Oracle Corporation announced its purchase of Taleo for $1.9 billion on Feb. 9, 2012, signaling a major shift in its stance on software-as-a-service (SaaS) and talent management applications. The transaction is expected to close midyear 2012, subject to regulatory and stockholder approvals.

Oracle has long held a “we can build it better” position on talent management, learning, and recruitment applications but struggled to compete with best-of-breed talent management vendors like SuccessFactors (recently acquired by rival SAP), Taleo, Kenexa, Cornerstone, and SumTotal Systems. Oracle has been reticent to offer these (or any other) applications via SaaS, preferring a licensed/on-premises business model that provides early revenue recognition versus the deferred revenue model of SaaS.

In fact, Oracle CEO Larry Ellison has been outspoken in his anti-SaaS stance in recent years, changing his posture somewhat with the Oracle Public Cloud announcement at last October’s Oracle OpenWorld conference. Meanwhile, the HR apps market shifted overwhelmingly to the SaaS (subscription-based) deployment model, which has become virtually ubiquitous in recruitment, learning, and talent management and is also growing in core HRMS via ADP, Ultimate Software, and Workday.

By acquiring Taleo, Oracle puts itself back in the game for SaaS recruiting and talent management. Taleo is a market leader in recruitment automation and has a competitive portfolio of products across performance, compensation, and learning management. The $1.9 billion deal price is more than six times Taleo’s 2011 annual revenues of $309 million, a high premium but substantially less than the $3.4 billion and 11-times revenues that SAP recently paid for SuccessFactors.

Taleo itself has made a number of acquisitions over the years, including roll-ups of recruitment vendors (e.g., Vurv, Cytiva, Jobpartners, and Recruitforce). The company also expanded its footprint beyond recruitment, across what Forrester refers to as The Four Pillars of Talent Management. To span the four pillars, Taleo built its own capabilities for performance (including succession and goal management) while making strategic acquisitions to add learning management ( and compensation (Worldwide Compensation).

Oracle has made substantial investments over the past few years to enhance its own capabilities in recruiting and talent management. Both PeopleSoft Recruiting Solutions and Oracle E-Business Suite (EBS) iRecruitment have seen significant levels of investment to compete with Taleo, Kenexa, and others but have always seemed to me to be a step behind in usability, time-to-deploy, and process flexibility.

Similarly, Oracle made significant efforts to enhance PeopleSoft and EBS in performance and talent management, introducing expanded capabilities in the latest releases of those products (PeopleSoft 9.1 and EBS 12.1, respectively). While the notion of a complete, integrated set of core HR and talent applications is conceptually appealing, the majority of Oracle’s customers chose to go outside the core HR footprint for the recruiting, performance, and talent components. SAP experienced similar leakage, which drove its recent acquisition of SuccessFactors.

Oracle’s newest HRMS application product, Oracle Fusion HCM, has made a significant investment in talent management as well, showcasing some innovative features for talent management (e.g., Talent Review), and retention management (Workforce Predictions). Fusion HCM is currently offered as both SaaS and on-premises and is architected to support a multitenant SaaS deployment model (unlike PeopleSoft and EBS). Fusion HCM core capabilities (e.g. employee records, benefits, compensation, payroll), offered as SaaS, give Oracle a better opportunity to compete with Workday, which has begun to chip away at Oracle’s and SAP's on-premises HRMS installed bases with a SaaS alternative for core HRMS and talent management.

The current release of Fusion HCM, reviewed in the recent The Forrester Wave™: Human Resource Management Systems, Q1 2012, does not yet include applications for recruiting and learning management, making the Taleo acquisition seem a reasonably good fit around the Fusion HCM core, talent management, and compensation capabilities. Workday, ironically, has a partnership in place with Taleo as its preferred recruitment vendor, which is likely to change.

Oracle needs to resolve significant product overlaps from this acquisition once the deal officially closes. The road map that emerges will likely retain full support for existing on-premises HRMS recruiting and talent modules while more aggressively promoting its SaaS offerings, including Taleo and Oracle Fusion HCM.