Update on Saba: Turnaround In The Making?

sabaLast month Saba, a pioneer in the market for enterprise learning and talent management systems, held its annual customer conference (more than 700 learning and HR professionals attended).  I had a chance to meet with the management team, talk with many customers and employees, and talk with Saba’s new owners (Vector Capital).

My conclusion, having worked closely with Saba for almost 15 years, is that the company is in the early stages of a potentially significant turnaround.

Saba’s History is the History of Online Learning and Talent Management

The market Saba plays in is a $4+ billion software (Cloud) marketplace for corporate learning, recruiting, and talent management software. While the market is very competitive and quite crowded, Saba has staked out a major position and after many years of product transition, is now in a position to grow.

Bobby Yazdani, Saba’s founder, pioneered the concept of enterprise learning management. In 1987 when the first Saba product arrived, businesses were experimenting with online learning and they had old-fashioned, client/server or mainframe systems for training administration. (CD-ROM-based training was still big.)

Bobby believed there was potential to build a new type of enterprise software: a learning and knowledge management platform which would help every employee, manager, and training professional create, manage, measure, and certify training around the world. He was right.

Prior to Saba there were many training management systems, but most were focused on the administration and scheduling of training classes and the storage and delivery of CD-ROM based training. Some pioneers build platforms for e-learning (Click2Learn, Docent, Pathlore), but none were designed for global implementations and none had the certification, customer training, compliance, and enterprise management features of Saba. So Saba quickly became “the enterprise standard.”

In those days Saba was a client/server application and companies hired Saba (and others) to highly customize the software for their particular needs. So almost half of Saba’s revenues came from professional services and the company’s product gained a reputation for being highly functional and very scalable, but expensive and time consuming to implement.  I had the opportunity to work part-time for Saba during my early days as an analyst and was amazed at the product’s architecture and advanced features for competency management, compliance administration, e-commerce, and knowledge management.

Of course all that complexity quickly became a burden, and as the world moved to the web (SaaS originally), Saba worked hard to re-engineer the software for the cloud. During that period of time, led by Yazdani, the company innovated aggressively. Saba acquired Centra (a pioneer in virtual classroom technology), developed one of the first corporate social networking systems (called Saba Social), and build a performance management product long before the category became popular. These innovations were bold and exciting to customers, but as Saba released new features, a wide range of competitors built new cloud-based learning management systems from scratch.

Most of these early competitors (Click2Learn, Docent, Pathlore, Learn.com, and Plateau) grew rapidly and were then acquired by others. (Click2Learn, Docent, and Pathlore are now part of Skillsoft; Learn.com is part of Oracle; Plateau is part of SAP.)  Saba, as a public company with the pressures of meeting financial expectations, continued to evolve its product to the cloud but found itself surrounded by large ERP-like competitors.

I remember spending time with the CEOs of most of Saba’s competitors, and at one point the market felt like musical chairs. Every enterprise LMS company was hoping to be acquired by a major ERP, and the vendors were all looking for partners because they knew that Oracle/PeopleSoft, SAP, ADP, IBM, and other big players wanted in. Saba continued to stay focused on its own customers and worked hard to evolve its product to include advanced talent management features, recruiting features, and become 100% architected for the cloud.

LMS Market ShareToday, in the global enterprise learning systems market, the major players are CornerstoneOnDemand, SuccessFactors-SAP, Oracle, and SumTotal Systems (now Skillsoft). These companies have built advanced learning and talent management features and each see learning as a critical part of their product line. So while the market has grown and expanded tremendously, there are only a few vendors that can meet the needs of complex global organizations.  (Many vendors will argue this point of course.)

In the market for enterprise or mid-market learning and talent management solutions, there are more than 100 different vendors (including ADP, Infor, Ceridian, Ultimate Software, PeopleFluent, Halogen Software, HealthcareSource, IBM, and many others). And in the market for recruitment systems alone, there are many advanced solutions, with Oracle (Taleo) and IBM (Kenexa) considered the leaders and companies like JobVite, iCIMS and others continuing to grow and possibly looking for partners.

