Analysts say IBM's plan to buy Kenexa Corp. could accelerate the emergence of social business technology in recruiting and talent management software, while providing new Software as a Service (SaaS) choices to IBM customers. But they wonder how the companies' differing strengths will come together to compete in the fastest-expanding segment of SaaS HR software -- one already upended by SAP and Oracle's high-profile grabs of SuccessFactors and Taleo.
"It struck me as an unusual deal because it isn't driven by the core business of Kenexa, which is pretty much a recruitment-driven business," said Paul Hamerman, vice president and principal analyst for business applications at Forrester Research Inc., based in Cambridge, Mass. "Kenexa hasn't been a stellar performer," Hamerman said when asked to rank the Wayne, Pa.-based vendor of cloud-based talent management software, outsourcing and consulting services. "They hadn't been profitable; they hadn't been competitive."
Lisa Rowan, program director for human resources (HR), learning and talent management strategies research at IDC, based in Framingham, Mass., agreed with that assessment. "They weren't at the top of the heap. What they have is good, but for reasons unknown to me, they really haven't made the mark that SuccessFactors had made."
IBM said it will continue to support and sell Kenexa's products, but did not provide a detailed roadmap. The merger is expected to close in the fourth quarter after Kenexa shareholder and regulatory approval.
Social media comes to talent management software
IBM's primary motivation for the deal is probably to convince CEOs and other senior executives that there are credible "use cases" for its social business technology, Hamerman said. An example of such a successful blending is Salesforce.com's Chatter enterprise social network. "They've had a lot of success around that because it's centered around closing the deal," Hamerman said. "Kenexa hasn't really integrated around social. IBM has the social platform and what Kenexa can do is give it some business context. IBM wants to sell more and more not to IT, but to the business."
By bringing the Kenexa tools and services to its social media platform, IBM can help accelerate the social trend in talent management software, according to Rowan.
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"They are building out social business and adding use cases," she said, referring to IBM's Smarter Planet initiative. "They're going to build using the Kenexa technology as the backbone technology, if you will. It's something sold to the CEO rather than the head of HR."
IBM may also be trying to bolster its substantial business process outsourcing division with HR software that it owns, rather than hosting other vendors' software like it does now for large customers, Hamerman said. "Clearly the strength of Kenexa was in recruitment technology and more recently in recruitment outsourcing," especially in applicant tracking and assessment tools, he said. "There's also a learning asset in there that IBM may be able to leverage," Hamerman said, referring to learning management software Kenexa acquired with OutStart early this year.
IBM's Monday press release announcing the deal confirmed the acquisition is meant to complement the company's social business and HR service efforts. "With Kenexa's world-class front-office process solutions, IBM will be able to offer strategic consulting, a social technology platform, and expertise on a global scale," the company said.
Deal could boost SaaS HR trend
The IBM-Kenexa combination could quickly become a major player in a talent management software industry that has largely shifted to SaaS and grown significantly, said Rebecca Wettemann, vice president of research at Boston-based Nucleus Research Inc.
The on-premises enterprise resource planning (ERP) heavyweights view their acquisitions of SaaS talent management vendors as bulwarks against a technology that threatens their traditional businesses, according to Wettemann, and IBM's backing of another SaaS platform only ups the ante.
What's more, the faster refresh cycles of SaaS make it easier for customers to defect. The Kenexa purchase is "certainly a way for IBM to reach a broader base of customers," Wettemann said -- a number the companies put at 8,900, including half of the Fortune 500. "Our data shows that customers are far more likely to switch SaaS applications after the first six months of deployment. Once you go beyond six month[s], the propensity to switch drops dramatically. It tends to peak again at 36 months."
Wettemann said IBM's history with acquisitions bodes well for current Kenexa users despite the absence of a roadmap. "What IBM is particularly good at is acquiring companies and then making the roadmap very clear to existing customers. What it likely does is drive a lot more R&D investment from IBM, especially across the broader talent management and workforce management space."
Rowan agreed, predicting that IBM will continue to enhance Kenexa's products. "What we know is they're keeping on the [Kenexa] management team, and they are continuing to enhance and sell. It wouldn't be a software roadmap -- it would be more of a services roadmap."