Cloud Human Capital Management Applications

Table of Contents Top HCM Applications Vendors In The Cloud and Market Forecast 2014-2018... 3 SAP as No. 1 in Cloud HCM... 4 Outlook for Cloud and Non-Cloud HCM Applications Market... 9 Merger Mania Grips Cloud Apps... 12 Research Methodology... 16 2

Top HCM Applications Vendors In The Cloud and Market Forecast 2014-2018 As one of the most hotly-contested segments in the Cloud applications market, human capital management(hcm) has always captured the imagination of technology vendors and investors because of the attraction of having a large number of captive users. After all, HCM applications are being exposed to more users than other products since almost every employee needs to get hired, paid and retired by the same system. Additionally some of the entrenched players in the HCM space have succeeded in broadening the appeal of their on-demand products for multinationals and midsized companies alike. 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. 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 3

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. What it boils down is that the Cloud HCM applications market is poised to grow further 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. 4

IMAGE 1: SAP S 2013 CLOUD SUBSCRIPTION REVENUES Source: SAP s Guidance for Apps Run The World, March 2014 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. 5

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 Vendor 2012 Cloud HCM Apps Revenues, $M 2013 Cloud HCM Apps Revenues, $M 2013 Cloud HCM Apps Market Share, % No. of Cloud HCM customers SAP 329 490 9.8% 5000 Ultimate Software 266 334 6.7% 2700 Workday 181 303 6.1% 575 Oracle 177 278 5.6% 6000 Major Developments HCM is considered No. 1 priority for SAP's Cloud push. Recent acquisitions include SuccessFactors for Core HR and talent management, and Fieldglass for contingent labor management. Aims to go upmarket by tapping into accounts with more than 5000 employees after dominating Clouod-based Core HR and Payroll in midmarket. Recent acquisitions include EmployTouch for time collection and Accel HR for managed services. Outsized influence in Cloud HCM applications because of its PeopleSoft lineage, now aggressive pursuing higher education and other verticals. Recent acquisitions include Identified for Big Data analytics for erecruiting. Continues to make waves in Cloud HCM apps market after buying Taleo in 2012. Next stop could mean expanding into workforce management by Cloud-enabling Micros' retail and hospitality offerings for employee scheduling and time and attendance. 6

IBM Kenexa 246 265 5.3% 8900 LinkedIn 130 258 5.2% 24444 ADP 150 199 4.0% 50000 Cornerstone OnDemand 106 170 3.4% 1600 Lumesse 122 133 2.7% 2300 Kronos 73 91 1.8% 11000 Smarter Workforce has become IBM's centerpiece in its campaign to become a major HR apps vendor after buying Kenexa in 2012. Strengths lie in blending HCM apps with IBM Watson for analytics and a host of collaboration tools to redefine workplace. With nearly 300 million resumes at its disposal, LinkedIn has emerged as a major force in the HCM applications market offering an increasing number of talent management products designed for corporate recruiters and professional users. Since 2011 ADP has invested more than a billion dollars in acquisitions as well as internal development efforts to bulk up its HCM offerings. Next step is to go global by selling bestin-class Cloud HCM, payroll offerings to its multinational customers. Cornerstone OnDemand has achieved ubiquity by making its Cloud-based talent management applications widely available across a wide spectrum of sales channels and end-user organizations. A major HCM apps vendor in Europe, Lumesse is plotting its next moves after receiving capital infusion from its parent HgCapital, a private equity firm. Key differentiators lie in its multi-language support and expertise in country-level hiring practices. A leader in automating workforce scheduling, attendance and activities, Kronos is moving aggressively into the Cloud by acquiring 7

Subtotal 1780 2521 50.3% Other 2101 2487 49.7% Total 3881 5008 100.0% SaaSHR for ondemand HR, payroll and workforce management apps. New investments by PE firm Blackstone and GIC of Singapore pave way for further Cloud expansion. SOURCE: APPS RUN THE WORLD, JULY 2014 In addition to the expanded profiles of these top 10 vendors, paid subscribers to Apps Run The World can access a 200-page special report that details the strategies of the 83 largest Cloud HCM applications vendors in the world with their revenue data, product details as well as our SCORES analysis of their strengths, customers, opportunities, risks, and shares. An Excel file that contains thousands of Cloud HCM applications customers and their applications environment is also available for these paid subscribers. More information can be found here. 8

