The following discussion should be read in conjunction with our Item 8 - Financial Statements and Supplementary Data.

Restatement

With this annual report on Form 10-K/A, we have restated the following previously filed consolidated financial statements, data and related disclosures:

(1) Our consolidated balance sheets as of December 31, 2008 and 2007 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the fiscal years ended December 31, 2008, 2007 and 2006 in Part II, Item 8 of this Form 10-K/A;

(2) Our selected financial data as of and for our fiscal years ended December 31, 2008, 2007 and 2006 in Part II, Item 6 of this Form 10-K/A;

(3) Management's discussion and analysis of financial condition and results of operations as of and for our fiscal years ended December 31, 2008, 2007 and 2006 in Part II, Item 7 of this Form 10-K/A; and

(4) Our unaudited quarterly financial information for each quarter in our fiscal year ended December 31, 2008 and 2007 in Note 16, "Selected Quarterly Financial Data (Unaudited)" of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K/A.

The following discussion and analysis of our financial condition and results of operations incorporates the restated amounts. For this reason, the data set forth in this section may not be comparable to discussions and data in our previously filed Annual Reports. The restatement results from our review of revenue recognition practices and errors identified in the calculation of stock-based compensation. See "Explanatory Note Regarding Restatement" immediately preceding Part I, Item 1 and Note 2, "Restatement of Consolidated Financial Statements" of the Notes to Consolidated Financial Statements in Part II, Item 8 for a detailed discussion of the review and effect of the restatement.

Overview

We are a leading provider of on-demand, talent management software solutions. We offer recruiting, performance management, internal mobility and other talent management solutions that help our customers attract and retain high quality talent, more effectively match workers' skills to business needs, reduce the time and costs associated with manual and inconsistent processes, ease the burden of regulatory compliance, and increase workforce productivity through better alignment of workers' goals and career plans with corporate objectives. Our performance management solution became generally available in February 2008 and accordingly did not contribute to net revenues in 2007 or prior years.

We offer two suites of talent management solutions: Taleo Enterprise Edition and Taleo Business Edition. Taleo Enterprise Edition is designed for larger, more complex organizations. Taleo Business Edition is designed for smaller, less complex organizations, stand-alone departments and divisions of larger organizations, and staffing companies. Our revenue is primarily earned through subscription fees charged for accessing and using these solutions. Our customers generally pay us in advance for their use of our solutions, and we use these cash receipts to fund our operations. Our customers generally pay us on a quarterly or annual basis.

We focus our evaluation of our operating results and financial condition on certain key metrics, as well as certain non-financial aspects of our business. Included in our evaluation are our revenue composition and growth, net income, and our overall liquidity that is primarily comprised of our cash and accounts receivable balances. Non-financial data is also evaluated, including, for example, purchasing trends for software applications across industries and geographies, input from current and prospective customers relating to product functionality and general economic data relating to employment and workforce trends. We use this aggregated information to assess our historic performance, and also to plan our future strategy.

On May 5, 2008, we entered into an Agreement and Plan of Reorganization (the "Reorganization Agreement") to purchase Vurv Technology, Inc. ("Vurv"), a privately held company. Vurv is a provider of on demand talent management software. On July 1, 2008, we completed the acquisition of Vurv. Accordingly, the assets, liabilities and operating results of Vurv are reflected in our consolidated financial statements from the date of acquisition. The total consideration paid by us in connection with the acquisition was approximately $34.4 million in cash and approximately 3.8 million shares of Class A common stock, of which approximately $33.8 million in cash and approximately 3.3 million shares of Class A common stock were paid on the closing date. Approximately 0.5 million shares were placed into escrow for one year following the closing to be held as security for losses incurred by us in the

event of certain breaches of the representations and warranties contained in the Reorganization Agreement or certain other events. Additionally, approximately $0.3 million was placed into escrow to pay for expenses incurred by the stockholder representative in connection with its duties under the Reorganization Agreement, and approximately $0.4 million was placed in escrow to compensate us in the event certain expenses are incurred in connection with payments to certain Vurv employees. In addition, we assumed outstanding options to purchase shares of Vurv common stock, which converted into options to purchase approximately 0.4 million shares of our Class A common stock. We also repaid approximately $9.0 million of Vurv debt on the closing date. No contingent cash payments remain for this transaction.

