The acquisition frenzy in the enterprise software market continues. The announced acquisition of Taleo by Oracle will remove the independence of another successful cloud-based software company. Publicly traded Taleo (NASDAQ: TLEO) provides talent management applications on a rental cloud computing basis. Acquiring Taleo, which by all accounts has done a good job of growing the recruiting and applicant sourcing software business in a scalable cloud environment, was too good for Oracle to pass up. SAP’s much costlier acquisition of SuccessFactors, which I assessed clearly placed more pressure on Oracle to do something rather than nothing.

On the downside, Taleo had been growing overall but had been struggling to gain significant adoption of its portfolio in areas like analytics, compensation, performance and succession. Taleo recently expanded its portfolio by acquiring learning management system provider Learn.com, midmarket recruiting-focused Cytiva, and European provider Jobpartners to further its reach and portfolio. Taleo had introduced some innovations in social media and mobile computing, which I assessed after its Taleo World 2011 conference.

Oracle has been working to build human and talent management capabilities but has struggled to get companies to adopt Oracle Fusion for HCM (see “Cloudy Forecast for Oracle Fusion for CRM and HCM”). Oracle has not effectively marketed and sold that to HR and business leaders and has been outpaced by applications such as those from Taleo and others including ADP, Cornerstone OnDemand, Peoplefluent, Saba, SuccessFactors, SumTotal Systems, Ultimate Software and Workday. I’ve already discussed the rise of Workday in relation to Oracle and the challenges Oracle has had in keeping its legacy PeopleSoft customers, many of whom did not migrate to Oracle Fusion HCM but switched to Workday. We have also seen customers of PeopleSoft Financials embracing Workday, as my colleague Robert Kugel pointed out.

Customers, employees and shareholders of Taleo must wonder whether Oracle will follow the same pattern as in other acquisitions but as an industry analyst in enterprise software tracking Oracle for a good amount of time and been part of one of their acquisitions in the 1990’s, it is pretty predictable. In most cases Oracle will lay off as many employees of the acquired company immediately and then more within a year. In this case Oracle might keep more than usual around due to the lack of success so far in growing its cloud computing application business. Taleo is headquartered in Dublin, Calif., close to the Oracle facilities in Pleasanton that once belonged to PeopleSoft, so it can easily house the employees it keeps.

Until now Oracle did not have a significant product in recruiting and lacked depth in learning. From Taleo it will gain important software assets to place in its Oracle Fusion for HCM cloud and even in its on-premises offering. But Taleo’s applications in compensation, performance, succession and analytics overlap with Oracle’s and did not have significant adoption, and likely will be placed into maintenance to extract what revenue can be attained. Organizations that currently use Taleo software should immediately reassess their portfolio and cease any further deployment of applications whose future is in question.

If your organization has committed to Taleo’s integrated suite for talent management applications, this pending acquisition will hinder your efforts and you should pause immediately and assess any further action or adoption. If you are using Taleo for recruiting and learning, be aware that Oracle has announced it will move these and the other applications to its public cloud environment, which will delay upgrades in the software and impact future roadmap commitments. The advances that Taleo was making in mobile and social computing, such as Taleo Radar, also are likely to be dropped, since Oracle has its own approach for these areas, which is used across Oracle Fusion Applications and Middleware.

Oracle’s announced intention to move the Taleo applications to the Oracle Public Cloud is to be expected, though Taleo had a considerable presence measured by the volume of customers and transactions operating in its cloud environment. In fact, with this announcement, Taleo has provided statistics showing that 15 percent of all new hires flow through Taleo applications. The company says Taleo accounts for 74 million transactions per day and has 240 million candidates in the Taleo Talent Exchange. I doubt that Oracle has anywhere near this level of volume and experience in its Public Cloud. It will be interesting to see how moving the Taleo applications will impact customers’ performance and scalability.

I have seen some pretty bland analyses of this announcement that fail to consider Oracle’s track record with acquisitions and their impact on customers, software and people. Customers and potential buyers of Taleo should be skeptical of any announcements from here on. Oracle and Taleo did not even bother to have a call on the announcement and just published a presentationfrequently asked questions and a limited and immaterial letter from an Oracle executive of which all are pretty useless to base any real decision. That reinforces my analysis that this will be an acquisition that Oracle picks through quickly in regard to software and Taleo employees and keep as many of the customers as possible.

Taleo’s competitors now have an opportunity to expand their businesses during the expected turmoil of Taleo’s transition into Oracle. Taleo had not addressed some of the key application issues that I have researched extensively and commented on, such as digital interviewing with HireVuesourcing across all applicant channels, including social media, with Talent Technology and sophisticated workforce analytics like that of eThority and Visier. Factors like those should now be a larger concern for businesses that are considering the Oracle and Taleo combination, since they are critical gaps in the current Oracle and Taleo application portfolios. This acquisition does not help validate Oracle Fusion HCM which still is not very widely adopted and is early in its evolution of sophistication and Taleo customer should expect to hear shortly how important it will be to review it as part of Oracle eventual cross-selling activities.

Anyone using Taleo should take immediate action to assess and review the implications of this announcement to their talent management strategy and processes. The progress of this merger also will be something to watch very closely.

Regards,

Mark Smith – CEO & Chief Research Officer