Editor’s note: This is a guest post by Kyle Lagunas of Software Advice .

Recent activity – including the acquisitions of SuccessFactors by SAP and Rypple by Salesforce – is pumping new energy into web-based  HR software in the HCM market. Things are clearly heating up in this sector, and investors have taken note. In the last two weeks, VC funds have been flowing into the human resources software market, with large investments in SmartRecruiters and iCIMS. As such, 2012 shows much promise for the continued expansion of HR solutions into the Cloud, as well as further integration of social media functionality into HR applications.

The increasingly diverse needs of organizations big and small demand myriad options in human resources and talent management software solutions. As they continue to fight for the biggest piece of the pie, I believe more large software companies will make strategic acquisitions. I’ve taken an in-depth look at what SAP and Salesforce stand to gain from their HR acquisitions, how it will impact this dynamic software market, and where other contenders in this space might make moves of their own.

The Opportunity for SAP in HR: It’s All About the Data

Over the years, SuccessFactors added analytics and reporting capabilities to their product, in part through the acquisition of Inform Business Impact (previously InfoHRM) in early 2010. “The ability to create some telling analytics will set one vendor ahead, because that’s what it’s going to take to give HR a seat at the table,” says independent HR technology consultant Tiffani Murray. With SAP’s vast resources and experience delivering hard data in the ERP space, there’s a great opportunity here to further develop an HR analytics tool the market craves. If SAP is successful, we might expect to see more acquisitions at the intersection of HR and analytics in 2012.

Why HR Makes Sense for Salesforce’s Social Enterprise

Social tools have seen the most widespread adoption in these two markets, as CRM and HR have historically been the first business sectors to adopt new communications tools. With the evangelist support of Salesforce CEO Marc Benioff and John Wookey (previously of Oracle and SAP) heading their HCM unit, Salesforce is in a strong position to help HR departments extend social media functionality across their various applications. “This new blood drives innovation, which energizes the market,” says Murray. “It will drive the market in a new direction.”

Three HR Software Areas to Watch in 2012

As vendors great and small continue developing Cloud-based solutions, I believe there are three HR applications that offer the greatest opportunity for strategic growth through acquisition in 2012: talent management software, applicant tracking and recruiting software, and analytics and reporting applications. And in these areas, there are a few vendors who are ahead of the pack.

1. Because business leaders increasingly see the value in a system for developing their workforce, Talent Management Software continues to experience rapid growth in the Cloud. This sector has also seen some movement, as large vendors acquire best-of-breeds, particularly in learning management and performance management. Many analysts are have their eyes on Taleo – a leading talent management suite, and serious competitor in this space. I expect they’ll begin flexing some muscles in the marketplace, taking advantage of the opportunity to position themselves as SuccessFactors’s biggest competition.

2. Many of the core functions of Applicant Tracking and Recruiting Software thrive in the social media arena, and it makes sense that you’ll see more social capabilities evolving in this area first. Bullhorn – a leader in recruiting software – is also breaking into social with their new product, Bullhorn Reach. Currently in its infancy, I see a lot of potential in this product.

3. Your ability to identify and track trends in your retention rates, boosts in productivity, and benchmark performance will set your HR department apart from your competitors. And though HR has never had a problem with gathering data, HR software is recently making great strides in delivering technology that allows them to use that data. Analytics and Reporting Tools like eThority’s Workforce Analytics 5.0 (acquired by Equifax and integrated into their TALX business unit last October) will continue to drive innovation in HR software.

As legacy vendors continue their age-old ERP battle, and as innovative companies like Salesforce continue to dazzle, the moves made by these (rather different) business management providers have certainly set the stage for an exciting 2012. Customers and analysts alike would be wise to pay attention to continued movement in the market in the coming months.

For further reading, check out the full analysis and forecast on my HR blog at: http://blog.softwareadvice.com/articles/hr/the-hr-software-round-up-setting-the-stage-for-2012-1011912/. Have your own thoughts? Join the discussion, and leave a comment.

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• More HR Tech: SuccessFactors, Jobs2Web & SAP (zdnet.com)
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• Should SAP + SuccessFactors Worry Salesforce.com? (informationweek.com)
• Salesforce.com Acquires Rypple for Push Into Cloud HR Software (pcworld.com)
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