There are a few dynamics taking place here.
1. CornerstoneOnDemand is currently the fastest-growing LMS vendor, reinforcing its business as a talent management systems vendor.
Cornerstone is winning in the LMS market, driving growth in talent management. Our research shows that Cornerstone will grow to be the fourth biggest LMS vendor next year, following Oracle, SAP, and SumTotal with around 5% global market share. (The market remains highly fragmented. The largest vendor has 9% market share - you can purchase our complete research on the LMS market here).
2. Other LMS vendors have not been keeping up with Cornerstone.
There are other enterprise LMS vendors, but they have not executed as well as Cornerstone. Oracle and SAP both have excellent LMS solutions, but they are focused heavily on their current install base and selling the entire HCM suite.
SumTotal, which has a well-engineered solution, has been digesting other companies over the last few years, taking energy away from sales and marketing. Now with a fully integrated solution, SumTotal is reinvesting in sales and marketing.
Saba continues to play in the global market, but the company's focus on PeopleCloud and other acquisitions has distracted the company from its core.
ADP, which introduced its LMS last summer, is just beginning to gain traction and will win a significant share of business in the mid-market over time.
Most of the other enterprise players (IBM-Kenexa, PeopleFluent, and others) do not have a product as mature as Cornerstone.
While many analysts do not see the LMS market as highly strategic to talent management, it is still one of the biggest pillars in this market and Cornerstone's strong product gives the company a competitive edge in any talent management system purchase.
3. Cornerstone's recruiting product lets the company position itself as a full talent software provider.
While Cornerstone has no plans to release an HRMS (the company still partners with Workday where it can), the company can now position itself as the end-to-end talent platform for a large company. The company closed 124 new deals in Q3 (similar to Q2), which shows continued progress in new business.
The recruiting software market is going through major change and companies are ready to shift platforms. Taleo and Kenexa were acquired and a number of new players now offer social recruiting platforms which are easier to implement, modern, and easier to use. Cornerstone is not yet generating major revenue in the recruiting market, but the company has a solid product and can take advantage of the market gap created by these acquisitions. Workday sees the same gap and pre-announced its recruiting product last week (not due until 2014) just to overhang this space.
Cornerstone's SMB (small and medium business) business continues to be small (around $1.5M in bookings), but over time Cornerstone will see this grow. I am still not 100% sure why CSOD is focused in this area, because these deals have high degrees of churn, but if the company can maintain its focus here it could build a $10-20M SMB business next year.
4. Despite Cornerstone's excellent growth, Workday's IPO and focus by Oracle, SAP, ADP, SilkRoad, Ceridian and other HRMS vendors will change the nature of the talent management software market.
All the major HRMS vendors are building, buying, or delivering talent management software so one may ask the question "how long can a standalone talent management vendor continue?"
My answer is: quite a while. While the "sales force automation" market eventually evolved into CRM, it took many years. At some point in the next few years Cornerstone will have to either bite the bullet and build an HRMS or succumb to acquisition by another company. I don't see this as a problem for a few years to come, and in the meantime Cornerstone can "partner" with all the incumbent HRMS vendors in the market. But the trend is very clear: customers want a single integrated HR platform, and all the HRMS vendors are slowly but surely building out what Cornerstone already has.
Cornerstone is an aggressive company with a smart management team and we can be sure they understand these trends and will act accordingly. In the meantime Cornerstone continues to outperform its peers and is slowly growing share in the LMS market, one of the most important parts of the talent management software market.
For more information, read our LMS 2013 Market Research and watch for our upcoming Talent Management Systems 2013 research coming out in a few weeks.
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Josh Bersin writes on the ever-changing landscape of business-driven learning, HR and talent management.
His favorite topics include strategic talent management, creating high-impact learning organizations,
and how organizations drive business change and competitive advantage through talent strategy and technology.
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