In our previous coverage of the SAP’s announced acquisition of Concur (see: SAP Buys Concur for $8.3B – A Great Deal (But Out of Necessity, Not Strength)and ANALYSIS: SAP SE to Buy Concur Technologies Inc, By the Numbers), we provided some background and context on the transaction and offer our candid perspective on the events leading up to the announcement. As we begin our deeper analysis of what the deal means for customers, competitors and the broader market, Thomas Kase, VP Research, who leads Spend Matters T&E coverage, talks about a range of synergies (or lack thereof, in certain cases) around the acquisition including cultural fit, target customer segments, scale, network/content, app store models, talent retention, and much more.
A Curious Marriage: Computer Science/Engineering PhD and a Psychology MA Ballerina?
Will the socially awkward, brainy introvert marry – and stay married to – the unruly, hyperactive ballerina with her graceful, yet controlling ways? Pop some popcorn (or crack a beer) and get ready to watch the show.
The Concur deal is not a relative slam-dunk for SAP like Ariba and Fieldglass. To summarize:
- The customer base is quite different
- Concur is not nearly as global as earlier acquired firms
- The solution involves mainly frontline users – even HR
- It is less of an integrated (into ERP) value proposition
- It runs off mostly existing networks within travel
Let’s now turn our attention to specific areas:
Cultural fit: SAP is run in a clinical sense, operationalized, yet also somewhat bureaucratic – whereas the Singh brothers and the rest of the Concur execs have grown up with what they do. They are one with clients, partners, and their own technology. They “grok” their space. And they listen – the old enterprise Concur app had a horrible user experience; the SaaS version is 10X better.
This was obvious during the analyst call, but also from interacting firsthand with Concur’s top management. They still feel like the founding managers of a much smaller company, coming across as doers, not planners. There seems to be more Steve Jobs than Michael Spindler in their genome. Subjective, for sure, but in the somewhat touchy-feely world of travel management and T&E activities, there is a need for this. And to sustain the momentum of Concur’s solutions, the existing leadership (including product management and partners) must be retained, motivated, and stimulated. Company culture does that. The question is how deep will the cultural fit between the two parties go?
Target audience: this is where SAP is wading into new territory (for better or worse). Concur’s activities have more to do with HR (the duty of care aspect, and various policy requirements) than core ERP activities – and only secondarily with procurement (ensuring corporate rates) and finance (Concur provides additional budgeting granularity beyond finance’s allocations – and tracking/alerts).
Concur is about a totally different group of users – not SAP’s target audience – and vice versa. Our analysis suggests the delta for cross-sell and upsell once they own Concur, versus what SAP could have gotten from a Concur partnership is marginal.
Having observed both worlds, I personally think the SAP folks will actually get quite frustrated with the T&E and travel industry folks – it’s a bit of a gaggle of geese running all over the place compared to the composed and cool SAP world. At times at the Concur events I have attended, I welcomed getting away from the throngs of Concur’s clients and being able to put myself in front of a product manager. A culture shock brewing indeed!
So to paraphrase: I’m not entirely feeling the love between Concur and ERP. Sure, if you can tie Ariba to this, great. Then again, Concur sits on a related area to services procurement, not Ariba’s forte, thus the Fieldglass also must come into play (especially when it comes, ultimately, to tracking the total expense and integrated T&E management of the extended workforce). So now you have four (4) pieces to stitch together – Concur, Fieldglass, Ariba, and core ERP features. Count me among the skeptical that this will be done and implemented with existing SAP clients before the end of this decade. Promises of future things to come can sound great, but I’m not hoping for change anytime soon.
Scale: there’s some opportunity to scale through the transaction. On the go-to-market side, Concur could be doing more, and is possibly held back because they are barely cash-flow positive. SAP has a worldwide sales and support presence that precious few firms can match. Looking at Concur, they are naturally strongest in NA – there is more business travel here – and more of the big travel content (hotels, airlines) providers are in the US. Concur has some European activities, but revenue is clearly driven from US business.
