The Consolidation Myth in the HR Marketplace. And the Importance of Marketing.

Bill Kutik wrote a very good article in HRE Online this week titled Recruiting Software Goes Berserk -- Again! Bill says "After seeming to settle down and consolidate for a while, recruiting software has once again become the most competitive, contentious and confused sector in all of HR technology. Why? Because they still haven't gotten it right!". (Please read the entire article - it's a good read).

I agree with Bill that the recruiting software space is highly competitive - but so is just about every other product category in HR, from employee benefits to training & development. But on a macro level, I have never seen the consolidation that many experts predicted in the HR technology space. As far back as 2005 we blogged about what we felt was the consolidation myth in the HR space and how the number of HR vendors would continue to grow, not decline.

How did we know this?

As the owners of, we have the opportunity to speak with hundreds of HR vendors each quarter and a lot of these businesses are start-ups who purchase memberships months before they launch their product(s) to help familiarize themselves with the space and prepare their marketing plans. And for every HR vendor that was acquired or closed their doors, we were seeing at least two companies open their doors as new entrants in the HR marketplace.

But why?

Some say the reason is because "we still haven't gotten it right".

I disagree. There is a lot more to it.

In competitive markets, one never gets it right because of a concept called innovation. There is always some young mind (or veteran mind like Dave Duffield) working on a new and better way of doing something. It never stops. The technologies did not exist five years ago that make it possible for many of today's offerings. And we'll say the same thing ten years from now. But innovation does go in cycles and the last 7 years have presented the perfect storm of opportunity for HR start-ups including:

(1) Easier access to technology (a.k.a. decreased entry barriers). What would have cost millions to build ten years ago can be built today for a fraction of that - and be a better application. (Incidentally, this is why legacy providers like Lawson are going to have a tough time competing the next ten years).

(2) Growing need for quality HR services and recognition of HR as a strategic component of the business.

(3) (at least up until a few months ago) Easy and low cost of capital.

And this is why in just about every industry and profession, we were seeing more, not less. Innovation combined with the right market conditions.

Jason Calacanis had an excellent post that touched upon some of these reasons titled The Future of Startups (long but EXCELLENT). I especially like his thoughts on The Zero Cost Start Up, The Try Everything Era and Longevity is Innovative.

So what does all this mean?

Competition in the HR marketplace will only get more intense in the coming years. On a macro level, there will be no consolidation for quite some time because as I wrote back in July, this is still a young industry in historical terms - the profitable and vast "mid market" is untapped and smaller talent management firms are on more equal footing when competing in this space. In fact, one could argue they are on better footing because they don't have the cost structure and legacy platforms to contend with like their larger competitors do.

What will differentiate many of the HR vendors is ------------------ marketing.
" is the foundation for success. Companies who use marketing as the basis for strategy are likely to acquire leadership faster and with less risk".
By the way, those aren't my words, they belong to Peter Drucker :-)

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