Those of you that follow me on Twitter and read some of the reports I’ve written over the years know I’m very interested free software-as-service (SaaS) offerings, and how companies that take this approach plan to monetize their free services.
Last week, I had a briefing with Jerome Ternynck, the CEO of MrTed, which has been providing MrTed TalentLink solutions for enterprise applicant tracking system (ATS) since 1999. In October 2008, MrTed launched a new, free ATS called SmartRecruiters (still in beta) for small and medium business (SMB) recruiters and hiring managers. SmartRecruiters streamlines the hiring process with an integrated, collaborative solution to help recruiters and hiring managers create postings, broadcast openings, enable candidates to apply online, view, screen and organize applicants, scheduled interview, provide feedback and make job offers.
And, when Ternynck says free, he means it. There are no catches for the SmartRecruiters ATS—no user fees, contracts, hosting or installation fees, upgrade fees, and no limits on the number of users, storage or time. And, SmartRecruiters connects to popular job search sites such as Yahoo! HotJobs, SimplyHired, Indeed.com and Career Builder.
MrTed’s initial target for SmartRecruiters is the 220,000 U.S. businesses with 50 to 2,500 employees. This market has been underserved by traditional, enterprise-oriented ATS vendors, whose solutions have typically been too costly and complicated for the average SMB to use. However, MrTed doesn’t exclude others from using SmartRecruiters–there are no technical or other of limitations to prevent companies of any size from accessing and using the solution. With little marketing fanfare, 600 businesses have registered for SmartRecruiters since the company launched the beta.
Launching a recruitment solution during an economic meltdown seems somewhat counter-intuitive, but when you think about, even if overall hiring is down, the number of applicants for any given position is most likely up. So companies that are hiring must exert just as much or greater effort and expense to hire the best people. As the economy recovers, and more SMBs start hiring again, Ternynck believes that its SmartRecruiters business model will disrupt the ATS market in the same way that Google has done in many areas.
But unlike Google, which relies on advertising revenues to support many of its services, Ternynck plans to monetize SmartRecruiters with integrated fee-based services, such as job posting, background screening, compensation analysis, relocation and assessment. In effect, SmartRecruiters wants to become a resale distribution channel for the providers of these services, helping them cut sales costs and increase SMB market penetration. According to Ternynck, SmartRecruiters will need to convert just under 20% of SmartRecruiters users to one or more of these fee-based services to become profitable over time.
Can MrTed do this, and do it profitably? Ternynck believes that it can. Some of the key factors in its formula include:
· Using MrTed’s healthy profitable high-end business to subsidize SmartRecruiters for a few years. MrTed’s TalentLink solution has 200 enterprise users, and has been profitable for 20 quarters. Ternynck doesn’t see cannibalization will be an issue; he believes that enterprise customers are used to paying for technology, consulting and support and will continue to spend for higher levels of service and attention.
· A low cost technology platform. SmartRecruiters is built on single code-base multi-tenant open architecture. Ternynck estimates that technology costs will account for about 10-15% of the total cost of delivering the solution to customers.
· Viral marketing model. Sales and marketing will be SmartRecruiters’ largest expense, but Ternynck believes that viral marketing—on it own and with its partners—along with a self-service access and delivery model will keep these expenses low as well.
· Community features. The SmartRecruiters community will rate providers, and supply input about functionality they want and additional services they’d like offered.
· Under-penetrated market. According to MrTed, less than 10% of its target market uses an ATS system today—it doesn’t need to unseat an incumbent.
Of course, SmartRecruiters must exponentially grow its user community to gain the scale it needs to monetize its free service—at a time when many SMBs just aren’t hiring. But MrTed seems to have enough patience and resources to get through this period. As the economy ticks back up, and companies transition from a cost-cutting mindset to growth, the talent war will heat up again. If SmartRecruiters can broadly educate SMBs about the benefits of ATS, and get the right partners on board, I think that it will be in a good position to make the headway it needs to monetize its free service in this as yet under-penetrated market.
Let me know what you think about free SaaS services monetized with ancillary services in the following poll!