An Interesting Experiment in New HCM Software Business Models

MrTed announced yesterday its new SmartRecruiters offering.  It is a free E-Recruitment software solution targeted at companies with fewer than 2,500 employees.  MrTed plans to make money by taking a percentage of value-added services from partners who integrate their services (for example, job board posting, assessments, background checking) to the SmartRecruiters solution.  I had posted previously on the idea of an ad-supported model to offer free talent management applications.  This is a different free model.  To date, we have not seen too many attempts to experiment with alternative business models in the HCM software world.  There are some ongoing attempts with Open Source (CATS in Recruiting, and OrangeHRM in HRMS).  However, this is a different model (MrTed calls it OpenSaaS). 

The SmartRecruiters offering is a recognition that over time functionality becomes commoditized (that is, there is a minimum set of functionality that all vendors offer and there is little differentiation in that functionality).  When functionality becomes a commodity, prices naturally go down.  It is the extreme case that they go down to zero.  It can only go down to zero when there is a different way to make money.  That is what makes this an interesting experiment.  MrTed is betting that customers will want to pay for value-added services from its partners (yet to be announced).  It is in essence saying the value has moved away from the software itself and to other elements of the recruiting value chain.  Historically, in the business applications market, when functionality became a commodity it was absorbed into broader suites (for example, ERP suites) of products.  New models like this give a glimpse into different possibilities for software market evolution.

The success of SmartRecruiters depends on enough SMB customers adopting the software (otherwise there will not be enough customers interested in paying for value-added services from its partners).  There is always a natural skepticism when a vendor offers "something for nothing".  However, MrTed is not a new vendor.  It does have a track record and real customers using the software.  It has had an very strong E-Recruitment solution for many years (for Gartner subscribers, see "Magic Quadrant for E-Recruitment Software" for more information).  In creating SmartRecruiters, it has tried to create a simplified interface to the same code base.

It is too early to tell if this will be a game changer in the SMB segment of the E-Recruitment market.  However, it should be a wake up call to all HCM vendors that they need to starting thinking more creatively about how they can leverage software to meet customer needs.  What do you think?  Does this approach have merit?  Will it succeed long-term? 

For another take on the SmartRecruiters announcement, see this post from Brian Sommer.

Comments

[J. William Tincup]

Jim

Cool post. I posted about them yesterday via JPIE (http://jpie.com/?p=223). And, for the folks at ERE - I believe that the SM people are attending the show as well.

Best,

William

[Paul Pickthorne]

As the owner of a free job board, I have thought it inevitable that someone would offer this. At Smuz.com we monetize our traffic through advertising (Google are our biggest customer) and affiliate programs that pay us per sale on products that recruiters and job seekers buy. Our site is profitable without charging for any of our services and I don't see why an ATS vendor can't achieve the same thing. Hosting costs are so much lower now than when SAAS first hit the market and with enough traffic volume profitability is certainly possible with this model if done right.

Just my 0.02c worth.

Sincerely,

Paul Pickthorne
Smuz.com
All jobs - All Employers - All Free