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        Mark Smith's Analyst Perspectives

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        SumTotal Provides Clarity in the New Year

        The new year started off with a bang in the human capital management software market as SumTotal Systems acquired GeoLearning, a leading learning management system (LMS) software vendor.

        If you think this is just another acquisition, think again. I see GeoLearning as a strategic acquisition and a clearly offensive move on SumTotal’s part. Strategic, because vendors are looking to consolidate well-proven LMS and related talent management applications into a single comprehensive suite. And offensive, as GeoLearning had one of the few stand-alone LMSs, which is required technology to provide a complete talent management suite in the market. SumTotal’s competitor Taleo knew this when it acquired Learn.com in 2010 to deepen its capabilities. And we now have a new playing field with Plateau and Saba, both of whom have been expanding their LMS-centered application suites. This move is also offensive, as GeoLearning was partnering with SuccessFactors, which has no depth in this application area. This capability has become an enterprise-wide need as every organization has to virtualize learning and training processes and integrate them with talent management processes.

        If you are not familiar with GeoLearning, the company has been in business for 15 years, mostly in North America. Its GeoMaestro LMS is provided in software as a service (SaaS) as a cloud computing-based approach. GeoLearning has a couple of hundred employees—who will bolster SumTotal’s 600 or so employees—and more than 500 customers. These customers, including brand names such as Adecco, American Express, Armstrong, Black & Decker, Cabela’s, Dell, Edward Jones, FedEx Ground, Google, Kaiser Permamente, Simmons, Time Warner and Wells Fargo, tell part of the story behind this company. In recent years many of its competitors have begun to add additional applications, including performance, social collaboration and analytics to complement their LMS applications.

        This acquisition is a smart move. SumTotal Systems not only acquires market share with GeoLearning in not just the midsize market but also in the large enterprise. According to SumTotal, thanks to this acquisition, it will have more than 2,300 customers and more than 39 million users. I am not sure how large the market growth is for LMS itself but the complementary applications opportunity is quite significant; the correlation and need to integrate with analytics, performance and social-based business collaboration is quite large. GeoLearning had been expanding these areas and can provide both experience and applications in a field that SumTotal has been working at for many years but not as successfully as its prior acquisition, Softscape. I actually think the business collaboration applications. which GeoLearning calls enterprise social solutions, are part of the secret sauce vendors and users alike need to capitalize on this newly expanding opportunity. SumTotal’s competitor Saba knows this and has been expanding further itself as I assessed recently.

        SumTotal Systems is coming off its own reincarnation with the 2010 acquisition of Softscape. Spearheaded by Vista Equity Partners, the acquisition brought together a portfolio of applications from HRMS to talent management applications. Softscape, as I assessed, had a robust platform and applications portfolio but did not have the working capital it needed to expand its operations; that now is addressed in the new company. I witnessed probably the fastest transformation of an acquisition ever as SumTotal transitioned Softscape within weeks after closing and had a single presence at the annual HR Technology event that I reviewed. More importantly, the unified operations team has made it easier for customers to interact with one organization and for the company to communicate its milestones. SumTotal’s unified management team blends management from the organizations and its owner Vista Equity, and it appears already to be operating efficiently.

        The challenge now for SumTotal Systems is to keep the existing silos of customers satisfied in the LMS and talent management areas as they have at least three categories of technologies that competed previously in the market. SumTotal apparently hopes to emulate Oracle with its acquisition of so many application companies. It is hard to dispute the profitability of Oracle and the synergies of customers, but I hope SumTotal will not have the same challenges as it evolves its applications that Oracle has had; the company is just starting to show that value in Oracle Fusion for Human Capital Management, which I assessed recently.  On the opposite side is Plateau, which believes that a single integrated platform and suite of applications for talent management is the best approach. I have reviewed Plateau’s offerings, and they look to be formidable. Now other vendors looking for LMS applications only have a few vendors left to partner with or acquire. One of those is Outstart, which will be in the eye of many who want to get into this market.

        Now SumTotal Systems needs to fuel its voice in the market. That will require it to tell its new story and to ensure that the depth of its product organization and technologies is presented and validated. I also believe that one of the larger growth and transformational technologies will be in mobile applications. The company has yet to roll out this technology, which currently is he Achilles’ heel of the entire talent management category. Like its competitors, SumTotal does not yet support the Apple iPad and iPhone, Android and other technologies that have transformed the personal side of workforces in the last two years so that they support employee interactions, let alone management. I also believe that SumTotal could look at building a unified workforce analytics and planning environment that could interoperate across applications more easily, and it might look at further acquisitions of vendors like Aquire, eThority and Human Concepts. This is what SuccessFactors is betting on with a series of acquisitions in 2010, but it has yet to articulate clearly why it should be the independent keeper of workforce analytics for an organization.

        I like SumTotal’s aggressiveness. Buyers in HR need to start unifying their software efforts because the inefficiencies of having several suppliers have started to increase costs and resources, as well as the time required to meet operational and finance needs for human capital management. Today’s cloud computing silos must come to an end. The supplier who can establish and sell the business case not just to HR but also to the CFO will win the larger portion of business in the coming years. SumTotal’s acquisition of GeoLearning shows it clearly sees this.

        Let me know your thoughts or come and collaborate with me on Facebook, LinkedIn and Twitter.

        Regards,

        Mark Smith – CEO & EVP Research

        Authors:

        Mark Smith
        Partner, Head of Software Research

        Mark Smith is the Partner, Head of Software Research at ISG and Ventana Research leading the global market agenda as a subject matter expert in digital business and enterprise software. Mark is a digital technology enthusiast using market research and insights to educate and inspire enterprises, software and service providers.

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