Oracle Corporation announced its purchase of Taleo for $1.9 billion on Feb. 9, 2012, signaling a major shift in its stance on software-as-a-service (SaaS) and talent management applications. The transaction is expected to close midyear 2012, subject to regulatory and stockholder approvals.

Oracle has long held a “we can build it better” position on talent management, learning, and recruitment applications but struggled to compete with best-of-breed talent management vendors like SuccessFactors (recently acquired by rival SAP), Taleo, Kenexa, Cornerstone, and SumTotal Systems. Oracle has been reticent to offer these (or any other) applications via SaaS, preferring a licensed/on-premises business model that provides early revenue recognition versus the deferred revenue model of SaaS.

In fact, Oracle CEO Larry Ellison has been outspoken in his anti-SaaS stance in recent years, changing his posture somewhat with the Oracle Public Cloud announcement at last October’s Oracle OpenWorld conference. Meanwhile, the HR apps market shifted overwhelmingly to the SaaS (subscription-based) deployment model, which has become virtually ubiquitous in recruitment, learning, and talent management and is also growing in core HRMS via ADP, Ultimate Software, and Workday.

By acquiring Taleo, Oracle puts itself back in the game for SaaS recruiting and talent management. Taleo is a market leader in recruitment automation and has a competitive portfolio of products across performance, compensation, and learning management. The $1.9 billion deal price is more than six times Taleo’s 2011 annual revenues of $309 million, a high premium but substantially less than the $3.4 billion and 11-times revenues that SAP recently paid for SuccessFactors.

Yes, there I said it. I can see the “Cult of SaaS” snipers congregating on the rooftops. Oh well, it was fun while it lasted.

In all seriousness though, when ServiceNow was quick to achieve success with its “SaaS-delivered IT service management goodness” at the tail end of the noughties, it was all about the SaaS (and customer satisfaction of course). It differentiated them from the ITSM tool vendor pack.

The "SaaS for ITSM" evolution

In a previous life I wrote about the potential for SaaS-delivered ITSM capabilities: SaaS and ITSM – a Marriage Made in Acronym Heaven? Who would have known that Service-now.com, as was, would have done so well, so quickly? I trust that their own projections were somewhat exceeded.

Some on-premise ITSM tool vendors said “unpleasant things” in the early days, but nigh on all of the major and minor ITSM vendors have since followed suit with their own SaaS offerings. In the spirit of the BBC and product endorsement I have to say that “other ITSM tools are available.” Check out some of the newest SaaS ITSM tool additions from Hornbill, LANDesk, and Numara.

Why is SaaS for ITSM a red herring?

Anyway, cutting to the chase … what sells a SaaS ITSM tool (or platform) such as ServiceNow? Many would think it is the fact that it is SaaS. I disagree.

SAP is a paying a substantial premium to acquire SuccessFactors, a leading SaaS performance and talent management vendor. The press release of December 3, 2011 states that the deal price of $40 per share is a 52% premium over the Dec. 2 closing stock price. Even more startling is that SuccessFactors has a revenue run rate of roughly $300 to $330 million for 2011, and the acquisition price of $3.4 billion is more than 10 times revenue! Why then did SAP make this move?

SAP’s cloud strategy has been struggling with time-to-market issues, and its core on-premises HR management software has been at a competitive disadvantage with best-of-breed solutions in areas such as employee performance, succession planning, and learning management. By acquiring SuccessFactors, SAP puts itself into a much stronger competitive position in human resources applications and reaffirms its commitment to software-as-a-service as a key business model.

In my recent research for a soon-to-be-published Forrester Wave™ on human resource management systems (HRMS), I noted that SAP has more than 13,000 customers using its HCM suite. Yet the adoption of SAP’s learning and talent management products is much less (a few thousand, perhaps), which is noted in my colleague Claire Schooley’s “The Forrester Wave™: Talent Management, Q2 2011.” The talent management Forrester Wave also clearly shows that SAP’s embedded talent management offerings lag well behind the best-of-breed specialists in learning and performance management. The bottom line here is that SAP HCM customers predominantly run best-of-breed talent management solutions alongside their SAP core HRMS (i.e., the transactional employee system of record).

Forrester has done quite a number of reports in the last two years around platform-as-a-service (PaaS) from the long-term strategy perspective from me and from the application developer perspective from my friend John R. Rymer. During this time, we saw many different business cases around PaaS. We have predicted and quantified that the major buying power of PaaS will come out of three camps:

1. ISVs are buying PaaS technology. This is a model that we saw with many ISVs on major platforms that managed to create a viable marketplace such as salesforce.com's AppExchange and Google's marketplace.
2. Corporate application developers are using PaaS to deploy custom apps and add-ons around SaaS applications. They are doing this significantly faster and at a lower TCO than before.