In September 2008, we made an equity investment in Worldwide Compensation, Inc. ("WWC"), a privately held company that provides compensation, recruiting and performance solutions. We invested $2.5 million for a 16% equity investment and an option to purchase WWC. The purchase option is exercisable from June 4, 2009 through December 2, 2009. In accordance with Accounting Principles Board Opinion No. 18 (APB 18), "The Equity Method of Accounting for Investments in Common Stock" we recorded the investment at cost at $1.4 million. The fair value of the purchase option was recorded in the balance sheet as other assets on the date of issuance at $1.1 million. The estimated fair value of the purchase option on the date of issuance was determined based on the Black-Scholes model.

In November 2008, we entered in an agreement to sell our Optimize product offering ("Optimize") and the associated assets and liabilities. We acquired Optimize in connection with the acquisition of Vurv an July 1, 2008 and the sale of Optimize represents the completion of a disposition plan initiated during the third quarter of 2008. The sale of Optimize did not result in a significant gain or loss.

Sources of Revenue

We derive our revenue from two sources: application revenue and consulting revenue.

Application Revenue

Application revenue is generally comprised of subscription fees from customers accessing our applications, which includes the use of the application, application and data hosting, and maintenance of the application. The majority of our application subscription revenue is recognized monthly over the life of the application agreement, based on a stated, fixed-dollar amount. Revenue associated with our Taleo Contingent solution was recognized based on a fixed contract percentage of the dollar amount invoiced for contingent labor through use of the application. Effective March 2007, we ceased entering into agreements to provide time and expense processing as a component of our Taleo Contingent solution and, accordingly, our revenue model based on a percentage of spend from such processing services ended. We serviced our customers to which we provide such time and expense processing services through the expiration of their agreements with us. Revenue from time and expense processing for these customers ended in August 2008.

The term of our application agreements for Taleo Enterprise Edition signed with new customers in 2008, 2007, and 2006 is typically three or more years. The term of application agreements for Taleo Business Edition is typically one year. Our customer renewals on a dollar basis have historically been greater than 95%.

Application agreements entered into during 2008, 2007, and 2006 are generally non-cancelable, or contain significant penalties for early cancellation, although customers typically have the right to terminate their contracts for cause, if we fail to perform our material obligations.

Consulting Revenue

Consulting revenue consists primarily of fees associated with application configuration, integration, business process re-engineering, change management, and education and training services. From time to time, certain of our consulting projects are subcontracted to third parties. Our customers may also elect to use unrelated third parties for the types of consulting services that we offer. Our typical consulting contract provides for payment within 30 to 60 days of invoice.

Cost of Revenue and Operating Expenses

Cost of Revenue

Cost of application revenue primarily consists of expenses related to hosting our application and providing support, including employee related costs and depreciation expense associated with computer equipment and the amortization of intangible assets acquired in connection with Vurv. We allocate overhead such as rent and occupancy charges, employee benefit costs and depreciation expense to all departments based on employee count. As such, overhead expenses are reflected in each cost of revenue and operating expense category. We currently deliver our solutions from nine data centers that host the applications for all of our customers.

Cost of consulting revenue consists primarily of employee related costs associated with these services and allocated overhead.

The cost associated with providing consulting services is significantly higher as a percentage of revenue than for our application revenue, primarily due to labor costs. We also subcontract to third parties for a portion of our consulting business. To the extent that our customer base grows, we intend to continue to invest additional resources in our consulting services. The timing of these additional expenses could affect our cost of revenue, both in dollar amount and as a percentage of revenue, in a particular quarterly or annual period.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries and related expenses for our sales and marketing staff, including commissions, marketing programs, allocated overhead and amortization of intangibles from acqusitions. Marketing programs include advertising, events, corporate communications, and other brand building and product marketing expenses. As our business grows, we plan to continue to increase our investment in sales and marketing by adding personnel, building our relationships with partners, expanding our domestic and international selling and marketing activities, building brand awareness, and sponsoring additional marketing events. We expect that our sales and marketing expenses will increase in dollar terms as a result of these investments, however the overall sales and marketing expense as a percentage of revenue is expected to stay consistent.

Research and Development

Research and development expenses consist primarily of salaries and related expenses and allocated overhead, and third-party consulting fees. Our expenses are net of the tax credits we receive from the Canada Revenue Agency, Revenue Quebec and Investment Quebec. We focus our research and development efforts on increasing the functionality and enhancing the ease of use and quality of our applications, as well as developing new products and enhancing our infrastructure. We expect that the amount of research and development expenses will increase in dollar terms, but expect that the overall expense will decrease as a percentage of revenue.

