)
SuccessFactors in particular now has become a “supermarket” of talent management software (Lars’s term), with offerings including workforce planning, performance management, employee directory and HRMS-lite, compensation management (multiple offerings), recruiting, informal learning, collaboration, and world-class formal learning management. Added to this SuccessFactors has built a wide array of dashboards and goal management tools which cross into the area of “Business Execution” software – and the company has a lot to sell.
Second, this expansion of offerings shows how the Talent Management Software market has expanded horizontally in the last few years (and will continue to do so). New areas of HR software like the various elements of social recruiting, management of the contingent workforce, rewards and recognition management (another white hot space), engagement management, employee self-service, internal social networking, and workforce scheduling are all getting “thrown in” to the talent management software market. A company like SuccessFactors, with around a $300 Million run-rate business now, can add new products to its sales and platform and most customers are happy to buy more and more software from a single provider.
The challenge for companies like SuccessFactors (and Taleo, SumTotal, PeopleFluent (formerly PeopleclickAuthoria), CornerstoneOnDemand, Saba, Lumesse, Meridian, and others) is making sure these different products are integrated and training their sales and service teams to position, sell, and support all these various components. And with SaaS architected solutions, offerings like Jambok, CubeTree, and Plateau can be integrated very quickly. Look how quickly companies like Google and Yahoo can absorb an integrate a web-based business (AdWords and AdSense are actually integrated solutions from acquisitions).
Third, the SuccessFactors results show how this market has now moved beyond one of “internal software development” to a land grab for new application areas. In the last two years more than 20 different talent management software companies have been acquired, showing that buyers and the financial community are now looking for “Talent Management Supermarkets” – not “Talent Management Specialty Stores.” While this market is enormously big and diverse (the mid-market and small business market is still very immature), it has evolved beyond the point of point solutions and it is very much in the interest of companies like SFSF to convince buyers that a single end-to-end solution provider is the safest choice. (We will discuss this a lot more in our upcoming report on the market itself.)
Now a few comments about the Plateau Acquisition.
We have worked with Plateau for many years and this company was (and still is) one of the premier enterprise-class solutions for corporate learning. The learning management marketplace, which is over $1Billion in size now, is what we call a “bread and butter” market – everyone who does training needs this kind of solution. SuccessFactors has now integrated Plateau into the company and claims to have done “one deal a week” since the acquisition was announced.
Plateau was in the middle of its transition from a licensed software to a SaaS business when they were acquired. At the time of the acquisition, around 1/3 of Plateaus’ revenues came from support and professional services – and many of Plateau’s largest customers (companies like Apple, RIM, and many Federal Agencies) are using Plateau in a licensed model. SuccessFactors has absorbed this business and plans to keep the Plateau professional services organization in tact – but stated publically that they are no longer selling new licensed software deals. Existing customers (and these are large organizations) will be supported, but over time SuccessFactors has “bitten the bullet” to migrate these companies to SaaS as soon as practical.
This is a sound financial decision – it helps SuccessFactors focus its R&D efforts on the SaaS implementation of Plateau and slowly enables the company to keep its margins high (gross margins dropped slightly this quarter because of the absorption of more professional services staff). The company understands that the implementation and integration of an LMS is not an easy task – so SuccessFactors will continue to invest in its services team even as it slowly moves away from the licensed software model. It does, however, open up the licensed LMS market to other vendors like Saba and Meridian (who continue to grow).
We have not yet seen a demonstration of the integrated solution between Plateau, Jambok, and CubeTree (I expect this is coming soon), but one of the big strengths SuccessFactors now has in the learning industry is the ability to sell a solution which spans the wide range of needs from social learning, collaborative learning, expertise sharing, formal training, career development, and other forms of informal learning. The combination of Plateau, i-Content (Plateau’s content distribution network), Jambok (video and content sharing), and CubeTree (collaboration), makes a very compelling story. While we do not believe the pieces are fully integrated yet, it’s only a matter of time – and it is now clear that SuccessFactors “gets” the learning industry in a major way. Vendors like Saba, CornerstoneOnDemand, SumTotal, Meridian, Blackboard, and others now face a competitor with a lot of tools to sell and a deep legacy in the corporate training industry.
This is not to say that SuccessFactors has an easy road ahead. Even with 1400+ employees, the company has a lot of products to sell and the learning management systems market is very well established with highly educated buyers. The company has to maintain its investment in R&D, support, and training to grow the Plateau base.
Recently SuccessFactors added a red heart to its logo, attempting to revitalize its brand with the concept of “helping people love their jobs.” While this is great marketing, it’s not clear how much it has impacted the company’s offerings yet. Right now SuccessFactors is in aggressive growth mode and focused very heavily on becoming the largest SaaS provider in HR (and other business software categories). Our new data on customer satisfaction (which will be released soon) shows that customers still find talent management software difficult to implement, difficult to integrate, and difficult to use. While I am sure that SuccessFactors investors “feel the love,” buyers of talent management systems are still less than fully satisfied with their solutions. We are looking forward to seeing more how the products and services which SuccessFactors provides truly help people “enjoy their work.”
One of the things we do know from all our research is that well-implemented talent management, leadership, training, and recruiting strategies have huge impacts on business performance. Goal alignment and business execution dashboards are only a small part of the benefits companies see with integrated talent management. And ultimately the biggest benefit of a well managed workforce is that people are in the “right jobs” for their skills and they are given “continuous feedback and improvement opportunities” in whatever role they have. If SuccessFactors can help companies execute this well, then the company can “deliver the love.”
More to come as we finalize our talent management and customer satisfaction research this Fall…