There’s a good reason for this. I’m skeptical that this solution will be as high on the list to implement overseas compared to SAP’s other assets. I don't know if the rest of the travel and T&E “meal” is ready for easy consumption elsewhere. In other words, it’s not as great of a fit with SAP’s other products and the global cross-sell/up-sell argument does not necessarily hold true.
On the technology end, HANA is a glorious product (and not because McDermott kept reiterating this during the analyst call – it really is powerful), and will undoubtedly be able to swallow all of Concur’s content, and their partners’ data sets – and spin this faster and better than ever before. This should probably enable another round of amazingly fast analysis opportunities.
Then again, I have firsthand experience of Concur and their partner content in live situations, and it was already fast enough for my needs. There’s plenty of whiz-bang on-the-fly analysis when stitching together hotel content, itineraries, travel policies etc. Same on the expense side – the integration and responsiveness between Concur’s products, AmEx payment info, Starbucks (or other provider activities) product details flowed as quickly as the coffee poured into my mug. Maybe it isn’t as compelling to switch to HANA in this area – or maybe Concur’s partners already run on similar tools from Oracle and IBM? As an alternative strategy, putting the Concur content on Oracle’s high-powered Exadata servers and introducing some of the Endeca front-end and data mash-up magic should run at least at HANA’s level of performance, possibly better. Food for thought if Oracle decides to step into the deal as a spoiler (unlikely, but who knows).
Content: this is perhaps the biggest sticking point regarding synergy perspective in the transaction. Concur’s value isn’t its clever T&E expense tool, or even in slick and smart trip planning & management – it’s tying it all together with lots of content. The expense tool works with AmEx to enrich, validate, alert activities as they take place – suggesting: “noticed you paid for XYZ with your card – was that an expense?” – and then kicks off expense reporting on the fly as you step out of the taxi. Or having IHG’s hotels, your personal preferences and history, as well as your company’s pre-negotiated rates already in the tool, and then dynamically make suggestions about your alternatives when you discover that you have to change or extend travel dates or routes. That’s powerful, and that’s why users love the new Concur (as previously noted, the new SaaS-driven Concur is much more user-friendly than before). It would be great if SAP caught this bug – SAP Supplier InfoNet showed us that they can do this (at least in SAP Labs) but the commercialization of the solution never really happened with any scale.
The App Store – well, that’s Apple’s name. Concur also has a fantastic partner app model (note the content angle above) which ideally will “infect” the rest of SAP – but… this is a dynamic area, with lots of change, and it always requires two to tango!
As another way of thinking about it – is SAP the kind of company that would come up with an iPhone and an App Store and make that a success? In the case of Concur, yes, their management team grew up in these trenches; they have a dose of that Jobs touch. SAP’s executives don’t come across as the types to do this, and in all fairness, they are steering a diversified giant. Additionally, SAP doesn’t have that intense, even frantic, develop & release track record that is needed to sustain a vibrant partner content network. Look at the Apple and Samsung track record here – and how hard it has been for someone like Microsoft (not to mention Blackberry) to even get close to their success.
Talent retention: will SAP be able to keep key management and product leaders? Lars Dahlgaard left practically right away after SAP acquired SuccessFactors – at least much faster than expected. SAP can’t afford to bleed talent like this, given that these acquisitions are as much about bringing outside cloud DNA as buying new assets. Unless something is done differently this time, we can expect Concur’s leadership and top techies to first become complacent, and then leave ASAP, right after their lock-in periods expire – or perhaps sooner. They’re entrepreneurs: if you give them a nice liquidity event, won’t they want to be back at the top of the pyramid again – and not running a sideshow for SAP? Don’t bet against the entrepreneurial itch.
Competitors – we can expect this deal to be a boon to Deem and Expensify in the T&E space. Assuming they can adopt Concur’s formula of success that is. And maybe even improve on it. Concur charges by the expense report for example – which encourages fewer and larger reports – is that really the best approach this days?
Stay tuned as our coverage of the acquisition continues. Up next: customer and competitor recommendations.