When it Just Clicks — Marlin, Emptoris and Click Commerce

Marlin Equity Partners, Emptoris' owner, and Emptoris will soon announce that Marlin has acquired the majority of the assets of Click Commerce (three of the four business units) from ITW. One of these units, focused on services procurement, will be merged into their Emptoris asset. Formerly known as eLance before the original Click buyout, the solution that Emptoris is acquiring has largely wallowed in relative obscurity in the market in recent years, seeing what I'd reckon is less than 5% of the total VMS (vendor management system) deal flow. Part of this is the result of the industry largely going SaaS (e.g., Fieldglass and IQNavigator) while leaving Click behind with their installed or single tenant hosted approach (with application functionality that has seen few changes relative to their competition in recent years).

The second and more important reason that the eLance solution has been a product in search of a market is that Click had virtually no sales force supporting it. And a third reason -- which we should not ignore -- is that Click did not cultivate the MSP services partner ecosystem like their competitors (and/or provide a full service MSP capability themselves like an IQNavigator or ProcureStaff). But what type of solution is the Click services procurement product and how does it stack up relative to its competitors? In this post, I'll provide some background on Click and Emptoris' rationale for doing the deal. In my Friday Rant tomorrow, look for additional commentary on what the buyout means for the market and what I believe Marlin's strategy will be to grow the Emptoris asset.

Over the years, Click has attempted to differentiate from the competition in multiple ways. For example, while other providers base pricing models on a percentage of spend running through the system, Click provides flexibility by offering multiple approaches, including a perpetual license model. In the past, Click has tended to attract larger Fortune 500 companies like HP interested in highly customized behind-the-firewall deployments. HP's goal, for example, was to deploy the solution across 38 countries (including multiple languages, currencies and different work rules) as part of a profit center to manage their sell-side services partners (i.e., re-billable labor management). Motorola has a similarly complicated deployment spanning 21 countries. As of my last briefing with them, Click supported 8 languages in the application.

What Click's customers have in common is a focus on managing services spend that goes beyond just contingent labor. Many are using Click to manage other services categories. Some of these include facilities management, software, leased services, financial services, brokerage contracts (managing receipts and payments from trading), utility services, consulting, outsourcing, call centers, marketing agencies and print.

Around 50% of Click's customers use the system primarily for contingent labor while the rest focus on either specific targeted categories such as those listed above or a collection of services spending categories. The ability to fully customize large global deployments to a level that is difficult in SaaS implementations is one of the advantages of the platform for those companies with an installed software mindset. Click customers tend to be more sophisticated than average procurement organizations. In my discussions with them, I learned that 100% of their customers have made investments in eProcurement systems already (albeit with varying degrees of success).

Recent enhancements to the Click services procurement platform include new types of business process enablement (e.g., retainage based contracts), enhanced supplier management capabilities, and improvements in compliance management. Going forward, prior to the acquisition, Click had planned to make further investments in building market intelligence data into the application, further building out and localizing the UI framework, enhancing the ability to customize and drill-down on dashboards, and driving new levels of reporting capabilities. Additional plans also included new reporting features and search driven buying to simplify the services requisitioning process.

Why do I think Emptoris acquired Click (or why did Marlin, for that matter)? I have two theories. The first is purely financial -- the deal could be done on a highly accretive basis primarily on valuing services and maintenance revenue (versus new deals). Clearly, acquisitions will be a key to Emptoris' growth strategy in general. Avner Schenuer, Emptoris CEO, told me this week that "when we did the deal with Marlin, we created a list of forty companies to acquire and narrowed it down to 20 and then narrowed it down to six". I also know anecdotally from other vendors that Emptoris has been out aggressively talking to other companies in recent months. It feels to me like this is a bet the farm strategy on non-organic growth.

My second theory is that Emptoris is looking for logical footprint extensions that they can up-sell into their installed base. When I spoke to Emptoris about the deal, they told me that less than 10% of their current customers currently have a services procurement solution. I personally suspect this is a bit higher because I know a number of Emptoris customers that do (e.g., GSK uses Fieldglass) but still, even if the number is 20%, services procurement represents a good market opportunity to push into their current and future core supply management customers. I also suspect that Emptoris will gain a good channel for Click services procurement selling through their SciQuest, an Emptoris partner. Emptoris will also need to learn to embrace the MSP partner ecosystem -- something that Click failed to do -- but I suspect their experience in partnering in general should help in this regard.

In my view, the timing is prescient for services procurement in general. Both Fieldglass and IQNavigator have turned in excellent financial results despite falling levels of temporary labor spend (as the economy declines). Regardless of current spending levels in the recession, services is becoming a "silent giant" in Avner's words and when "things pick up, we'll see an uptick in services spending". Indeed, services spend growth will most certainly be a leading indicator of a recovery. Avner gave me the usual competitive rhetoric around "ERP not being in this market" -- which in this case is completely incorrect -- but I do buy the notion that this will give Emptoris something else to go try and sell into the SAP and Oracle base.

Check back tomorrow morning for additional commentary on the acquisition in my Friday Rant.

Jason Busch

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