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Heading into 2018, HR tech market remains hot and competitive

Applicant tracking systems may see double digit investment growth next year. VC investment in 2017 is less than half of the 2015 peak, but analysts see a healthy HR market dynamic.

The good news about the HR tech market is that it continues to see strong investment, especially in stand-alone products. But venture capital investment was down in 2017, although not necessarily in a worrisome way to analysts. Investment remains strong in some segments, particularly recruiting.

The leading HR market trend is in recruiting and talent management.

"Recruiting has always been really quick to try out new things, which is a direct departure from their peers in the HR department in general," said Kyle Lagunas, a research manager at IDC who studies talent acquisition.

Applicant tracking systems (ATSes) may be the major beneficiaries of this HR tech market investment. In 2016, global spending on ATSes was about $2.5 billion, according to IDC. That was about a 6% increase from the prior year.

IDC hasn’t released its 2017 spending estimate, but the ATS segment is expected to increase “by double digits,” Lagunas said. Best-of-breed investments in the HR tech market will outpace those by big suite vendors, he said.

The peak year for VC was 2015

The HR tech trend in global venture capital investments is less clear. VC investments shot up from a sleepy pace in 2011 -- which saw a mere investment of several hundred million -- to $2.4 billion in 2015, the peak year. CB Insights put the 2016 HR tech investments at $2.2 billion.

Independent HR analyst George LaRocque is expecting 2017 to finish with about $1.1 to $1.2 billion in global venture capital investment.

This investment is being driven by some fundamental changes in HR tech trends. Prior to 2009, HR technology was mostly focused on large enterprises, LaRocque said. But since then, the middle market -- which may have once used nothing more than a Microsoft Excel spreadsheet to track applicants -- has been adopting more sophisticated tools.

"The world got flatter," LaRocque said, and "smaller businesses are competing globally with bigger brands. They're not just competing for business; they are competing for talent."

The year 2012 was a benchmark for the HR tech market, which appeared to be consolidating. SAP completed its acquisition of SuccessFactors Inc.; Oracle bought Taleo, a talent management firm, and followed that with SelectMinds, a social talent sourcing firm.

But in the same year, VC investment was rising, and new firms were being launched, such as Lever, an applicant tracking and sourcing technology firm that sees itself as a hybrid of ATS and customer relationship management that can improve collaboration. It has some $73 million in funding, 1,300 customers and 145 employees.

A new wave of consolidations?

Leela Srinivasan, the chief marketing officer of Lever, believes the ATS market is crowded and primed for a new wave of consolidation. She pointed to some of the major changes in 2017.

Google Hire, a recruiting app, was launched with a focus on the low end of the market. LinkedIn announced a new product in development, LinkedIn Talent Insights. Microsoft launched Dynamics 365 for Talent: Attract and Onboard modular apps.

LaRocque doesn't see 2018 as a year for consolidation, and believes the HR tech market has room to grow. If the economy keeps moving along, "then there is plenty of market opportunity, especially in the areas of machine learning and AI," he said.

IDC's Lagunas also doesn't see a wave of consolidation ahead, in part because the big potential HR buyers already have ATSes. 

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