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Companies turn to social solutions

A string of acquisitions this year by enterprise software companies in the cloud computing, talent management and business social markets, including IBM's $1.3bn purchase of Kenexa announced this week, highlights the growing demand from companies for what IBM describes as "end-to-end (social) business solutions".

IBM is paying a 42 per cent premium for Kenexa, the Pennsylvania-based company which makes cloud-based software designed to help companies recruit and manage talent through online social networking, collaboration and consulting tools.

As such, the IBM deal appears to have more in common at first glance with SAP's planned acquisition of SuccessFactors or Oracle's acquisition of Taleo. Both Taleo and SuccessFactors offer cloud-based recruitment and talent management services, as well as consultancy.

Analysts, including Rick Sherund of Nomura, believe the deal will position IBM to compete in the talent management segment of the HR market, primarily against Taleo and to a lesser degree against SuccessFactors.

However, in a call to discuss the acquisition, IBM insisted it had much more to do with the company's desire to serve its customers, as they search for ways to transform their operations into social businesses using the tools and techniques pioneered in the consumer market by Facebook and others.

As such, IBM clearly sought to position the Kenexa deal alongside anther group of recent enterprise software acquisitions including Microsoft's $1.2bn acquisition of social networking tool Yammer, Salesforce's purchase of social advertising platform Buddy Media for $689m, and Google's $250m swoop for Wildfire, another social advertising company.

As Alastair Rennie, IBM's general manager of social business division noted during a call to discuss the deal: "The adoption of social business technology is supporting the growth of big data and the need for analytics in the enterprise."

He added: "Every company, across every business operation, is looking to tap into the power of social networking to transform the way they work, collaborate and out-innovate their competitors."

IBM noted that social media has pervaded the lives of consumers, helping them connect with each other in new ways. Now a shift is under way in the enterprise as business leaders look for ways to generate real value through the use of social technologies to evolve their front-line business operations. According to Forrester Research, the market opportunity for social enterprise apps is expected to grow at a rate of 61 per cent through 2016.

Mr Rennie claimed that IBM is "uniquely positioned to help clients generate real returns from their social business investments, while helping them gain intelligence into the data being generated in these networks to be more competitive in their markets".

To emphasise his point he added: "Social is actually changing the way people work. This is not about simple HR process. It has become a 'C' level issue."

Indeed, a recent global IBM study revealed that 57 per cent of chief executives identified social business as a top priority, and more than 73 per cent are making significant investments to draw insights into available data.

IBM's survey also revealed that 70 per cent of the chief executives cited human capital as the single biggest contributor to sustained economic value.

"The combined strengths of IBM and Kenexa are key differentiators at a time when organisations of all sizes are looking to increase workforce efficiencies and gain more insight from their business information," the companies said.

"The customer is the big winner in all this because the combination of our two organisations will deliver more business outcomes than ever before," said Rudy Karsan, chief executive of Kenexa. "Together, Kenexa and IBM will be unmatched in the industry, offering solutions that extend from strategy to the technology platform to the delivery of services for clients."

However, Mr Sherund offered another possible explanation for IBM's decision to emphasise the social business aspects of the Kenexa deal, rather than the talent management capabilities.

"IBM has, to date, refrained from entering the applications software market. Kenexa positions IBM over the line into the applications space, although the orientation is clearly more on the consulting side," he said.

"Given the focus of Kenexa on consulting services we do not view competition in the SaaS (software as a service) space to be game changing for Kenexa's competitors in the SaaS market, but we view the acquisition as strategically significant in advancing IBM one step closer to the applications and SaaS market."

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