Top HCM Applications Vendors In The Cloud and Market Forecast 2014-2018

For years, ADP, one of the pioneers in HR and payroll applications, has been offering one kind or another Cloud services via hosting for tens of thousands of clients around the world. In addition, Kenexa (now a part of IBM), SuccessFactors (now SAP), Taleo (now Oracle) and Ultimate Software have amassed thousands of customers each by delivering Cloud-based applications for talent management needs – automating functions such as eRecruiting, goal and performance management, onboarding, succession planning and workforce analytics – all without requiring them to run complex HR systems in-house.

More recently a slew of startups have shaken up the Cloud-based HCM applications market by leveraging the ubiquity of emarketplaces, social networks as well as middle market opportunities.

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In May 2014, 23 million individuals manage all types of benefits using Cloud services from Benefitfocus, more than doubling what the platform was supporting three years earlier. The platform connects these individuals with their employers that provide the benefits, as well as a growing contingent of carriers and brokers all have a stake in ensuring benefits administration is handled in the most transparent and efficient manner.

In 2009 Benefitfocus had 121 employers as customers with each paying about $77,000 so that their employees would have access to their benefits information via Cloud delivery. Today the number has exceeded 418 with each paying about $97,000 a year.

The same trend is happening across the flourishing social networks that have attracted ISVs that specialize in social sourcing, mobile applicant tracking, and Big Data analytics that enable recruiters to pinpoint the most qualified hires with precision and how they can go about to optimize the candidate experience.

The third leg of the stool that props up Cloud HCM applications lies in the middle market. Following the financial crisis, the middle market – especially companies with anywhere between 100 and several thousand employees – appears to be stepping up their hiring plans. Vendors such as Paylocity and Paycom have been able to penetrate a growing portion of the middle market by selling an array of payroll services as well as HCM applications to thousands of their customers, resulting in both doubling their revenues between 2011 and 2013. The average number of employees per customer at Paylocity is about 145.

The combination of the three factors will propel the Cloud HCM applications market as some of these vendors start taking their Cloud products to more places after building out scores of data centers around the world.

SAP as No. 1 in Cloud HCM

The growth of SAP in the Cloud HCM applications market mirrors that strategy. Following the acquisition of SuccessFactors in 2012, SAP has made HCM the key pillar of its Cloud agenda. By making the SuccessFactors Core HR and talent management more intuitive and more global in use cases, SAP has won over a growing number of customers.

Employee Central, the SAP SuccessFactors Core HR product, has more than doubled its customer count to 332 over the past year. The number of live Employee Central customers has exceeded 120 with millions of users running the Cloud applications in multiple countries. Altogether the product has been localized in 71 countries including 28 for Employee Central Payroll. In Europe, CSM Bakery, Expro Group, M+W UK and Unify have all recently gone live with Employee Central.

Fueled by SAP’s increased investments in user experience with Fiori, a modern Facebook-like design for all of its Cloud applications, the vendor has significantly reduced the number of clicks streamlining the workflow users have to navigate in order to handle tasks such as talent search within an organization.

The importance of HCM to SAP was underscored by the May 2014 acquisition of Fieldglass for contingent labor management. The goal is to provide its customers with a unified view across all types of employees – permanent and contingent, while helping managers and recruiters improve their ability to identify and groom part-timers or seasonal workers for permanent positions.

Another key measure that SAP has put in place is to position SuccessFactors and Ariba for supplier relationship management as its twin-engine for Cloud dominance, as shown in the following graphic.

The SAP’s increased emphasis on Cloud applications, especially in HCM, suggests the strategic value of tools that help companies better meet tomorrow’s workplace challenges exacerbated by an aging population and shortages of skilled labor.

The following table highlights major developments that the top 10 Cloud HCM applications vendors are undertaking in order to sustain their growth, along with their 2012-2013 Cloud HCM subscription revenues and their customer count.

