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Cornerstone is building learning management's Netflix

Cornerstone's acquisition of Saba Software for $1.4 billion takes out a learning management competitor and gives it a boost of engineering talent to speed innovation, analysts say.

A big part of learning management today is not just serving up training videos but doing so in the same way consumers get their movies -- on demand.

Getting the right video to the right employee at the right time requires a high level of personalization and analytics -- all of which takes software engineering. That challenge also explains some of the motivation for Cornerstone OnDemand Inc.'s just-announced acquisition of Saba Software Inc. for nearly $1.4 billion.

Together, the two companies create a significant learning management firm, serving a total of 75 million users at some 7,000 organizations globally. It gives Cornerstone access to Saba's engineering and technical talent, accelerating its own development. It also takes a competitor out, according to analysts.

The two firms also offer product sets that serve broader HR needs, such as recruiting, onboarding and performance management systems. But they are both known for their learning management systems (LMSes).

Learning was the top trend cited in Deloitte's most recent Global Human Capital Trends Report. Additionally, nearly 200 major U.S. firms released a statement last year pledging, in part, to invest in employees by "supporting them through training and education that help develop new skills for a rapidly changing world."

The Cornerstone acquisition of Saba creates product overlap. In a conference call with financial analysts, Cornerstone CEO Adam Miller identified "more than $35 million" in "cost synergies" and expects to identify millions of dollars more. That usually means cutting.

Cornerstone isn't giving interviews until the deal closes, which is expected to happen sometime in the second quarter, a spokeswoman said. But industry analysts have some good ideas about what's ahead.

A look at what's ahead

Essentially this takes out a competitor on the learning management front.
Lisa RowanChief HR analyst, IDC

Any merger-related reductions will be in back-office operations and not in the engineering and development areas, industry analysts said. Indeed, Miller said that "a key bottleneck" for his firm "has been engineering capacity." The Saba acquisition fixes that, and will speed up its innovation efforts, he said.

For users of Cornerstone and Saba, what Miller shared with IDC is that "innovations will be driven to the Cornerstone products, not the Saba products," said Lisa Rowan, chief HR analyst at IDC. "Cornerstone is going to take two-thirds of the Saba R&D team and direct it toward development on Cornerstone offerings."

"Essentially this takes out a competitor on the learning management front and redirects the endeavors of that competitor onto the Cornerstone portfolio," Rowan said.

Josh BersinJosh Bersin

The plan is for Cornerstone to become the strategic platform for all Saba customers, so over time the Saba customer base will migrate to Cornerstone, said Josh Bersin, an independent HR analyst.

Holger MuellerHolger Mueller

This is a consolidation of the legacy learning management systems market, Bersin said. "Cornerstone is now clearly the No. 1 player, and that's a big opportunity for them," he said.

Cornerstone's acquisition of Saba saves the firm "four to six years of growth to get where they are now as a combined company," said Holger Mueller, vice president and principal analyst at Constellation Research.

Learning "is all about serving the right content at the right time," Mueller said. And more consumers lower the cost of training productions, as well as provide more data for machine learning, he said.

Cornerstone "is in the Netflix business," Mueller said.

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This is definitely some spin. How many Saba clients are going to want to be forced migrate? What about Cornerstone's lack of customer success/partnership. This is big news for sure but I don't know that this is great news for Saba customers.
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