Editorial
The people analytics technology (PAT) market has thrived in recent years, and it's easy to guess why. People analytics helped companies answer their most urgent questions throughout the pandemic about employee engagement, retention, hybrid work policies and workforce planning, among others. So the fact that technology vendors experienced impressive growth according to RedThread Research’s fourth annual study on the PAT market should come as no surprise.
However, the market changes and economic uncertainty of the last year have prompted vendors to become more realistic about the future, adjusting their expectations based on market trends and changing their business accordingly.
Specifically, our study on the people analytics technology market found that:
- The PAT market size has continued to grow.
- Growth expectations are lower than before, but vendors are taking steps to address this.
- Vendors are shifting their target customer segments.
The PAT Market Continues to Grow
2022 was a hot year for the PAT market. Based on revenues shared by vendors, we estimate the changes to the market to be the following:
- $5.6 billion overall market size for 2022 (see Figure 1).
- 41% growth rate between 2021 and 2022.
- 50% CAGR (compound annual growth rate) for the past three years (62% CAGR for the past six years).
The estimated market size for the PAT market for 2022 is $5.6 billion*
When we cut the data by revenue size, vendors with more than $100 million in revenue in 2022 had a high average growth rate of 56% in 2021-22. We were surprised by this, because we typically expect vendors with large revenues to experience lower growth rates as it becomes more challenging to maintain the same rate of growth as before.
We also found strong growth rates for vendors with $50 million in revenue and below. Vendors with less than $1 million in revenue in 2022 had the highest average growth rate of 71% (unsurprising, given their much smaller initial base rate).
Customers should view these findings as good news. Companies have more solutions to choose from in a market that is at the strongest it has ever been. It also shows that companies invested in PAT at a greater scale than before.
Related Article: 3 Ways People Analytics Technology Is Evolving to Meet the Moment
Growth Expectations Are Lower, but Vendors Are Taking Steps to Address This
Vendors told us they expect to see a slowdown in 2023 because many HR teams have been asked to tighten their budgets and reduce investments due to the uncertain economy. The result is longer sales cycles and lower conversion rates. Additionally, layoffs resulted in a reduction within the HR and people analytics functions at some organizations, which can negatively impact renewal rates.
As a result, vendors are no longer expecting the same levels of growth in 2023 as they did in 2022 (Figure 2). Specifically:
- Only 39% of vendors expected more than 31% growth for 2023, much lower than for 2022. Follow-up conversations with vendors revealed their expectations had declined further since we collected these data.
- A greater number of vendors were unsure (12%) or didn't know how much growth they might experience in 2023.
- 12% of vendors expected either less than 10% growth or no growth at all.
Fewer vendors expect more than 31% growth in 2023 compared to those that said the same for 2022
Our data shows that vendors made changes to their business approach for 2023 to address the slowdown. For example:
- 85% built new solutions or products.
- About 80% adjusted their marketing strategy.
- 67% changed their product roadmap.
- Over 50% targeted new industries, sectors, or geographies.
For PAT customers or prospective customers, this could mean more solutions targeting specific industries and catering to varied workforce needs and use cases. It could also mean that vendors position their products differently to attract new customer segments, industries and sectors.
Related Article: When People Analytics Meets Workplace Analytics, Employee Experience Insights Follow
Vendors Are Shifting Their Target Customer Segments
Another way vendors are addressing the market slowdown is by changing their sales and pricing models. We found that vendors made substantial changes to their subscription fees in 2022. Specifically, we found that (Figure 3):
- More vendors (87%) served small companies (1-1,000 employees) in 2022 compared to 2021 (79%). Interestingly, we saw the same number of vendors serving small companies in 2020.
- 98% of vendors served mid-sized companies (1,001-10,000 employees) in 2022 compared to 87% in 2021. Additionally, more vendors (20%) charged the lowest subscription fee ($0-$50,000) for mid-sized companies compared to 2021 (8%).
More vendors served small and mid-sized companies and charged them less in 2022 than in 2021
We believe the motivation behind these shifts is to drive growth by attracting new customer segments. Smaller customers are more likely to get contracts through faster, which can help address the overall slowing in the sales cycle. It’s also likely that improved machine learning and AI capabilities have made it more cost-effective for vendors to extract, clean and integrate data, allowing them to offer lower subscription packages to smaller customers.
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The PAT market will likely not experience the same levels of growth in the coming year due to the uncertain economy in 2023. However, as we move forward, we expect vendors to continue to adjust their business and market approaches to meet customers’ changing needs.
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