A Tectonic Shift in the Learning Market
The LMS, Learning & Talent Market experienced a seismic shift late Monday afternoon. Cornerstone OnDemand signed a definitive agreement to acquire Saba for $1.395 billion. Yes, that is Billion with a “B.” In a marketplace where Cornerstone, Saba and SumTotal have been the primary competitors for decades, this definitely changes things. Not since the merger of Click2Learn and Docent in 2003 has the market seen such a consolidation of this scale. It’s clear the primary motivator for this acquisition is financial, for both companies – but what about the customers? Let me take a unique view on this acquisition not as an analyst, but as a former practitioner/customer.
From a historical perspective, let’s look back at the players. Saba was formed in 1997 and has for many years been extremely stable due to a large on premise (behind the firewall) customer base. This led to a low turnover of clients that resulted in steady renewals. In 2017 Saba acquired Halogen and Lumesse software to add talent components to the Learning platform. In recent years Saba has moved into the Cloud with their platform, while still sustaining a large install base that is aging quickly. For the better part of the past year the company has been up for sale.
Cornerstone OnDemand is just a few years younger than Saba, founded in 2000. Originally launched as a SaaS Learning platform, Cornerstone maintained an “organic” single code base as their primary benefit against competitors that had grown through acquisition. Over the years Cornerstone has grown it’s customer base, extended functionality through development and acquisition of new services – losing the “organic” mantle. Since the public split from Workday a few years back, Cornerstone has been driven to raise it’s profile to compete at the Workday, Oracle, SAP level. This move puts them closer, but still short of that strata.
So as the dust settles on this acquisition, what are the key points that need to monitored in the near term? What is the impact to the customers, those who didn’t necessarily have a say in this decision? Well, consider what happens during any merger of equals in the market, there are winners and losers when it comes to customers, technology, resources and staff. The announcement from Cornerstone highlights three main points that are “positives” according to them: Innovation, Greater Reach and Cash Flow. Let’s take each one at a time.
Innovation. There’s no doubt that synergies will occur as you bring together two teams. But as I state, in any merger there are winners and losers. Pay attention to a key point in this announcement: ”Our expanded team….will allow for more rapid innovation and accelerated delivery of our product roadmap across Cornerstone Learning, Performance, Recruiting and HR.”
It would appear that the Saba platforms are now ones with an uncertain future. Will they get bread and water updates, or be “motivated” to migrate to the “premier” platform that will continually innovate. Beyond application development, what about support staff? What incentives will there be for support personnel to stay in the new company. Keep in mind Cornerstone is pure SaaS, so what can the legacy on premise customers expect to see from development or support? Those that are on Saba cloud will have a much easier transition than those on premise (behind the firewall) systems.
Greater Reach. This is probably the key piece of Cornerstone’s interest in acquiring Saba – a larger customer base. Touting more developers and talent specialists, there of course will be duplicates and when it comes to tenure and hierarchy. Customer contacts will undoubtedly change as personnel works through both voluntary and involuntary attrition.
Cash Flow. Cornerstone believes sizable cash flows will in turn allow them to “continue to invest in state-of-the-art solutions to optimize people development. This assumes that every customer stays or sees value in a larger organization. Keep in mind that while both companies have similar products, they often compete for the same customer, and those customers generally have a preference when choosing. Current Saba customers may have not chosen Cornerstone for a number of reasons, and are not likely to be thrilled with the prospect of now being one.
Now of course up to this point my focus has been on the Saba customers and how they will be impacted. But what about the Cornerstone customers? Cornerstone recently acquired another company last month; Clustree to build Leading AI-Powered Skills Platform for People Development. Is there potential for a case of heartburn or indigestion due to the number of changes occurring? Possibly. By owning and maintaining multiple platforms the combined company will have much more overhead to support. Consider the speed boat to cruise ship comparison; which is easier to turn on a dime. Cornerstone will definitely have its hands full as it integrates technology, staff and assets. Only time will tell how customers feel they are impacted through the transition.
I’ve always said, “if you don’t like change, you’ll like irrelevance even less.” This is definitely a major change in the LMS landscape and one that will reverberate through the Training/Learning industry for most of this year. What will be most interesting to see is the ultimate measurement, customer satisfaction. Will Saba customers embrace a new platform and opportunity to advance, or will they seek alternative options? Conversely, will Cornerstone customers see this as a net-gain, or net-loss as they evaluate their position with their provider. One things for sure, this makes 2020 that much more interesting in the Learning and Talent Market.