SaaS Business Models and the UK HCM Market

Former Product Marketing Director HCM Solutions, Sage

Why is this interview interesting?

  • How HCM software vendors are likely to perform in a weaker economy
  • Tactical options software vendors have to address weakening demand
  • Outlook for pricing for cloud HCM solutions
  • Comparing 2020 to the 2008-2009 crisis as it impacts HCM software vendors
  • Why smaller vendors are going to struggle more than larger ones
  • How Xero and Workday differentiated their offering by creating a sense of community with customers and through better customer support
  • The risks to a buy-and-build strategy: how a company like Sage has added complexity to its customer offering and how competitors are capitalizing on this
  • Software vendor strategy: the merits of best-of-breed versus a portfolio of solutions

Executive Bio

Jaime Losantos

Former Product Marketing Director HCM Solutions, Sage

Jaime has over 25 years experience in the Enterprise Resource Planning (ERP) and Human Capital Management (HCM) software industry. From 1999-2012 Jaime held a number of positions at Oracle including Product Strategy Manager for HCM, Development Director for Oracle’s Southern Europe Human Capital Management (HCM) business, and EMEA Business Development Director for HCM. After Oracle, Jaime moved into a series of senior product strategy and marketing roles at market-leading HCM software businesses including Workday (Senior Manager, Product Marketing EMEA), ADP (Director, EMEA Product Marketing), MHR (Director of Market Strategy) and Sage (Product Marketing Director, HCM Solutions). He now runs a consultancy business advising software vendors and investors on product and marketing strategy. Read more

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Interview Transcript

Could you open up with a bit of context on what you’ve been up to, for the past couple of decades?

I’ve been with the ERP HCM industry, for the last 23 to 25 years, with the likes of Oracle, MHR, Sage, ADP, Workday; some of the most well-known players in the industry, in various positions, ranging from product management to product marketing, business development, including pre-sales. I do have a good understanding of how the market works, who the main players are and, more importantly, at this time, how the players in the market will react to the current situation.

It’s a market that is moving in so many ways. There’s really interesting structural trends going on. There’s the cyclical dynamic of what is a major economic crisis, for the buyers of this software, all influenced in quite different ways, of course. Could you give us a feel, as a practitioner, who has been so deeply involved in this space, for so long, what the state of play for the market is.

This is a very interesting market and a fairly mature one. We’ve had a solid HCM market for the last 25 to 30 years, at least. Most of what I will say will also apply to the enterprise, the ERP market. Before Covid hit, we had a fairly large market of around 25 to 30 billion, depending on what analysts you favor. We had a very healthy rate [of growth], of 5% to 8%. It’s an interesting market, because you have around 10 vendors – eight now, after the Kronos and Ultimate merger – who own a very large part of that market, north of 50%. Whatever those guys do, typically drives what happens in the market. Most of the rest of the vendors, do actually follow behind.

Another interesting point in this market is that it is heavily penetrated by private equity, and even more so nowadays. It is not just the large guys, the Oracles, the SAPs who are buying vendors left and right. There’s a huge interest, for obvious margin and profit related reasons, from the private equity community, to get into this space. At the same time, this fuels innovation at a very, very fast pace. To give you a very recent example, the only reason that Kronos and Ultimate merged, is that they were owned by the same private equity company. It made sense for that to happen. There are lots of examples like that. I think this is very good for the industry, as such. As every healthy, active industry, we are still growing.

As to your question as to how the industry will actually bear the current situation, in terms of revenue and profitability and so on, as you perfectly put it, the jury is still out. If this impact hits more than two quarters or half a year, in terms of revenue, the consequences might be significant, in terms of who is left standing. If you are only looking at a hit of one quarter, say three or four months of revenue, whether it’s permanent or recurring revenue, I think the market will stay pretty much the same. Again, unfortunately, we don’t know yet what is really going to happen.

As it stands right now, most vendors, from SME-focused vendors, like Sage, to enterprise vendors like SAP, are going to see negative growth rates, year on year, quarter on quarter, starting from March and April onwards. Most likely, this will be for the whole year. It is going to be very hard to avoid that. In reality, the Covid crisis has, essentially, obliterated most of the pipe that they had for the rest of the year. If you look at the forecast today, everything is either put on hold or it’s not there anymore. No matter whether your customer is a Phillips or a Unilever of the world, or a very small mom-and-pop shop, in the UK; it doesn’t matter. It’s a very tough situation out there.

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SaaS Business Models and the UK HCM Market(May 27, 2020)

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