(April 20, 2004) - There's enough pressure for growth to drive a huge array of bad decisions. In Taleo's S-1 filing, a clever deconstruction would notice that they have only managed to grow in the low single digits and that even some of that growth is suspect. Make no mistake, the IPO will fund an acquisition strategy and a virtual exit from the core business. It's a prudent move with a successful track record in other industries.

Taleo is hardly the only player with flat growth. The situation is so desperate that a number of key players have taken to seeding the market with rumors about the ill health of their competitors. Virtually everyone (except Recruitmax and iCIMS) had flat growth for the last year or two. The two exceptions offered a lower price point and the jury remains out on delivery against the price.

Why is the market so slow?

There are several possible reasons:

• The ERP vendors are causing deals to stall on a customer by customer basis, forcing the issue to become an IT decision.
• Increased profitability has not reached the point that additional investment in HR related services can be justified.
• The market has "commoditized" and prices are really falling.
• The missionary work of early to market vendors has paid off so well that customers can successfully use lower price point offerings.
• Sales teams have not effectively cracked the "code". (A symptom of a young industry)

Whatever the underlying reason(s), the top tier firms are all under relative pressure to produce evidence of continued traction (growth). The perennial down-market move is a predictable consequence for Deploy, BrassRing, Taleo and other fledgling enterprise players. After a couple of years of sustained flat growth, investors will lose their interest.