General and Administrative

General and administrative expenses consist of salaries and related expenses for executive, finance and accounting, human resource, legal, operations and management information systems personnel, professional fees, board compensation and expenses, expenses related to potential mergers and acquisitions, and other corporate expenses. We expect that the amount of general and administrative expenses will slightly increase in dollar terms as we add personnel over the next year, however as a percentage of revenue are expected to stay consistent or decrease.

Employee Benefits

Effective January 1, 2008, we instituted a 401(k) matching program with the following specifics: (i) for employee contributions to our 401(k) plan of up to 4% of the each employee's base salary up to a maximum of $230,000 for the year ended December 31, 2008. We will match such employee contributions at a rate of $0.50 for every $1.00 contributed by the employee; and (ii) our 401(k) matching program has a three year vesting period with one third of the employer contribution match vesting each year over the three year period. We recorded $0.4 million in employee related costs during the twelve months ended December 31, 2008 as a result of the adoption of this program.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application, while in other cases, management's judgment is required in selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. Our management has reviewed these critical accounting policies, our use of estimates and the related disclosures with our audit committee.

Revenue Recognition

We derive revenue from fixed subscription fees for access to and use of our on-demand application services, and from consulting fees.

In addition to fixed subscription fees arrangements, on limited occasions, we have entered into arrangements including a perpetual license with hosting services to be provided over a fixed term. For hosted arrangements, revenues are recognized under the provisions of Emerging Issues Task Force or EITF No. 00-3, Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity's Hardware.

Our application and consulting fee revenue is recognized when all of the following conditions have been satisfied:

• persuasive evidence of an agreement exists;

• delivery has occurred;

• fees are fixed or determinable; and

• the collection of fees is considered probable.

If collection is not considered probable, we recognize revenues when the fees for the services performed are collected. In addition, if non-standard acceptance periods or non-standard performance criteria are required, we recognize revenue upon the satisfaction of the acceptance or performance criteria, as applicable.

We utilize the provisions of EITF No. 00-21, "Revenue Arrangements with Multiple Deliverables", to determine whether our arrangements containing multiple deliverables contain more than one unit of accounting. Multiple element arrangements require the delivery or performance of multiple products, services and/or rights to use assets. To qualify as a separate unit of accounting, the delivered item must have value to the customer on a standalone basis and there must be objective and reliable evidence of fair value of any undelivered element. Our consulting services have standalone value because those services are sold separately by other vendors and we have objective and reliable evidence of fair value for consulting services based on the consistency when sold separately. Our application services have standalone value because we often sell such services separately; however, in multiple element arrangements that include both application and consulting services, we typically do not have objective and reliable evidence of fair value for our application services. As such, we treat multiple element arrangements that include both application and consulting services as a single unit of accounting and recognize the combined revenue over the subscription term.

The Company's objective and reliable evidence of fair value for consulting services and its assessment of fair value with respect to application services are used to derive a reasonable approximation for presenting application services and consulting services separately in its consolidated financial statements.

Application Revenue

The majority of our application revenue is recognized monthly over the life of the application agreement, based on stated, fixed-dollar amount contracts with our customers and consists of:

• fees paid for subscription services;

• amortization of any related set-up fees; and

• amortization of fees paid for hosting services and software maintenance services under certain software license arrangements.

Set up fees paid by customers in connection with subscription services are deferred and recognized ratably over the longer of the life of the application agreement or the expected lives of customer relationships, which generally range from three to seven years. We continue to evaluate the length of the amortization period of the set up fees as we gain more experience with customer contract renewals.

Our revenue associated with the time and expense processing functionality of our Taleo Contingent solution is recognized based on a fixed, contracted percentage of the dollar amount invoiced for contingent labor through use of the application, and is recorded on a net basis under the provisions of EITF No. 99-19,Reporting Revenue Gross as a Principal versus Net as an Agent, as we are not the primary obligor under the arrangements, the percentage earned by us is typically fixed, and we do not take credit risk.

Consulting Revenue

Consulting revenue consists primarily of fees associated with application configuration, integration, business process re-engineering, change management, and education and training services. In arrangements that include both an application subscription and consulting services, the related consulting revenues are recognized ratably over the remaining subscription term. Our consulting engagements are typically billed on a time and materials basis and, for engagements sold separately from application services, we recognize consulting revenues as delivered. In some instances we sell consulting services on a fixed-fee basis and, in those cases, for engagements sold separately from application services, we recognize consulting revenues using a proportional performance model based on services performed. Associated out-of-pocket travel and expenses related to the delivery of consulting services is typically reimbursed by the customer. This is accounted for as both revenue and expense in the period the cost is incurred. From time to time, certain of our consulting projects are subcontracted to third parties. Our customers may also elect to use unrelated third parties for the types of consulting services that we offer. Our typical consulting contract provides for payment within 30 to 60 days of invoice.

