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The real players (Vendors) in the industry are sitting on huge piles of underoptimized capital. IPOs and acquisitions have dramatically altered the value of the industry. We think that it's fair to value all of the companies in the space in the $20B to $30B range (not including traditional staffing firms or old school Applicant Tracking operations). The number is rising rapidly. A maximum of 5% of that value is currently being used by the folks who hold it.

Think About It.

One job board player (pick one) is in the position to acquire All of the existing applicant tracking companies and have plenty of money left. A small group of large customers could easily buy one of the major job services. The traditional players (agencies, staffing firms, newspapers), strapped for cash, capital, or will are being rapidly squeezed out.

Ignoring the old school for a moment, the market is now composed of buyers with excess resources and sellers with the ability to invest in new services. How often does that happen? It's a rare circumstance that will propel values of existing properties into the stratosphere. It's an intersection that has enough flexibility to drive an astonishing level of innovation. The stage is set for an uptick in the levels of chaos, dramatic growth in stock prices and the introduction of new services.

Easy to predict are free computers, cell phones and handheld devices for potential candidates who meet certain requirements. Harder to believe (but economically realistic) are free cars (job ads over the GPS), secured loans, vacations and high dollar luxury items (for the options on just the right candidate). Already underway are training giveaways, professional development coaching and tons of career management services.

The hardest thing for the old school to grasp is that the economics of the business have inverted. The traditional staffing industry is built around a 60 day lag in cash flow. The new industry is built on steep investments upfront. The old industry sells candidates that they get for free and collects a bounty after the invoice. The new industry buys candidates (at increasing premiums) in advance of the sale. The old fogies can't imagine investing in candidates. The young Turks can't imagine not doing it.

That means that the transition is not a battle for market share (as we've heard many a staffing firm describe the problem). It's an economic war rooted in two differing views of warfare. The old guys still have bows and arrows. The new guys use rifles. The outcome is obvious.

Meanwhile, the macro answer to the surplus question is that the money will be invested in candidates, their options and futures. Software that can evaluate a candidate's potential value and offer an investment parameter (how much is it worth to stay in touch with this particular candidate given our forecast needs) is just around the corner. The interesting thing about the equation is that a particular candidate will be worth a lot to several interested parties and should be able to reap benefits from multiple sources.

Over the coming weeks and months, we expect to see very large inflows of capital into the business. While the surplus festers, it will grow at unimaginable rates. While it grows, the current market will transform rapidly. As the market transforms, the new order will begin to emerge in a more permanent way.

In an early campaign speech last night, Al Gore claimed that "60% of American businesses have unfilled jobs".

- John Sumser, © TwoColorHat. All Rights Reserved.

Tidbits

• Keep your ears out for JobUniverse (best name we've heard in a while). It's the new offering from IDG (weren't we smart to start tracking them?). Not for Dummies, the site consolidates the advertising from IDG's massive stable of websites. With a solid sales force, they'll easily move into the top tier of our industry.
• Heidrick and Struggles are adding outside directors. Most interesting? Robert Shaw, CEO of USWEB. We expect some extraordinary moves from the ashes of LeadersOnline.
• FutureStep, who always chided us for saying that the venture was Korn-Ferry's move into the IT market has, in fact moved into the IT market. The new venture will be called FuturestepAT (for Advanced Technology). Now, if they can just give those 350,000 candidates some value in exchange for the time they invest, the venture will really take off.
• TMP made the newswires for their large contract with a business database firm. Looks like the company is working hard to wrest the synergy from all of their acquisitions. Meanwhile, the CreativePro joint-venture strikes us as a niche whose time has come (digital publishing).
• Although we've been hard on them recently, DICE is making very interesting inroads in the tiny niches of the technical universe. We think these kinds of very focused niche alliances are the wave of the future. DICE will be the exclusive job source for ASP 101, Actionjackson.com, cramsession.com, mcseguide.com, midrangeuser.com, Planetlearn, SQL Course, Torresoft
• Headhunter.net is also in the microniche network game with recently announced alliances with TelekomNet, SuccessCenter, HOTBIZ.COM, Moving.com, ShopItAll.com, and URAH.com. Really micro, less focused than the Dice moves.
• HireSystems and CareerBuilder are in bed together in service of the ADP account. It's a good alliance and a pointer towards the future.
• Worklife, the producer of AltaVista's career material (and somehow related to Interim) is launching a Canadian edition of the AltaVista product. It's a benchmark in the global expansion of localized content.
• As long as we're recognizing micromarkets, VJF recently signed a deal with Penton to deliver job board services. It's 15 related websites (Internet/IT; electronics engineering; OEM/machine design; Enterprise Resource Planning (ERP); logistics, supply chain and material handling; manufacturing executive and plant management; mechanical, fluid power and motion system engineering; lodging and hospitality; building construction; and industrial safety). VJF is traded as a part of Central Newspapers (ECP). Penton (PME) is now a part of our list.
• Speaking of Interim, their localized commercials on CNN strike us as the best message for an online Recruiting Service that we've seen.
• The stock market has been brutal to the staffing companies we cover. Down by over 10%, the downside is is led by companies like CDI (off 30%) and PGA (off by 40%). Unlike other analysts, we're not bullish on the upside. These companies simply don't understand how important the web is to their futures. In the same sector, Hall Kinion is up 25% (offsetting the slide from more traditional companies) because of their continuing emphasis on the web.
• The CEO of Lucent is predicting free online stock trades by this time next year. If you are following our ongoing comparison of the stock broker's future to the Recruiter's, you will want to think about this one.
• We like the Kelly Scientific website and think that Kelly gets it better than most.
• CareerEngine (who?) is making lots of noise as it gets out of the starting gate. Owned by Helmstar (HLM - a merchant bank), and therefore public, we've added them to our stock list. The offering is a warehouse of niche sites. Their partnerships have some very interesting potential.
• In a major precedent, Hire.com is providing Recruiting services for a well known Venture Capital Firm. Venture firms often function as the Recruiting arm of the ventures they capitalize. By adding TLVentures to its client list, Hire.com starts a move of very interesting significance. We bet they start to make real inroads in the traditional Recruiting Firm marketplace.
• CPAFinder is a niche model talent matching operation.
• In the same vein, Startupnetwork works the marketplace with a sort of talent auction that emphasizes the viability of startups.
• Worst name of the year? Superhireway, a soon to be launched Silicon Valley entry.
• If we were in a betting mood, we'd predict an interestingly profitable entry from Franklin Covey next year sometime. It should certainly be on the target list for any of the alliance builders.
• Procter and Gamble has shifted all of its advertising accounts to a performance pay basis. Ad Agencies get paid in proportion to their results. Be prepared, it's coming to our industry. Right now, we can't imagine the difference between a Recruitment advertising agency working on a performance basis and a traditional staffing firm. It should be the key to real growth in Internet Revenues, however.
• How many job boards will survive the (theoretical) consolidation? We're betting 15 to 20 per MSA with a total of 10,000 viable businesses (in the US alone).

