Wednesday, April 13, 2005

The ATS Market

OK – so I’m writing a lot about ATS vendors lately and I thought I’d do an overview of the market. As usually, this is my opinion of the market, and even some of the “facts and figures” in here are my opinion and may not actually be verified.

The ATS marketplace has always been one of the most exciting places. If you think about it, they have always been on the cutting edge of HR technology. They were the first ones to provide hosted (ASP) applications widely. Over the last few years, the HR industry has struggled with the transition to hosted applications at a time when it as ASSUMED your ATS was going to be hosted. They were just ahead of the curve. Same thing with workflow. Workflow has always existed in larger ERP HRMS systems, but it’s been ages since recruiters EXPECTED to be able to seamlessly send data and tasks over to hiring managers and vice versa.

The ATS marketplace is also one of the last places where clear and major consolidation needs to begin. Everything else in HR is consolidating from major HRO vendors (ACS and Mellon) to traditional outsourcers (ADP and ProBusiness) to ERPs (Oracle and PeopleSoft). However, ATS is still made up of the same major players that were around 5 years ago.

Problem #1. Brassring, Taleo, Recruitmax… they are all in a finite marketplace. If you are selling $300-700K/year solutions, there are only so many companies around who can buy at that level. Let’s call it the Fortune 2000. So you have the major 3-5 vendors plus another 20 vendors eating up little bits of the prospect pie. There are simply too many vendors in the space for everyone to be established and making money. As of last year, the big 3 I mentioned above each had less than 5% of the market.

Problem #2. They are all losing money. Some of them are also losing clients, or at least not growing their base. The cost of development is crazy in this space due to the incredible competition. As far as I know – the only vendors making any money are the legacy systems like WebHire acquired a nice 15-20% marketshare in the 1990’s and is profitable because the recurring license fees just keep coming in. However, they have slacked on their development slightly and are not as competitive in the high end as other vendors. My point is this: you have to have a lot of clients to make money – if you can’t sell them all, then someone will need to start doing acquisitions.

Potential #1. Everyone is going back to point solutions. So you have great back end integration in the space. The ERP solutions have really failed and don’t measure up.

Potential #2. Single Source vendors like Hewitt and ADP have the potential to pick up one of the ATS vendors. If this happened, the ability for the salesforce to cross sell into the ATS space is incredible. For example, if you are Taleo and you have 20 salespeople, imagine what you could do if ADP bought you and you all of a sudden had 5000 salespeople. (no no no, don’t start any rumors – it was just an example)

Peotential #3. In one of the most excruciatingly unused relationships, Yahoo, Resumix, and HotJobs had the potential for greatness. Resumix had great marketshare (also from the 90’s) and they had solid revenues because of being owned by Yahoo. On top of that, they also had The problem was that Yahoo never put everything together is a seamless deliverable.