Cornerstone OnDemand (CSOD) has always been a vendor I viewed as an LMS player: A niche solution in a crowded HR software space. My perception of CSOD changed, a lot, at their recent user conference. I have to re-assess that rather limited view of them as they clearly have become so much, much more. Their growth, in a relatively short time frame, has been impressive. It’s time we call them a HCM (human capital management) vendor as they’ve seriously morphed beyond just LMS.
I’m glad they’re a more substantive player. Ask some HCM/HR industry analysts how many LMS vendors there are and you’ll hear numbers in the hundreds with most pegging the space as having between 300-600 providers. It’s crowded. It’s filled with lots of niche-y players each staking out specific content, verticals or delivery methods. It’s a hard space to market oneself with lots of noise throughout the channel.
CSOD CEO Adam Miller told attendees at their user conference how the talent management space had morphed over the decades. The parallels on that change and what’s gone on with CSOD weren’t lost on the attendees.
His talk reinforced the point that today, CSOD is an HCM vendor. Although some of his slides still showed LMS as the center of the universe (I believe it should be employee and/or their career), the company offers much more than that. CSOD introduced a number of new analytics applications and capabilities. Three were launched at the show with two more coming very soon.
CSOD’s April 2016 release was their largest ever. This underscores the size and volume of new capabilities they are now bringing to market.
The effect of all of this new product development has been a continuing growth in metrics like average contract value, monthly recurring revenue, etc. The company’s Cumulative Annual Growth Rate (CAGR) is 43% over 10 years. Customer count in that time has grown from 73 to 2,595. New and existing customers are choosing to buy more products from CSOD and that sees CSOD’s share of HCM wallet going up. For example, CSOD has sold its performance management solution to approximately half of its customers. Its succession planning software is used by 25% of its customers and its compensation functionality is used by about 15% of its install base. Their recruiting functionality which came into being less than 4 years ago now has 500 or so customers. Customers seem to like the new applications coming from CSOD.
Product footprint growth means that the total addressable market for CSOD solutions grows, too. The LMS market, according to stats shared by CSOD, is a $1.1 billion annual market. Moving into the talent management market opens up an additional $5.5 billion annual market. The HCM market adds $6.7 billion annual addressable market to CSOD. And, markets like Analytics (a $1 billion additional space) create more sales opportunities.
This growth also means they’re triggering de-installs of more and more kinds of competitive products. Growth has also occurred due to geographic and vertical expansion, too.
To put an even sharper point on the growth, I interviewed, separately, executives from two massive, well-known firms while at the show. Both will continue to buy more from CSOD and both will be kicking more of their old ERP vendors’ solutions to the curb. Why? In one case, the customer has shifted much of their workforce to third parties and while its ERP user count has fallen by 50%, its on-premises ERP vendor has steadily raised its annual maintenance and other fees year after year. While the movie character Gordon Gecko in Wall Street opined that “greed, for lack of a better word, is good”, apparently with ERP customers, that only works for a while. The other customer executive I interviewed is dumping their major ERP vendor as they don’t like the glacial pace of innovation and quality of functionality emerging from this firm. Bottom line: the leaderboard is changing out there and customers will go where the innovation, better value and appreciative vendors are. Old-school ERP vendors should start drafting their obits right now.
But I digress – back to CSOD. CSOD focused on a large number of topics – more than I’ll do justice with this piece. Here are some of them:
Security – CSOD has been moving into larger customers in ever more global locations. As a result, we heard a lot about their cloud protections (see slide below) and their London data center. We also heard about data vaults, UI controls and master switch security.
EDGE – There was also a lot of discussion around Edge. Edge permits CSOD users an easy way to import external data sources into the application suite. It also permits easy integrations to select 3rd party applications (e.g., CICPlus+) for trial or permanent subscription usage. Solutions in the Edge marketplace have pre-built integrations to/from CSOD. Edge also permits an ability to build some light-duty applications.
Link- Link brings together all kinds of HR data into one place. Its value comes from the ability to make employee and manager self-service applications be very complete and come online with a minimum of effort.
