Oracle's pending Taleo buy responds to SAP's planned SuccessFactors acquisition. Upon completion, the move would improve Oracle's talent management capabilities and further its software-as-a-service strategy.
On 9 February 2012, Oracle announced that it has entered into an agreement to acquire Taleo, a provider of software as a service (SaaS)-based talent management offerings. Oracle would pay $1.9 billion — the net of Taleo’s cash and debt. Oracle expects the transaction to close in mid-2012, subject to Taleo stockholder approval, certain regulatory approvals and other customary closing conditions.
Oracle's pending acquisition of Taleo would be its second major SaaS acquisition in four months, with its most recent acquisition (RightNow) completed in January 2011. Oracle made this latest move partly as a response to SAP's pending acquisition of SuccessFactors. Like SuccessFactors, Taleo has a strong position in the talent management market. The company has a significant portfolio of acquired and developed talent management solutions, including e-recruitment, performance management, compensation, succession planning and learning management offerings.
Upon completion, the Taleo acquisition would give Oracle a much stronger recruiting solution to sell to its installed base as the company’s PeopleSoft and E-Business Suite (EBS) solutions lag behind the market. The vast majority of Taleo's 5,000 customers deploy Taleo's e-recruitment application. Taleo's other talent management applications have fewer customers, and overlap significantly with existing and planned Oracle applications. As a result, Oracle will face challenges integrating, rationalizing and communicating multiple SaaS product architectures and road maps.
We believe this marks a shift in Oracle's strategy, as it has previously positioned its new Fusion Human Capital Management (HCM) application and underlying Oracle Fusion Middleware technology as its primary SaaS/cloud offering. Now, it has two offerings. We believe Oracle needed a tactical response to SAP/SuccessFactors and Workday’s rapid growth because Oracle Fusion applications still have few production customers.
We expect Oracle to adopt a "SaaS unlimited" strategy. Oracle will treat its SaaS acquisitions like any other Applications Unlimited solution. It will be opportunistic to integrate SaaS solutions with the rest of its portfolio (for example, Taleo Enterprise Edition Recruiting with PeopleSoft, EBS and Fusion), while also selling the solutions on a stand-alone basis.
Oracle will likely acquire additional SaaS vendors. However, the "SaaS unlimited" strategy will face challenges from single-platform-focused vendors such as NetSuite and Workday.
Taleo customers: Stay the course in recruiting. Taleo's products are stronger and should see continued investment. Customers using other Taleo solutions should push Oracle to provide commitments on product support and development road maps once the deal closes.
Taleo prospects: Organizations considering Taleo’s recruiting solutions should stay the course. Those considering other Taleo solutions should get specific contractual commitments for any significant functional enhancements needed (as well as pricing for anticipated purchases). This is a good time to negotiate with Taleo as it will be anxious to show strong results prior to the deal closing. Ensure that any contracts include the appropriate change-of-control clauses.
Oracle customers: Consider Taleo against existing alternatives. Once the deal closes, look for a road map illustrating Oracle's plans to integrate Taleo solutions with the existing Oracle portfolio. We believe this integration may disrupt Fusion HCM adoption (and its road map) as fewer customers opt to go with Fusion Talent Management in a coexistence scenario with their established Oracle core human resource management systems.
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