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Market Segmentation Math
(August 20, 1999) Imagine a matrix. It's got functions (from candidate aggregation to payroll) across the top. It's got company size (and a distinction for non-corporate recruiters) across the side. The third dimension is a complex description of the workforce in niches no larger than 25,000 people (probably divided by region and profession).

10 kinds of paying customers times a dozen repeated functions times 4,000 niches times (at least) three providers per niche. That's almost 1,500,000 describable combinations of niche, function, region and customer type. No wonder our industry resists consolidation.

Each of the 25,000 people in each niche change jobs every four years. At a minimum of $10K per job change (which is very low), each niche represents a potential market of $60,000,000 per year in cash flow. Simply divided equally among the functions, there's an opportunity for 12 $5M/ year businesses in each niche. Obviously, the distribution would be weighted towards processes that require human assistance.

At it's simplest, a very conservative description of the value of our industry, rooted in these numbers, is $250 Billion per year. What the pundits seem to miss is that this sort of potential will resist the vending machine mentality of contemporary retail oriented Internet technology.

In a market that size, there's a lot of room to pay for and deliver a lot of value.

- John Sumser, © TwoColorHat. All Rights Reserved.

Money Money Everywhere

(August 19, 1999) Two companies that you have not heard about just received significant financial infusions. Jobs.com, in an extraordinary move, received $62 Million (in advertising and services) from CBS (the broadcasting company and home of David Letterman). Job Shark, a Canadian job board, took $6 Million from private investors to fund its entry in the European market.

Television and radio broadcasters have always been jealous of their sisters in Print Publishing. The CBS investment in Jobs.com represents the first major incursion of the non-print broadcasting industry into the Electronic Recruiting space. It's neither the last nor the smallest.

In a breathy rush of platitudes, the CEOs of CBS and jobs.com described the deal in layers of hype:

"The newspaper business has long been the sole recipient of the $17 billion classifieds advertising market. As that revenue is increasingly ceded to the Internet, we believe that Jobs.com is well positioned to benefit from the transition," said Mel Karmazin, President and Chief Executive Officer, CBS Corporation. "The site, which has established the model for recruitment in the next century, adds to CBS's significant portfolio of Internet investments, which together offer Web users a wide variety of business and personal services."

"This investment by CBS will allow us to reach deep into local markets with traditional advertising opportunities, as well as the ability to sponsor special programming and pursue unique partnership opportunities," said Timothy Armes, Founder, President and Chief Executive Officer, jobs.com, Inc. "The increased exposure will aid in rapidly and exponentially growing the number of job seekers coming to our site and increase the number of employers adopting Resumail(TM) as the standard for receiving resumes."

Given CareerBuilder's fledgling relationship with NBC, we're starting to see a trend that we should have been predicting (damned fuzzy crystal ball). Market alliances will drive the next competitive level and (what we missed) include investment stakes of very significant proportion. Since Recruitment advertising has always been the newspaper's cash cow, the land grab is ridiculously predictable. With NBC and CBS taken as partners, how long will it be before ABC beds down with HotJobs? It's a weirdly predictable trend that leads to visions of a job board alliance with each of the cable networks (too bad MRI couldn't figure out how to do the CNN deal!).

On a software level (hype aside), it is impossible to tell the difference between jobs.com, HotJobs or CareerBuilder. They all have job boards, recruiting back ends, windows style interfaces. Hot Jobs emphasizes its privacy parameters. CareerBuilder shows off its distribution network. Jobs.com proudly displays its attempt to standardize Resumes (called Resumail).

It looks a great deal like the lifelong battle for market share waged between McDonalds, Burger King and Wendy's. Over the long haul, it's a branding game with the emphasis on issues like shelf space, advertising and consumer awareness. The great news for Jobs.com is that with a single move, they have joined the ranks of the big players. It tells you as much about the state of our industry as it does about the specific players.

- John Sumser, © TwoColorHat. All Rights Reserved.


(August 18, 1999) As the industrial revolution changed from an era of gigantic projects (railroads and early skyscrapers) to factory automation, no job was more secure than the village blacksmith. As late as 1925, every town on America had a "smithy". Since the put the shoes on every horse, fixed the wheels on every wagon and even fixed the customized parts of early automobiles, the smithy was quite often the center of town life.

