International Business Machines (NYSE:IBM) completed the $1.3 billion acquisition of cloud-based HR software and solutions company Kenexa. This acquisition will bolster IBM’s business analytics software offerings and is a significant addition to its cloud based software-as-a-service (SaaS) business. It also gives IBM access to Kanexa’s strong client base of nearly 8,900 clients. After cloud-based CRM and ERP, HR solutions seems to have caught the interest of major cloud players. SAP (NYSE:SAP) introduced its own HR management software via the acquisition of SuccessFactors, Salesforce.com (NYSE:CRM) has its web-based HR management service, Work.com, and Oracle (NASDAQ:ORCL) has its web-based HR management solution called Oracle Human Resources.
While the battle for the top cloud player is just heating up, IBM has a clear lead over the pack with more than 33% of the Fortune 100 enterprise business software market, according to IBM and IDC. 
The Enterprise Social Software Market
The enterprise social software market is poised to grow to about $4.5 billion in 2016, growing at about 43% annually and IBM is already the leader in the huge enterprise market. Currently, the technology services arm of IBM has revenues of nearly $40 billion and as the enterprise social software market grows, it can meaningfully impact IBM’s top-line in the near future.
IBM Connections, its social software unit, enables collaboration and the formation of communities inside and outside of the organization to increase customer loyalty and speed business results. This can be set up on premise and in the cloud.
Kenexa already has revenues of nearly $300 million, and we expect this to grow substantially as it is now backed by IBM’s sales reach. However, the most important value-add for IBM is that it has now access to a competitive and well known HR product, an offering it did not have earlier, and this fills a gap in its product portfolio.
We currently have a $230 Trefis price estimate for IBM, which is about 20% higher than the current market price.Notes:
- IBM Named Worldwide Marketshare Leader in Social Software for Third Consecutive Year, www-03.ibm.com, June 2012 [↩]