Sunday, December 6, 2009

New Vendor Acquisition Strategies in the Enterprise Applications Field

Although its consolidation appetite is not diminishing by any means, SSA Global seems to be showing signs of more deliberation and even restraint, rather than jumping the gun to indiscriminately gain market share. Once seemingly insatiable, SSA Global now admits that growth by acquisition is no longer as straightforward and cheap as it used to be in the early 2000s, due to the increased costs of install base acquisition. Namely, while the vendor has paid on average $37,000 (USD) per customer for its 13,000 acquired customers, recently Oracle apparently paid about $2 million for each acquired Retek customer. Thus, while acquisitions at the right price will continue, SSA Global is shifting its focus towards providing extended solutions rather than acquiring peer enterprise resource planning (ERP) products.

This is Part Three of the six-part series The Enterprise Applications "Arms Race" To Be Number Three.

This article continues a comparative analysis of SSA Global and Infor, two contenders in the fierce ongoing competition to be number three (after SAP and Oracle) in the world of ERP vendors. See The Enterprise Applications "Arms Race" To Be Number Three for background information and a discussion of vendor similarities, along with Contributing to the Rejuvenation of Legacy Systems in the Enterprise Resource Planning Field. The other leading contender is Lawson Software. For a detailed discussion of Lawson, see �New' Lawson Software's Transatlantic Extended Enterprise Resource Planning Intentions.

By its own admission, until 2003, SSA Global was merely a collection of ERP products, with a desire to consolidate. At that time, its only established ERP product extensions were the embedded Cognos business intelligence (BI) nuggets, the acquired Warehouse BOSS solution, and a collection of disjointed third-party products (such as Applix for customer relationship management [CRM], Logility for supply chain planning [SCP], and Digital Union/Verticalnet for sourcing and procurement). Acquisitions were focused on ERP as well as on the associated research and development (R&D) investment. This state of affairs is in contrast to today's nearly complete SSA Global solution footprint and delivery of converged solutions having predictable and published product roadmaps. Also, the acquisitions have become rather more strategic, bundled as they are with balanced development investment, and deliveries on promises of continued support.

Although many might still consider SSA Global's acquisitions to be opportunistic, the vendor has long instituted a so-called "4M approach" underlying the evaluation of acquisition candidates:

* Motivation—is the candidate motivated?
* Money—will there be sufficient payback?
* Method—does the candidate have the right people?
* Match—does the acquisition fit SSA Global's "big picture"?

The vendor's goal is to ensure that it keeps customers for life. In order to do that, it must preserve the customers' investments while continuing to deliver a long-term product strategy of convergence, modernization, and vertical focus, all in a predictable and incremental manner. The short-term strategy, on the other hand, is to enhance the value of current applications in delivering the functionality (with a consistent tempo of releases) that customers have been asking for, by delivering integration to extension products like CRM and supply chain management (SCM), and by delivering first-rate support.

SSA Global' s three most recent acquisitions in particular, E.piphany, Boniva Software, and Provia Software, may indicate a new phase in the vendor's acquisition strategy and development cycle.
In the fall of 2005, SSA Global completed the acquisition of E.piphany, Inc. (also known as Epiphany), an innovative but financially long-struggling global CRM solutions provider. As a result of the merger, Epiphany now operates as a wholly owned strategic CRM division of SSA Global; shares of Epiphany common stock have been delisted from NASDAQ, and deregistered with the Securities and Exchange Commission (SEC).

Unlike many earlier SSA Global acquisitions, Epiphany certainly cannot be categorized as providing an outdated product. In fact, the embattled CRM vendor, which now prefers to drop the dot from its official name, was famed for trying to put the e (the electronic business moniker) into CRM, and was a big name during the dot-com era. Its CRM analytics were (and arguably still are) an important part of e-commerce and e-business development. To a certain degree, it succeeded in building a business on applications related to marketing automation, call center management, real-time customer analytics, and real-time interaction. These applications (the Interaction Advisor, Insight Advisor, and Lead Advisor modules) peaked at $125 million (USD) in annual revenues in 2001, with Vodafone, Nestle, Gap Inc., Citibank, Virgin Holidays, HBOS, and Barclays all signing up as users. However, revenues have since fallen sharply, closer to the $70 million (USD) mark.

Epiphany's products have been widely implemented among business-to-consumer (B2C) companies that have large numbers of direct customers, such as wireless carriers, travel and transportation services, banks and other financial services firms, telecommunications, utilities, and retailers. The catch with these customers, however, is that they tend to spread their applications portfolios over multiple providers, making Epiphany's revenues much less impressive than its customer list. In fact, Epiphany has never shown a profit in any fiscal year since it went public in 1999. Thus, in August 2005, after 7 years of consecutive losses, including a whopping $2.6 billion (USD) hit in 2001, the innovative CRM provider fell into the arms of SSA Global, for a quite surprising $329 million (USD) in stock. This was all the more surprising given that the company had revenues of about $75 million (USD) and losses of $16 million (USD) in the previous 12 months (although a significant cash position of about $160 million [USD] would have been a good rationalization for SSA Global).