Imagine trying to explain to a smithy in 1925, that by 1928 only 50% of the shops would exist and by 1935, the survivors would be running gasoline stations (at best).

It happened that quickly. The new technology (assembly lines) performed the smithy's function in an entirely different way. Smithies, who were responsible for the whole job, could only gain employment if they specialized in a very narrow piece of their old trade. Not only did the profession die, the role these practitioners played shifted. No longer were smithies the gatekeepers, mayors and councilmen. Their families suffered deeply from the loss of status and income.

For the most part, no one noticed. They were too busy enjoying the thrill of their new automobiles.

We are reminded of smithies every time we talk to a successful recruiter who works a solid local niche. We think about it every time we survey the dismal offerings from third party firms. The answer is obvious but the credit lines are weak.

It's a tough time to gather verifiable statistics. What we know for sure is that the flood of venture capital is artificially lowering the cost per hire. Key new entrants are buying market share at the direct expense of the traditional industry.

The third party industry segregates just as you'd imagine. 20% of the offices and small companies generate most of the revenue and profitability. The remainder struggle to stay afloat. The large franchise firms operate on the same principle. Unfortunately, the weak offices can not survive the intense financial pressure. The top 20% will survive a while if they invest wisely in candidate acquisition.

The answer lies only partly in web technology. A new model that favors the role of the candidate is emerging. It takes a deep recognition of the realities of the labor shortage to make the shift. Enough money to survive a "rainy day" doesn't hurt.

- John Sumser, © TwoColorHat. All Rights Reserved.


(August 17, 1999) Occasionally, we slip into MBA-speak and utter the word "paradigm". We are generally trying to explain that old assumptions do not always apply in the new business environment. We immediately apologize and fumble for an alternative. It's hard to explain how different the world looks when you shift your focus. What seems subtle or obvious at first become the foundations of a whole new way of seeing things. Things change when you change the way you look at them.

In 21st Century Recruiting, the candidate is everything.

Like most businesses that have flocked to the web, Recruiters and Recruitment Advertisers have begun the process by moving their existing ideas to the web. What they have discovered is an increasingly savvy candidate whose demographics are in flux over time. The labor shortage simply accelerates the requirement for tailored solutions.

In the good old days, Recruiters competed for talent on the basis of size, neighborhood and connection with decision makers. In the coming weeks and months, the focus will inevitably shift to candidate pooling and candidate retention. Businesses that focus on the candidate life cycle will flourish while those that focus on the job opportunity will flail about.

Candidate retention is not the same as employee retention. The two are related, but candidate retention involves maintaining relationships while the candidate works elsewhere. Armed with the right data warehousing tools and the continual delivery of value to a candidate throughout their career, Recruiters who personalize and focus on the candidate are the ones to watch.

- John Sumser, © TwoColorHat. All Rights Reserved.

Moooo! Thud. Next Cow, Please.

(August 16, 1999) Moooo! Thud. That's the sound of a sacred cow being toppled. Even though it feels scarier than that to the people who hold a particular cow sacred, it always boils down to the same thing. Moooo! Thud. Next Cow, Please.

For years now, we've been asking the management of firms in the staffing industry to take the web seriously. "Ignore it at your peril," we've said, "It will be like the 'death of a thousand cuts'".

  • DICE, once the third party recruiter's secret IT weapon, has opened its doors to corporate recruiters!
  • The Help Wanted Index hit 84 (out of 100, a 2 year low) in spite of the dramatic labor shortages, low unemployment and high job growth. Why? The Internet is seriously siphoning resources and cash away from old fashioned paper classified ads. The market is saying that the Net works better.
  • We panned MRI's new "Brilliant People" for a variety of reasons last week. For a taste of a better approach, see Romac's new entry..kforce. We like Romac's emphasis on people as opposed to Brilliant People's not so subtle arrogance. kforce is offering guarantees for compensation and candidate quality..light years ahead of the competition.
  • Content companies are receiving increased attention around our business. It turns out that ads aren't everything. Getting regular attention from passive jobseekers requires recurring content a la DowJones.com
The change is accelerating. We've recently seen investment advisories that suggest that as much as half of the traditional placement industry will be siphoned off to Internet plays over the next 3 years. We agree with these assessments. We imagine a swift kick is coming soon in the stock prices of traditional firms lacking a real Internet play. They are already stagnant.

- John Sumser, © TwoColorHat. All Rights Reserved.

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