Last week I participated in the annual Kenexa Analyst meeting in really hot Philadelphia. I had profiled Kenexa last year (July 2009) about their rebranding and active transition to SaaS, so this was a great opportunity to peak behind the curtain and see how they are doing.
The last 18 months have been difficult for many software firms, especially those who are moving to a subscription based business model but Kenexa seems to have been doing well during this period:
- Revenue guidance for 2010 is between $162-169M
- 4,000+ customers, adding about 30 new logos per quarter
- Top 80 customers are spending about $1M+ per year
- The CAGR from 2003-10 has been 25%
- 65% of all recent deals have been multi-component deals
- The average Kenexa customer has 58K employees
Some new customers in 2010 include Accenture, Aetna, Facebook, Novo Nordisk, Saudi Aramco, SAP, Walmart (with 2M employees) and Whirlpool. Customers who bought additional products from Kenexa this year include Conagra, Deloitte, General Dynamics, Johnson & Johnson, Unilever and Volvo.
Even with this solid progress, Kenexa was still finding it hard to compete for mindshare against their two other SaaS talent management competitors SuccessFactors and Taleo. I was also told that Kenexa is also considered a very solid competitor in the Recruitment Process Outsourcing (RPO) market, but my focus for this profile is on SaaS. Let’s take a quick look at this SaaS TM market basket:
- SuccessFactors (NASDAQ: SFSF). Shares in the last 12 months are up by more than 200%, with a market cap of $1.45B
- Taleo (NASDAQ: TLEO). Shares in the last 12 months are up by 30%, with a market cap of $950M
- Kenexa (NASDAQ: KNXA). Shares are flat over the last 12 months, with a market cap of $270M
The stock market currently values SuccessFactors more than 5X and Taleo more than 3.5X than Kenexa. Why is that? Because transitioning to SaaS is difficult, especially when you are a public company. But they are making progress.
Kenexa has done more than 20 acquisitions of both technology and services companies over their history. They have also purchased many overlapping technologies in recruiting (e.g. Webhire and BrassRing), which usually causes concern and confusion among customers. Unlike Taleo, who acquired Vurv, Kenexa is offering their customers business and product choices including transitioning to their latest products on the 2X platform as well as staying put. Rudy Karsan, Kenexa’s Chairman and CEO, even said for some customers who really want to stay on old, decommissioned products, his company will work out an arrangement to give the customers a copy of the source code and they can maintain their own products. Not the easiest solution but it shows that Kenexa is trying to work with their customers to help them be successful, which is unique among the leading talent management providers.
The company has been quietly working on building out their next generation integrated talent management platform, Kenexa 2X, for the last few years. This project included investing $40M in R&D, building out a new technology center in India and creating their next generation multi-tenant SaaS platform. This type of project is very difficult to successfully manage and similar next generation technology projects have sunk other companies like Authoria and SAP has invested almost $1B in Business ByDesign. All Kenexa 2X applications are SaaS-based and delivered out of their two data centers, one in North America and the other in Ireland.
We saw a brief demonstration of some of their new mobile capabilities on Kenexa 2X, but the real test is not with a room full of analysts but how well these new solutions are accepted in the market by customers and prospects.
As Rudy said during the meeting, he has felt like the last 10 quarters they have been walking through the desert but now they feel like they are coming out the other side.
For those of us on the outside, the technology is just one part of Kenexa’s business; they also offer a robust RPO service as well as a variety of assessment and analytical services for their customers.
Progress and Promise
As I just mentioned the major milestone for Kenexa is that their new 2X platform is generally available in the market. Like all big projects this platform transformation will take several years to rollout across their entire suite of technology products but they now have something to rally around. The 2X Recruit and 2X Onboarding products were launched in Q1 and the balance of the products will be rolled out over the next 24-36 months. Kenexa is following an Agile development process for their SaaS platform and applications which will allow for faster releases of products and capabilities.
Because this is a big initiative, I think it was really positive to see a roadmap prioritization of the products that were being transformed and launched. The product priority seems clear: recruiting, onboarding, training and development, succession, workforce planning, performance and compensation and learning. As they Kenexa progresses with the 2X transformation, we can expect to see small functional bundles as products are made available and then at some point out in the future, their full talent management suite.
There are some new platform capabilities that will add value to their traditional applications, including mobility. We were able to see the new mobile applications they are launching for the Blackberry and iPhone around recruiting, onboarding and performance management transactions. These mobile apps appeared to be simple to use and are based on basic approvals and routing, which make a lot of sense for busy managers and executives. The Kenexa 2X platform also supports complex workflows, like those required for their new onboarding application as well as support for 37 languages.
Kenexa also discussed the growing market opportunities for their recruiting and talent solutions outside of the US. In fact, their China business alone has grown by 4x in the last 5 quarters. They have also seen solid growth in the Middle East, Latin America and India. This strategy of focusing not only on the US but also new high growth markets should help Kenexa to continue to grow at a brisk pace.
The last area and possibly the most interesting has little to do with Kenexa’s technology products. Kenexa has several other service businesses, which are also growing including their RPO and Assessment practices. In the book ‘Crossing the Chasm’, one of Geoffrey Moore’s key tenants was for technology providers to listen to customer requirements and deliver a ‘whole product’ that doesn’t just consist of technology but contains services, integration, data, content and whatever else the customer needs to solve their business problems. The technology provider who can deliver a whole product solution can easily differentiate themselves from other providers and deliver more value to their customers, making their solutions ‘sticky’. If you need an example of delivering a whole product, look to Apple and the iPhone and iTunes.
Maybe by focusing on delivering complete, whole product solutions, Kenexa can become the Apple Computer of global recruiting and talent management.