Table 1: Top 10 Cloud HCM Applications Vendors With 2012-2013 Revenues,
Cloud HCM Shares, No. of Cloud HCM customers and Major Developments

Source: Apps Run The World, July 2014

Further Readings

The HCM Top 500 report series covers more than 3,000 pages of content, make sure that you don’t miss any of the 500+ profiles by becoming a subscriber. Or you can catch the highlights with the following links:

• Top 10 Core HR Vendors, Market Forecast 2015-2020, and Customer Wins
• Top 10 Talent Acquisition Vendors, Market Forecast 2015-2020, and Customer Wins
• Top 10 Workforce Management Vendors, Market Forecast 2015-2020, and Customer Wins
• Top 10 HCM Software Vendors and Market Forecast 2015-2020
• HCM Top 500 Market Forecast As Political Uncertainty Meets HR Transformation
• HCM Top 500 Leaderboard Showcases Biggest HR Apps Vendors in 22 Markets
• HCM Top 500 Ranks the World’s 500 Largest HCM Software Vendors

Outlook for Cloud and Non-Cloud HCM Applications Market

The Cloud-based HCM applications market is expected to grow from $5 billion in 2013 to $8.4 billion by 2018 at a compound annual growth rate of 11%, while the conventional on-premise implementations of HCM applications are projected to show considerable contraction through the forecast period, as shown in the following table.

Table 2: Worldwide HCM Applications Market Forecast, By Revenue Type, $M

Source: Apps Run The World, July 2014

The contraction is expected to intensify over the next few years as more on-premise HCM applications customers choose to migrate to the Cloud, thus forcing their vendors to convert their recurring revenue streams as well. The conversion cuts across all vendors ranging from SAP and Oracle, which have been rolling out similar programs for their on-premise customers to apply their license and maintenance fees as credit toward purchases of Cloud subscriptions; to Saba, which has seen its share of challenges in the HCM market because of the need to restate its previous earnings.

In its fiscal 2014 ended May 30, Saba said 16 customers signed to migrate their talent applications from on-premise to Sabe Cloud; seven in the fourth quarter. What that entails is that of Saba’s 2,000 customers including about 1300 for on-premise and 700 for the Cloud, it won’t take long before the split reverses itself as much of its growth is coming from Saba Cloud.

While many Cloud HCM applications vendors have continued to benefit from migrating some of the biggest user organizations to the Cloud from their current on-premise implementations, the middle market segment covering companies with anywhere between 1,000 and 5,000 employees is likely to grow the fastest, as illustrated from the above forecast assumptions.

Table 3: Worldwide Cloud HCM Applications Market Forecast 2014-2018, By Company Size, $M

Source: Apps Run The World, July 2014

The future of Cloud HCM applications vendors carries as much risks as there are opportunities. The euphoria surrounding the Cloud HCM applications market was loud and clear at the 2013 HR Technology Conference in Las Vegas featuring some 300 exhibitors all touting their unique value proposition to automate one’s HR system – in most cases in the Cloud. In 2007 there were only about 200 exhibitors. The 2014 conference has sold out its booth space months in advance of the event and an additional pavilion has been added for startups in addition to the more than 300 exhibitors that have already signed up.

Another data point comes from Kronos, the leader in workforce management applications that has secured more than 11,000 Cloud customers – mostly small and midsized companies with some coming from its 2012 acquisition of SaaSHR and new ones being added monthly through an aggressive white-label program. Prior to the acquisition of SaaSHR, Kronos only had a handful of Cloud customers mostly through its earlier acquisition of Unicru for eRecruiting as well as workforce management customers using its hosting and managed services offerings.

In February 2014 Kronos received a $750 million fresh investment from private equity firm Blackstone and GIC, a sovereign-wealth fund owned by the Singapore government, giving these new investors a 44% stake. The sale put the Kronos’ total valuation at about $4.5 billion. By comparison, Kronos went private in its sale to PE firm Hellman & Friedman in 2007 for $1.8 billion.

On the other hand, the hangover from such dizzying returns could hit some vendors by surprise as customers now have more options to choose from than ever. One possible scenario calls for Cloud vendors that now compete in markets such as CRM and Enterprise Service Management extending themselves into HCM in order to drive greater economy of scale of the Cloud platform they have already built. Of course, the reverse could happen when HCM applications vendors venture into other markets for greener pastures.

Update: The rankings of the top 10 Cloud HCM applications vendors have been updated to include Ceridian as the 10th ranked vendor based on the latest feedback from the company, which provided us with a breakdown of its recurring revenue streams on September 23.

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