Over the last five years, the learning management system (LMS)/ talent management vendor, Cornerstone OnDemand (CSOD), has reported net losses of US$8.39M (2009); $48.37M (2010); $63.9M (2011); $31.39M (2012), and $40.43M (2013). Of course, times have been tough for everyone over those years but, for one of the acknowledged market leaders in the LMS/ talent management market, these losses are ‘appreciable’ – at least to the unpractised eye.

Meanwhile, CSOD, while reporting the $31.39m loss in 2012, stated that its revenue for that year – of $117.9m – had risen by 56% over the previous year. Furthermore, it reported over 1,200 clients and over 10.5m users. All of this sounds extremely positive – until you realise that, in the next year, the company lost a further $40.43m.

Market watchers quickly confirm that CSOD has never been profitable – and, to be fair, this state of affairs is not peculiar to CSOD, among LMS/ talent management vendors. Although, to be equally fair, there are other LMS vendors which are profitable and have a record of being so. Presumably, venture capitalists are happy with CSOD’s business strategy but could CSOD do anything differently which would bring it closer to trading profitably?

Some informed sources say that CSOD’s products are less expensive than those of their competitors, such as SuccessFactors. However, CSOD, SuccessFactors, SumTotal and Saba all appear to charge higher prices in Europe than they do in the US market for the same size of user contract. This applies across the board in terms of higher set-up fees, higher user per seat costs, and so on. With CSOD and Saba the price also depends on the country from which the purchaser comes. Interestingly, even in the US, CSOD’s pricing appears to depend on the region of the country in which the customer is based. 

Even within any given country – like most software vendors these days – CSOD is flexible with its pricing, depending on the market, the particular industry in which the purchaser is active and the overall size of the client. Moreover, it has four main clouds (LMS, Performance, Succession and ATS) and its pricing also depends on how many clouds the client buys. 

Within Europe, the Middle East and Africa (EMEA) at least, CSOD isn’t interested in small clients – that is organisations with under 5.000 users. For installations of below 5,000 users, CSOD has a different solution called Cornerstone Small Business (CSB). In addition, CSOD has another solution, called Cornerstone for Salesforce, which is globally available but, again, has a different pricing and licensing model. 

CSOD’s pricing structure is complex, incorporating one-off and recurring costs, but, as a guide, a company wanting a license for 5,000 users will be looking to pay some 225,000 euros each year for the first three years. If you happen to be in the UK and want a license for, say, 20,000 users, you’ll be asked to pay some £12 per user – that’s some £240,000. There’s a further ‘implementation cost’ of £23,000. However, if you want to add Talent Management to the basic LMS, it will cost a further £35,000 for 3,000 users or, for 10,000 users, over £200,000.

All these look to be large – and therefore potentially commercially ‘healthy’ and encouraging – numbers. In which case, what’s stopping CSOD (and some of its competitors that adopt similar market strategies) from improving their performance?

According to CSOD, in its Annual Report for the fiscal year ended 31^st December 2013 and filed with the US Securities and Exchange Commission, the answers are:

• We have a history of losses, and we cannot be certain that we will achieve or sustain profitability.
• Unfavorable conditions in our industry or the global economy, or reductions in information technology spending, could limit our ability to grow our business and negatively affect our operating results.
• Our financial results may fluctuate due to our long, variable and, therefore, unpredictable sales cycle and our focus on large and mid-market organizations.
• Our financial results may fluctuate due to other factors, including invoicing terms, some of which may be beyond our control.
• Defects in our solutions could affect our reputation, result in significant costs to us, and impair our ability to sell our solutions and related services.
• A further 42 risks related to CSOD’s business and industry.
• A further three risks related to tax issues.
• A further six risks related to the ownership of CSOD’s common stock.

So now we know.