  - John Sumser, © TwoColorHat. All Rights Reserved.
  
  

Take the recent offering from the Strategis Group. According to the Press Release, "JobOptions ranked 16th among the top 50 advertisers in a study by The Strategis Group, Inc. Sites were logged based on visibility in a survey of 6,972 ads on the top 50 sites between April and June 1999". (We've archived a copy of the Job Options Release for your amusement.)

Let's dissect the study a wee bit. Essentially, Strategis fielded a research team who looked a 50 websites twice a day for 60 days. The team counted the number of banner ads that they saw during the process. From this endeavor, they concluded that a certain group of companies had the largest advertising presences on the web.

According to the release, Job Options credits their "success" to "its constant presence on the home pages of its co-brand partners like XOOM.com". In other words, the study measures JobOptions success (which we'll grant them) at acquiring free advertising.

Big Deal.

Perhaps these folks haven't heard about radio, television, billboards, newspapers, blimps, superbowls, conferences, tee shirts, and so on. We can easily imagine an equally narrow study that counts the number of logo emblazoned coffee cups in analyst's cubicles. We seem to have to keep quoting Maria Muldaur who said, "It ain't the meat, it's the motion."

Outside of the investment community, no one is interested in these kinds of measurements. What candidates want is an easy to use environment. What customers want is a stream of qualified candidates without a lot of additional noise. We imagine that more than a few customers are turned off by the focus on non-essentials.

- John Sumser, © TwoColorHat. All Rights Reserved.

Changing Corporate Boundaries: More Giveaways

This will not be a small thing.

Maybe the easiest way to understand the trend is to compare it to the leasing of options. The development of a long term, value based relationship with a potential candidate is much more than a series of phone calls to update a database. To compete effectively with the other entities who will want a specific potential employee's attention, Recruiters will increasingly be required to deliver some form of compensation. Simply maintaining the relationship will involve the delivery of value.

Until now, the definition of a company's boundaries only included its stockholders, management, employees, resources, customers and suppliers. Today, each of those groups represents a powerful source of potential employees. In addition, the broad labor market includes a subset of potential candidates who will make or break the growth prospects. In order to make sure that they are available when required, employers and their representatives will go a lot further than providing an online application process.

Double OOPS
The HotJobs CareerFair in San Jose is Saturday the 18th, not today.

- John Sumser, © TwoColorHat. All Rights Reserved.

Next Phase....Orchestrated Lunacy

In general, there is a sound reason for treating visions with lithium. The status quo provides a safety zone and decision making continuity. "If it ain't broke, don't fix it", goes the song of the effective maintainer of the way things are. Like a bull in china shop, the visionary tends to say "If it ain't broke, break it." When the security and stability of an entire workforce are at risk, the wise thing to do is keep the visionaries at bay. While it may put you out of business tomorrow, it keeps things stable today.

That said, money completely changes things.

Over the next year, some really different things will emerge in our industry. The war chests, brimming from public offerings, productivity improvements and strategic investments are about to produce a level of experimentation in tactics like we've never seen.

We're beginning to believe that HR Departments are starting to see some interesting budget surpluses in their advertising kitties. If the most expensive online advertising campaign (through a job board) runs $50K and you sign up for 10 of them each year, you've spent a months worth of the old newspaper advertising budget! That leaves an interesting pile available for experiments. It makes the possibility of direct, one to one, relationships with key elements of the potential candidate pool a credible option for large players. While we think that current pricing levels are designed to put Job Boards out of business, they are the current price.

If you look around the Recruiting value chain, the opportunities for expansion are skimpy. Applicant Tracking, as a market, is a mere $250M per year with at least 80 players vying for a piece of the pie. Background checking, screening and other administrative services are similarly tiny.

So, what do job boards on an acquisition streak, HR departments in need of better results do with their growing surpluses?

Tomorrow night, Hot Jobs will give birth to its assault on the Silicon Valley Job Fair Market, buying lots of free tickets to the Museum of Tech Innovation. Lots of players are looking at lots of rollup companies. We won't be surprised by much of anything. The industry, after many formative years, is about to begin real experimentation.

- John Sumser, © TwoColorHat. All Rights Reserved.