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 Revenue Type 2013 2018 2014-2018 CAGR, % License 1450 733-12.8 Maintenance 3475 2834-4.0 Cloud subscription 5008 8455 11.0 Total 9933 12022 3.9 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. 9

TABLE 3: WORLDWIDE CLOUD HCM APPLICATIONS MARKET FORECAST 2014-2018, BY COMPANY SIZE, $M Worldwide Cloud HCM Applications Market Forecast 2014-2018, By Company Size, $M 2013 2014 2015 2016 2017 2018 2014-2018 CAGR, % Below 1000-employee segment 1480 1742 1938 2111 2297 2476 10.8 Between 1000 employees and 4,999 employees segment 1329 1579 1773 1951 2164 2361 12.2 Above 5,000-employee segment 2199 2543 2822 3097 3363 3618 10.5 Total 5008 5864 6533 7159 7824 8455 11 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 hosting and managed services offerings. In February 2014 Kronos received a $750 million 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 10

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. 11

Merger Mania Grips Cloud Apps The rising valuation of Cloud vendors, coupled with an insatiable appetite for well-established enterprise applications companies, could fuel a merger mania in 2014 bidding up targets and final prices to the highest level since 2007. IMAGE 2: ENTERPRISE APPS M&A ACTIVITIES COULD RIVAL 2007 PEAK LEVEL Source: Apps Run The World, March 2014 For the first half of 2014 the announced value of mergers and acquisitions in the enterprise applications market has already approached $21.1 billion. If the same trend pervades in the second half, 2014 could end up becoming the bonanza year for investment bankers, eager sellers as well as anybody else hankering for a piece of the Cloud action. And Cloud applications vendors were hotly sought after during the first six months of the year, accounting for some of the biggest deals. ExactTarget, Skillsoft, Digital Insight, Active Network, and Dealer.com were all picked up this year north of $1 billion each by Salesforce.com, Charterhouse Capital, NCR, Vista Equity Partners and Dealertrack, respectively. Adding to the mix were Evolution1, KANA Software, Vocus, PeopleAnswers and Dude Solutions(stock sale) fetching a total sum of over $10 billion for these 10 Cloud applications vendors. Fattening the $10 billion pot further would be the estimated value of another $1 billion for the combined purchases 12

of three other Cloud applications vendors Fieldglass, Seewhy and Silverpop. That could mean a grand total of $11 billion, more than half of the announced value of the major deals in 2014. Based on our vendor database, the number and the size of deals over the past 12 months has been increasing every quarter all pointing to a blockbuster year for buyers and sellers in the enterprise applications market. Stroking the enthusiasm of acquisitive vendors and institutional investors namely private equity firms is the specter that 2014 could emerge as the second most active year for enterprise software M&A since the peak of 2007, as shown in the following table. TABLE 4: ANNOUNCED VALUE OF MERGERS AND ACQUISITIONS IN ENTERPRISE APPLICATIONS MARKET, $B 2005 2007 2010 2012 1H2014 Total Announced Value of Deals, $B 35.5 59.5 22.2 16.5 21.1 Source: Apps Run The World, July 2014 Serial acquirers like Constellation Software, Real Page, and Trimble have continued to push into new markets through relentless purchases. ERP vendor Constellation Software, for one, typically buys anywhere from a dozen to two dozen companies in any given year. Less well-known ones are getting into the action in a convincing fashion. Cloud-based elearning vendor Desire2Learn is a case in point. In 2014 Desire2Learn purchased the Achievement Standards Network for digital data representations for the education vertical. That followed its 2013 purchases of Wiggio, a collaboration tool for students; and Knowillage Systems for its adaptive learning engine. Such frenetic tie-ups are expected to redraw the competitive landscape, especially in hotlycontested markets such as CRM, HCM and even contingent labor management. In December 2013, elance and Odesk merged to form a huge player in the contingent labor management applications space with combined billing of more than $750 million for millions of freelancers and contractors that subscribe to the two sites. That touched off a frenzy among the incumbents. In January 2014, IQNavigator acquired ProcureStaff Technologies, a division of Volt Information Sciences, adding more customers to consume an enlarged portfolio of indirect spend and contingent labor management applications. Two months later, SAP topped it off by announcing its deal to buy Fieldglass for contingent labor management applications. For customers, the segment consolidation could prompt them to raise questions about the future of the remaining contingent labor management players such as Avionte Staffing, Beeline, Peoplefluent, and Provade, which may find it necessary to find partners to merge in order to safeguard their territories. 13