In justifying the merger, the two parties cited two major synergies between them. First of all, out of 450 Epiphany customers, there was reportedly a significant 20 percent of shared customers in the manufacturing, finance, and services industries, with certain cross-selling opportunities owing to the complementary nature of the products. Epiphany filled a major gap in the SSA portfolio, with respect to inbound and outbound marketing automation and analytics (see Why Are CRM and Analytics Intrinsically Connected?), sales force automation (SFA), online solutions, and e-commerce. Some marketing automation features are certainly top-notch, such as collaborative filtering (identifying cross-selling campaign opportunities based on past purchases), real-time data mining and decision-making (using static and dynamic customer attributes while the customer is browsing online), and predictive analytics capabilities (see Predictive Analytics; the Future of Business Intelligence). Although SSA Global had some CRM capabilities with Baan (via the acquisition of Aurum and subsequent in-house developments), these were inconsistent and lacked sophistication, so that the customer demand and mind share for the SSA CRM suite have always been very low. On the other hand, SSA CRM's native strengths lie in sales configuration, order management, and field service functionality, which are not areas that Epiphany covers. Once the integration is complete (some time in 2007 at the earliest), the SSA CRM offering should be more well-rounded and appealing than current native offerings for users of Baan or the Applix add-on on the business planning and control (BPCS) side.

However, concern remains that the two companies have thus far not had much of a common market focus. Namely, while SSA Global is oriented toward business-to-business (B2B) applications (primarily in the realm of manufacturing), Epiphany has largely focused on the aforementioned B2C markets in service industries. These install bases naturally have separate functional and support requirements, and only time will tell where additional outlets will arise once the immediate cross-selling opportunities are mined. SSA Global contends that manufacturers too should be interested in reaching customers directly via marketing campaigns (with the help of analytics), as shown by recent success of marketing automation specialists such as Unica and SAS (see Should Uniqueness Vouch For Marketing Automation Niche Players?). Also, since SSA Global had a considerable business in service industries even without Epiphany (for example, with KPN as a customer), there may actually be more of a common market focus than might appear at first glance. With Epiphany, 37 percent of the installed base is now in the services sector; conversely, a significant percentage of Epiphany's customer base was in the manufacturing sector.

But the second synergy—shared adoption of technology based on open standards and service-oriented architecture (SOA)—might be even more compelling. Namely, while Epiphany has long leveraged J2EE- and SOA-based technologies to rewrite its products, SSA Open Architecture explored in Part Two of this series remains in part a statement of direction, since many of its products will need much retooling to conform to the SOA vision (although fewer will need retooling as of the third release of the product in the spring of 2006).

The vendor will need developers experienced in these technologies, and by buying Epiphany, it has acquired a development organization which is already at the place SSA Global is aiming for. Apparently, the former Epiphany Customer Relationship Backbone (CRB) platform has already been rolled into SSA Open Architecture (6.0, the first release where CRB and Open Architecture converge, is due in the spring of 2006), and the SSA SCM team has been delivering new warehousing management capabilities while leveraging the savvy of its CRM colleagues.

In summary, existing Epiphany customers will breathe a sigh of relief owing to the strength of a global company behind the CRM products; this assures financial viability and continued R&D. Indeed, CRM is a strategic area of investment for SSA Global, and the Epiphany's team in San Mateo, California (US) has been supplemented by engineers in India, the Netherlands, Dallas (US), and Toronto (Canada). As they have done many times before, SSA Global will commit to continued support for all CRM products. On the other hand, existing SSA Global customers will eventually be exposed to a more complete sales force automation (SFA) and call center solution that enables sales (and service of customers) across multiple channels and lines of business (LOBs). Some customers may benefit from a comprehensive marketing automation solution both for B2C and B2B environments, but all solutions will be under a sole SSA CRM brand which includes all current capabilities on a modern J2EE platform, both for CRM solutions and all future development activity.

The go-to-market CRM strategy for SSA Global consists of maintaining and growing business in B2C verticals, where it plans to maintain a distinct sales structure to focus on traditional Epiphany market segments (such as the financial services and telecommunications sectors). Also, the vendor will try to widen cross-selling opportunities in its installed base by leveraging existing SSA Global sales teams and specific offerings targeted at the mid-market. The idea is also to expand sales into eastern Europe, Latin America, and the Asian Pacific (APAC), by leveraging a global sales organization and providing tier one language support. SSA Global will also try to leverage strategic alliances in some sectors, for example, with IBM (for financial services,, retail, and manufacturing), with Capgemini (for telecommunications), and with some resellers such as Harte Hanks and Merkle (for the mid-market).

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