Emptoris: Going Under the Numbers

Earlier in the week, I had the chance to catch up with Emptoris on a conference call. The conversation allowed us to go into more detail on their latest news announcement than the press release allowed. This included both a quick chat about their "partial" earnings announcement along with what was a far more interesting -- at least to me -- qualitative and solution discussion.

To begin, there's no doubt Emptoris is realizing excellent traction in the market, especially in the sourcing and contract management areas. And without question, their contract management capability is among the tops in the market. Whether it's a macro-level "what's possible with contract management" or a feature / function duel to the death, I'd reckon that Emptoris' contracts capability management would win in a head-to-head competitive battle a good portion of the time (if only the single area is evaluated and price is not an issue). Without question, many practitioners in the market who want a contract management solution that is beyond "Word on steroids" are beginning to realize what Emptoris has to offer.

This greater awareness has allowed Emptoris to sign a significant number of new deals last quarter which should enable them to ultimately dominate a few key verticals in the space (especially where tying sell-side and buy-side contracts are key and domain knowledge is required). Look for Emptoris to build significant marketshare in healthcare, among other verticals, with their contract management capability in the next year. Thanks to a number of recent wins in this area and a strong partnership that is giving them market access, Emptoris should increasingly come face-to-face with Procuri whose TotalContracts solution already has sizeable share in healthcare (this segment was a focus for CMSI before the acquisition).

Overall, contract management ranks second as a source of revenue for Emptoris (34% of software revenue). Sourcing stands at 43% and spend analysis at 22%. While sourcing is still a growth engine for Emptoris, an increasing number of prospects are realizing the value of getting started on the spend visibility front first. But while only a minority of their deals begin with spend visibility first (25-30%) we both agreed during the conversation that this is the best place for users to start and forward thinking organizations are moving in this direction.

In addition, Emptoris continues to use its channels effectively, despite quietly building out a sourcing consulting group internally and providing FreeMarkets Full-Source like MOC capabilities. My personal network confirms that Emptoris is not alienating its key Big 5 partners by fee-hoarding which is contributing to their channel traction (Ariba, my consulting friends tell me, does not have the same reputation with the SIs and sourcing consultants for sharing in the services revenue love).

From a financial perspective, Emptoris' slide presentations continue to obfuscate the numbers. I counted no less than half a dozen "up and to the right" graphs in their presentation each with only limited or no markings on the X or Y axis to guide the reader to a truthful interpretation. Obviously, when these charts are laced with commentary, it can mislead the audience. Going forward, I would hope that Emptoris either begins to share its complete financial picture or avoids the subject entirely, as their approach is open to misinterpretation (my hats go off here to Procuri, another private company, who during their last conference, offered an "open book" numbers lunch discussion with the analyst community). Incidentally, Emptoris' "SaaS" claims from their presentation are also circumspect in my book -- I'll wait for the S-1 to see how these ultimately change as Emptoris is forced to adopt common naming and account practices in their public disclosures.

So what's my summary? There's no doubt Emptoris is doing very well in the market. If you judge them on a customer acquisition and solution basis, they're a top provider in the sector. But from an ethics perspective in sharing information that is easily open to misinterpretation -- or more than stretches the truth -- I have some serious issues with their approach. If Benjamin Disraeli were alive today, he might have quipped regarding statistics: "there are lies, damn lies, and Emptoris."

Jason Busch

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