IBM has taken a leaf out of the respective books of SAP, Salesforce.com and Oracle to mount a takeover bid in the cloud human capital management applications space, by making a $1.3 billion punt for Kenexa.

The acquisition target’s HR software is intended to help companies recruit and manage talent by using social media and collaboration tools similar to the ones that connect people together on LinkedIn and Facebook.

The issue is that Kenexa has been struggling to make money for years. Since 2007, the vendor has posted losses totalling about $150 million. During the first half of this year alone, it lost more than $4 million, on revenues of $164 million.

That said, the firm has nearly 9,000 customers, including big players such as Starbucks, Walmart, Verizon and Corning. IBM has said that it plans to continue supporting them and that the purchase will become part of its Collaboration Solutions unit (formerly known as Lotus), which is run by general manager, Alistair Renee.

Analysts have put forward the view that social networking is the true focus of this HCM gambit, but they also expect the move to put Big Blue on a collision course with Oracle, SAP and Salesforce.com.

 

 

Angela Eager, research director for enterprise software and application services at TechMarketView, for one, explains that IBM is “not buying conventional HR software”.

 

“Vendors are keen to blend high volume revenue-generating HR with the new forms of social interaction because this is seen as the best way to monetise social media developments,” she says. “Currently, vendors are struggling to make social investments, which are often tied to loss-making cloud provision, pay.”

As a result, IBM plans to add a layer of social technology, consulting and other tools to Kenexa’s front office software, making it as much a services play as a software one and “illustrating the high margin services-backed software trend”, Eager adds.

Rick Sherlund, an analyst with Nomura, agrees. “We expect the main focus to be around Kenexa’s consulting services and assisting IBM customers with strategic consulting services and, to a lesser degree, software directed at workforce-related automation,” he says.

 

Sherlund believes that the acquisition positions the vendor in the talent management segment of the HR market, pitching it primarily against Oracle’s recent purchase Taleo, to a lesser extent, against SAP’s SuccessFactors buy and, to a smaller degree still, against Cornerstone OnDemand.

In IBM parlance, it’s all about creating a ‘Smarter Workforce’, which will use a combination of social media, analytics tools and talent management software to undertake their jobs more efficiently.

Alan Lepofsky, vice president and principal analyst of Constellation Research, explains: “By augmenting some of the core HR processes with social functions such as commenting, liking and tagging, in theory employees should be able to discover the colleagues and content that can help them get their work done more effectively.”

 

 

Key to IBM’s strategy here is to focus on use cases that help customers find the right people with the right skills at the right time, before “inserting them into a process to positively affect the outcome”, he adds.

But the market is also likely to become increasingly competitive over the months ahead. SAP and Oracle have been working on integrating their respective SuccessFactors and Taleo purchases into their own product portfolios, while Salesforce.com plans to unveil a new offering called Work.com later this month.

 

The software is in partly based on the Rypple social networking product set that it acquired earlier this year and includes closer integration with Workday, which is itself poised to undertake a stock market flotation.

This means that Big Blue certainly doesn’t have the market all to itself. “The integration of social business and talent management is not unique to IBM. As mentioned above, Salesforce, SAP and Oracle are all big players in this space and, compared to them, IBM is at least a year behind,” Lepofsky says.

 

Moreover, while neither the independent Jive nor Microsoft’s Yammer have built in features, both integrate with the offerings from a good number of HR vendors and the list is continuing to increase as their partners’ distribution channels expand.

 

As a result, “in order to differentiate themselves, IBM will need to focus on areas such as analytics and services,” Lepofsky believes.

The good news for Big Blue, however, is that there is still everything to play for. “While this deal strikes me as a little bit of IBM playing catch-up, the market for combined social and talent management is really just getting started,” he concludes.