Friday Rant: The Emptoris Deal and What it Means for Customers

I think the customer impact of the Emptoris buyout has been lost in much of the coverage of the deal so far (including my own). So I thought it proper to at least feature a short rant on my own impressions of the deal and related happenings at Emptoris and their impact on both current and potential customers. Perhaps most important, I'm left with the impression from the buyout that customers will continue to experience similar levels of responsiveness and service as they did before the transaction occurred. For better or worse -- Emptoris has moved many jobs to India in recent years and we all know that such a move can have a negative impact on customers if the transition and management does not go according to plan.

Moreover, from a customer perspective, I'm glad Emptoris did not end up in the hands of Oracle, SAP or Ariba. That would have meant the deathblow for future innovation on the Emptoris platform. And innovation matters at Emptoris -- both to customers and internally. Sure, we could slam their spend visibility and optimization shortcomings -- especially in earlier product releases -- but I could slam others equally as hard if not harder. In truth, Emptoris has probably been the most innovative supply/spend management vendor out there in the past five years when you factor into account the range of offerings they bring to bear. In particular, I've been very impressed with the direction and thought leadership behind their supplier performance products not to mention their market leadership -- along with Upside and a couple of others -- in the contract management space, especially relative to the ERP providers and other best of breed competitors.

The fact that the current management team is staying on should help customers sleep better at night. True, the comments on this blog are testament to the fact that many former employees and investors would love to see Avner's head on a stick. But they're not customers. The combination of Avner and his direct reports staying on after this deal will provide as smooth a transition as any for this type of transaction. Also true, in recent years, Emptoris has had some material turnover in the CFO and technology leadership positions of the company, but I have not heard concern from customers I've spoken to -- and there have been many -- that the churn in these roles has impacted the level of support and innovation they've come to expect from Emptoris. In my view, customers should not expect anything better than before the deal closed -- but they should not expect anything worse. If you liked Avner and his team, don't worry. If not, then you've probably already chosen not to do business with Emptoris -- or won't in the future.

For customers, another point that I'll leave you with is that there's been a lot of criticism of the deal regarding the rumored valuation. To be candid, it does seem rather low, but given the current investment environment, customers and the market (not shareholders) should all be happy that they were able to get the deal done and remain viable. This is especially true given some information that I was able to unearth last night and this morning which adds further fuel to a fire that has been a smoldering theme with Emptoris for some time. I refer to their direct and indirect overstatements of revenue and profitability numbers over the years. Emptoris has insisted for a long-time that the company is profitable (before legal fees), yet the numbers suggest a different story -- one that I don't want to argue with here in detail, but that I think is important to share on a high level because it's an issue that customers should be aware of. On the revenue front, consider that as recently as yesterday, VentureWire quoted AMR's Mickey North Rizza who noted that Emptoris "generated about $59 million in 2007 revenue." We all know that Mickey did not invent these numbers -- she got them directly from Emptoris. Or they were implied or hinted at by Emptoris on a call. That's the plausible deniability that vendors have in analyst briefings around financials -- "what, I said that?"

Yet in the actual court filings, if you dig around, you see a different picture. According to the information that Emptoris provided to the court on 11/18/2008, "In 2007, Emptoris had $18.2 million in sourcing revenue and $41.6 million in total revenue. Emptoris spent $12.4 million in R&D and operated at a net loss of $12.7 million … Emptoris has never made a profit … during the period of infringement found by the jury, Emptoris lost nearly $36 million, plus its (as yet uncalculated) losses for 2008." So next time you hear the company leadership claim Emptoris is profitable, it might be worth reminding them that their own court filing says otherwise. I do not believe this should overly influence a buying decision, but the fact that Emptoris has twisted around profitability and revenue numbers to its advantage through various claims and innuendos over the years is without question. It's a shame the actual numbers had to surface in such a ridiculous process patent court case, but at least they finally saw the light of day. And as we all know, sunlight can work wonders as a sanitizer (or would that be sanity check). At the very least, customers should use this as a final bit of humorous negotiating leverage in a deal situation because trust me, Emptoris needs your business to reach profitability, let alone stay profitable.

Readers should know that I am in passionate agreement with their comments that competition is good for the market. I don't want to knock Emptoris unfairly for revenue and profitability miss- or over-statements. But the truth still needs to get out. Let the buyer beware about any skeletons which may be lurking in the closets -- after all, that's fair game for prospects to see and I thank those who have offered their thoughts on the subject so far in the comment pages of Spend Matters -- of Emptoris and others. But the fact that Emptoris is still an option is good for customers. In the very worst case, Emptoris' continued independence will keep Ariba, SAP, Oracle, BravoSoluton, Iasta, Ketera and many others on their toes, giving customers more choice.

At the end of the day (and the sales cycle), it's only those who can spend their dollars on Emptoris' products and services that have the actual vote. The rest of the noise you hear from bloggers, analysts and the media might be useful to some degree, but it does not count when the ink is dry. So it's the customers that I'll be watching with intense curiosity in the coming months to see how they respond to the news. Ultimately, if Emptoris can maintain the growth it claims throughout 2009, then it's the customers -- and only the customers -- who will have cast their ballot in favor of Emptoris' continued independence in the market.

As a final aside, I would be remiss in my blogging duties if I did not point out what I believe to be the rushed impetus for this deal -- the Ariba litigation. Customers who are concerned that the Emptoris patch / removal of infringing capability hampers their ability to run reverse auctions in the manner in which they need to should have cause for concern. While I suspect this is a minority of users, customers should make sure they are comfortable with how the patch / removal of the infringing capability impacts their ability to structure and manage reverse auctions. In one case, Emptoris' patch is still under review by the courts -- Ariba is contesting it. Until this is cleared up, it's an open item that we should all pay attention to.

Jason Busch

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