Contingent labor management is only a microcosm of a larger force at work when the draw of Cloud applications is attracting so many vendors to emerging segments such as subscription billing management that are getting crowded by the day. Aria Systems, Avangate, Billing Platform, Chargebee, Cleverbridge, ElasticPath, Fusebill, Pay Simple, Recurly, SaaSoptics, SaaSy, Simplify, Stripe, Vindicia, and Zuora are among dozens of Cloud applications vendors that specialize in subscription billing management in the Cloud. That does not even take into account of first-generation ecommerce billing vendors like CyberSource, Digital River and many others. For these vendors and their backers, the consolidation wave may not be too far off. The following table shows the growing number of mergers and acquisitions among major enterprise applications vendors since the beginning of 2013. TABLE 5: SELECTED MERGERS AND ACQUISITIONS IN ENTERPRISE APPLICATIONS MARKET BETWEEN 2013 AND FIRST HALF OF 2014 Acquired Vendors Key Markets Acquirers Announce d Value, $M Year Announced Micros Systems Retail apps Oracle 5300 2014 ExactTarget CRM Salesforce.com 2500 2014 Skillsoft elearning Charterhouse Capital Partners 2325 2014 Applied Systems Insurance ERP Hellman & Friedman 1800 2014 Digital Insight Online banking NCR 1650 2014 UNIT4 ERP Advent International 1600 2013 Responsys CRM Oracle 1500 2013 GXS ecommerce Open Text 1065 2014 Active Network CRM Vista Equity Partners 1050 2014 Dealer.com Automotive ERP Dealertrack 1000 2014 Passport Health Healthcare ERP Experian Health 850 2013 Kronos(stock sale) HCM Blackstone and GIC 750 2014 Accelrys Product Lifecycle Management Dassault Systemes 750 2014 Evolution1 HCM WEX 533 2014 Cegedim Life Sciences CRM IMS Health 520 2014 KANA Software CRM Verint 514 2014 Vocus, Inc. CRM GTCR 447 2014 API Healthcare HCM GE Healthcare 340 2014 Total Specific Government, Solutions Healthcare ERP Constellation Software 324 2013 14

PeopleAnswers HCM Infor 200 2014 Jaspersoft Analytics Tibco 185 2014 Sage Nonprofit Nonprofit ERP Accel KKR 101 2013 Dude Solutions(stock ERP Warburg Pincus 100 2014 sale) PNI Digital Media Retail apps Staples 74 2014 Andera Banking apps Bottomline 47 2014 Vertical Response CRM Deluxe Corp. 27 2013 SERUS Supply chain management E2Open 26 2014 Autotask Project management apps Vista Equity Partners NA 2014 Axium ERP for Professional Services Deltek, Inc. NA 2014 Fieldglass Contingent Labor Management SAP NA 2014 Homecare Homebase Healthcare ERP Hearst NA 2014 Hybris ecommerce SAP NA 2013 Maxwell Construction ERP Viewpoint Construction Software NA 2014 P2 Energy ERP for Energy Advent International NA 2013 Seewhy CRM SAP NA 2014 Silverpop CRM IBM NA 2014 Tradecard Supply chain management GTNexus NA 2013 TribeHR HCM NetSuite NA 2013 Triple Point Treasury and Risk Technology Management ION Trading NA 2013 Source: Apps Run The World, July 2014 15

Research Methodology Data used in research reports are derived from publicly available documents, continuous surveys of applications vendors, customers, resellers, Independent Software Vendors, systems integrators and other verifiable sources. Vendor shares and market forecast results are based on a combination of existing databases as well as demand side and supply side research conducted throughout the year with validation from vendors, customers, channel partners and documentations such as earnings releases and 10Q and 10K filings, vertical industry studies, regional and country-level statistics from public and private institutions(i.e. colleges, universities, government agencies and trade associations). For additional information on our methodology, here's the link: http://www.appsruntheworld.com/research Copyright 2014, APPS RUN THE WORLD 16