While this fascinating market was growing and becoming more mature (the differences between vendors gets smaller each year), another major shoe dropped. Workday entered the space and quickly created a market for a whole new cloud-based solution for enterprise HRMS and ERP. Today the talent management software market is being threatened by ERP solutions from Oracle, SAP, ADP, and potentially Workday (who has yet to launch an LMS).

Today:  Saba is a Changed Company

I have been working with Saba regularly for almost 15 years, and things started to change two years ago.

In the summer of 2013 Shawn Farshchi joined Saba as the new CEO.  Prior to Saba, Shawn had experience as COO at Coremetrics and CIO at Webex, where he managed modern cloud computing technology and led a series of strong engineering teams. Many of these ambitious, experienced engineers and product managers have now joined Saba, giving the company a fresh, young team of engineering and product leaders who completely understand cloud computing, analytics, and social networking.

Following this leadership change, the company went private and earlier this year was acquired by Vector Capital, a private equity company which assembled a variety of investors to help Saba reinvest for growth. I talked with the lead partner at Vector and he sees Saba as a growth platform. He sees Saba as primarily a cloud company going forward, with the “tail of customers” remaining on their licensed product.

Farshchi assertively told us that the company will not force any licensed customers to the cloud, so while Saba is not significantly enhancing the licensed software product, they plan to maintain it for years to come as their large customers move to the newer, more functional cloud version of the platform.

I’ve met many of Saba’s new management team and their technology leaders are young, aggressive and forward-thinking. Once again Saba is pioneering new ideas (a Big Data recommendation engine for learning, a new Saba Benchmarking portal, and intelligent talent recommendations for compensation and recruiting – cutely named Tim “The Intelligent Mentor”).  These new ideas are precisely what customers are looking for, and for the first time in many years we being to see Saba as a company that brings leadership to the learning and talent marketplace.

While the market is highly competitive and now well known to investors and private equity firms, I often wonder how so many vendors continue to claim to have double digit growth. The reality is that integrated talent and HR software is an enormous market (virtually every business around the world needs this type of software) and there is a huge amount of replacement going on.  Our experience shows that companies tend to replace their core HR software every 7-8 years (some wait longer), so while PeopleSoft and Oracle and SAP may have thousands of customers today, every one of these shops around when it’s time for an upgrade. And now that the cloud is here, most companies have an excuse to look for a new vendor based on architecture alone.

Saba’s traditional customers (Deloitte is one) have millions invested in Saba’s enterprise learning management system, so many of them will take years to move to the cloud. And some will shop around and may pick another vendor in the process. But now that Saba offers a modern, well-engineered cloud product and has many advanced features, I believe more and more traditional Saba customers will select Saba as their cloud vendor.

The Softer Side of the Story

The final thing which gives me confidence is the softer side of the company: Saba’s culture and employee engagement. I have personally been consulting with Saba for almost 15 years and have had the opportunity to work with many management teams over that period of time.  Some of them remain, but many are new.  As the company went through its many transitions (acquisition of smaller companies, shift from learning to talent functionality, movement to cloud, and evolution of its brand), I had the opportunity to get to know almost every executive each year. While all of them have been hard working, passionate, knowledgeable leaders, the latest team is among the most highly engaged, forward-thinking, and customer-centric crew I have met.

The enterprise software business is not for the faint of heart.  Competition is brutal and here in Silicon Valley smart people can leave and go to a startup or competitor at any time.  Saba has been able to keep its turnover rate below 10% during this transition and this last week I met several people who had left Saba and were now back working at the company again. There was a new feeling of excitement and teamwork I have not felt at Saba for many years. (Note that Saba’s Glassdoor ratings are 4.0, which is relatively high among mid-sized software companies.)

While the competitors are also great companies and the market is crowded, I believe Saba is about as well positioned now as the company has been in years. The market is still growing rapidly and Saba has strong industry expertise and lots of great customers to provide input.  With Vector Capital behind the company pushing for growth and a strong new management team, I put Saba on the list as an important company to watch.

(Click for more information on the Learning Management and Talent Management Systems markets.)

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