Research and Development

We account for software development costs under the provisions of Statement of Financial Accounting Standards (SFAS), No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed. Accordingly, we capitalize certain software development costs after technological feasibility of the product has been established. Such costs have been immaterial to date, and accordingly, no costs were capitalized during the years ended December 31, 2008 and 2007.

Stock-based Compensation

We adopted SFAS 123(R), Share-Based Payment, effective January 1, 2006. Under the provisions of SFAS 123(R), we recognize the fair value of stock-based compensation in financial statements over the requisite service period of the individual grants, which generally equals a four year vesting period. We have elected the modified prospective transition method for adopting SFAS 123(R), under which the provisions of SFAS 123(R) apply to all awards granted or modified after the date of adoption. The unrecognized expense of awards not yet vested at the date of adoption is recognized in our financial statements in the periods after the date of adoption using the same value determined under the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, as disclosed in previous filings. We recognize compensation expense for the stock option awards granted subsequent to December 31, 2005 on a straight-line basis over the requisite service period, see Note 1 "Description of Business and Summary of Significant Accounting Policies Stock-Based Compensation" in the Notes to Consolidated Financial Statements. Estimates are used in determining the fair value of such awards. Changes in these estimates could result in changes to our compensation charges.

Goodwill, Other Intangible Assets and Long-Lived Assets

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we conduct a test for the impairment of goodwill on at least an annual basis. We adopted October 1 as the date of the annual impairment test. The impairment test first compares the fair value of reporting units to their carrying amount, including goodwill, to assess whether impairment is present. Based on our most recent assessment test, the fair value of the reporting units exceeds our carrying value and therefore we do not have impairment as of October 1, 2008. We will assess the impairment of goodwill annually on October 1, or sooner if indicators of impairment arise.

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires the review of the carrying value of long-lived assets when impairment indicators arise. The review of these long-lived assets is based on factors including estimates of the future operating cash flows of our business. These future estimates are based on historical results, adjusted to reflect our best estimates of future market and operating conditions, and are continuously reviewed. Actual results may vary materially from our estimates, and accordingly may cause a full impairment of our long-lived assets.

Income Taxes

We are subject to income taxes in both the United States and foreign jurisdictions and we use estimates in determining our provision for income taxes. Deferred tax assets, related valuation allowances and deferred tax liabilities are determined separately by tax jurisdiction. This process involves estimating actual current tax liabilities together with assessing temporary differences of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are recorded on the balance sheet. Our deferred tax assets consist primarily of net operating loss carry forwards and temporary differences related to deferred revenue and stock-based compensation. We assess the likelihood that deferred tax assets will be recovered from future taxable income and a valuation allowance is recorded if it is deemed more likely than not some portion of the deferred tax assets will not be realized. In 2006, we reversed our Canadian subsidiary's valuation allowances by approximately $1.3 million since it was determined more likely than not these deferred tax assets would be realized. At December 31, 2007, we reversed valuation allowances in our remaining

foreign subsidiaries which resulted in a tax provision benefit of approximately $0.3 million. We continue to maintain a full valuation allowance against our U. S. deferred tax assets with the exception of federal alternative minimum tax credits. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment that could become subject to audit by tax authorities in the ordinary course of business.

Compliance with income tax regulations requires us to make decisions relating to the transfer pricing of revenue and expenses between each of our legal entities that are located in several countries. Our determinations include many decisions based on our knowledge of the underlying assets of the business, the legal ownership of these assets, and the ultimate transactions conducted with customers and other third-parties. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in multiple tax jurisdictions. We are periodically reviewed by domestic and foreign tax authorities regarding the amount of taxes due. These reviews include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various filing positions, we record estimated reserves for exposures that are more likely than not to be realized. Such estimates are subject to change.

Results of Operations

The following tables set forth certain consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated. Period-to-period comparisons of our financial results are not necessarily meaningful and you should not rely on them as an indication of future performance.

                                                          Year Ended December 31,
                                                        2008          2007       2006

Condensed Consolidated Statement of Operations Data:

Revenue:
Application                                                82 %          82 %      83 %
Consulting                                                 18 %          18 %      17 %

Total revenue                                             100 %         100 %     100 %
Cost of revenue (as a percent of related revenue):
Application                                                23 %          22 %      25 %
Consulting                                                 85 %          79 %      81 %

Total cost of revenue                                      34 %          32 %      34 %
. . .