The company is at least several years away from completely fleshing out a full-blown HRMS suite. It has a huge chunk of one (to be sure) but there’s no Payroll or Time & Attendance functionality (to name a couple of missing modules). CSOD will continue to be a key partner for Payroll firms like ADP and many HR vendors will continue to partner with CSOD for its LMS capabilities. However, these individual market segments are blurring. In just a few years, we can expect most major HRMS firms to have their own solutions with fewer firms needing as many niche partnerships. CSOD should be one of those major HRMS vendors.
Benchmarking should be a near-term future offering. Many of the initial benchmarks will involve systemic data points. For more advanced benchmarks (e.g., process or workflow statistics), users will need to consent to have their data anonymously captured and aggregated. That latter type of benchmark may be a ways off.
Analysts did some nitpicking on the algorithms embedded in some of CSOD’s analytic applications. As a general rule, HR industry analysts do this with every HR vendor that has analytic apps. We’ve got some material concerns as to how some algorithms might create new liabilities for their users. CSOD’s analytic applications have a good heritage as the team behind these comes from acquired firm Evolv (late 2014). To be clear, I liked the new analytic development, the approach they have, etc. Sales of the analytics apps are expected to be big revenue drivers for CSOD.
CSOD believes it is already handling big data. It’s currently managing over a peta-byte of customer data in its cloud. Readers should note that this data is internal HR transaction data and not data sourced from very large external data sources. CSOD’s technical leaders are clearly laying in the groundwork for this new capability but none of the analytic applications recently released use any large external data sets now.
Customer satisfaction with CSOD was abundantly evident. Discussions with customers reinforced this point and the growing revenue numbers reflect the attraction the products (and the firm) have with them. This attractiveness should further upset established ERP vendors as their install bases continue to come under attack from firms like CSOD and Workday.
When I asked management about the role of major integrators in their sales process, the answer was illuminating. For some time, integrators have not exactly been friendly towards a customer choosing CSOD (note: I’ve heard several similar points raised about integrator interference in Workday deals, too) and have tried to steer prospects to solutions from old school ERP vendors. CSOD executives indicated that there’s been a marked shift of late as integrators finally see the inevitability of cloud HR solutions and now want to play in this space. It’s about time.
CSOD uses cloud technology internally. They use NetSuite (for financials), Concur (for Travel and Entertainment expense management), Blackline (for reconciliations and closing), MavenLink (for project management) and more.
I liked how CSOD is trying to cut the time to implement a large customer by half. Now, these companies are going live in 2 months (not 4 months). This has had a beneficial impact on CSOD as it has not needed to aggressively grow its professional services staff with these improved methods. It also means that when customers go live quickly, they are more apt to want more applications from CSOD – infill sales are growing fast for CSOD. Another factor in improving CSOD (and customer) results is their attention to the content of service calls. One stat they shared was that 70% of help calls were from customers needing help with screen commands. Better prompts cut down the number of support calls materially.
Rarely am I surprised by software vendors. I don’t go into briefings with a bad attitude but I’m often left wanting. I expect a lot and I want to see vendors move with the speed of technology innovation. Yet, my short time at their Convergence conference was eye-opening. Why? There’s been an incredible amount of progress in the development organization within CSOD. Every part of the suite received material enhancements and the suite itself continues to grow into an ever larger product line.
Being a salesperson at CSOD must be getting nice, too, as more in-fill sales opportunities (from a broadening product line) and more functionally capable modules, make for easy and larger commissions. Salespeople love products that move with minimal friction.
CSOD is moving out of its awkward teenage years. It’s growing up and is already competing directly with major HCM and HRMS vendors. The mistake some old school ERP software vendors are making is to ignore them. These vendors are already losing market share to CSOD and more losses will come.
Ignorance by integrators is another sin occurring in the marketplace. The fact that integrators can’t figure out how to make huge consulting fees from cloud HR vendors is not an excuse to keep pushing more expensive, older on-premises solutions. I admire CSOD’s initiative in making implementations of its products fast and effective. They are controlling their destiny by doing so.
If the world were truly fair and just, I would have liked to have had executives from major software firms and integrators at my side during the analyst briefings. I could have pointed out to them (several times):
- how quickly innovation can occur
- how product lines can grow materially and quickly
- how CSOD is speeding up the delivery of its products and value to customers
Hmmm, maybe that’s a lesson the market will have to teach them after all.