Initial Thoughts on the SAP / Frictionless Deal

Many of you have already probably seen the news that SAP has acquired Frictionless Commerce to round out it's suite of SRM applications, especially in the sourcing and contract management arena. Mickey North Rizza beat me to the punch today with an excellent analysis that's absolutely worth reading. I will not repeat what Mickey has already said, but I thought I would add some other candid thoughts to the mix.

First, it should come as no surprise that SAP has finally made a move in the sourcing arena. Oracle had long had superior capabilities from a sourcing perspective, and a deal like this was a must to make them more competitive against their main rival, at least from an analyst ranking and PR perspective (a win for Jeff Nolan and his project Apollo Team, no doubt!)

Second, it is rumored that Frictionless was not the only company that SAP considered, but that the price tag for Emptoris was ultimately too steep. I was not able to confirm that SAP looked at VerticalNet as well, though this was also rumored. Clearly, SAP realized that they had a key gap to fill in their offering, and there were a handful of vendors who could help them fill it. Certainly, Frictionless' NetWeaver certification played a role in the ultimate acquisition decision, but I believe that a far more dangerous combination in the market to the Aribas and Oracles of the world would have been an SAP / Emptoris combination (especially from a contract management capability, but more on the later).

Third, for leading edge procurement organizations looking primarily for advanced sourcing and contract management capability, the deal should not change the overall landscape dramatically. Frictionless has solid -- though not industry-leading capabilities -- which like SAP's current SRM eProcurement offering, should appeal to the average purchasing organization where 80% feature / function coverage is enough. Emptoris and Ariba -- and some might even lump Verticalnet in to the same bucket -- continue to deliver significantly more capability in the advanced sourcing arena, and Emptoris, through its DiCarta acquisition, is still in a class by itself when it comes to contract management. Still, I had the chance to look at Frictionless' contract management capabilities at a customer last month where they beat Ariba and Emptoris (prior to the DiCarta announcement), and from a workflow and configurability perspective, the application stacks up quite well, and was one of the main reason they beat their competitors in that deal. As a related aside, Frictionless is one of the most configurable applications in the market overall, which is great news for SAP's SI partners looking for a new application suite to spend months configuring and customizing for clients.

Fourth, the deal still does not give SAP a good story to tell for companies with complex Spend Management environments with multiple ERP vendors, versions and instances where visibility is a top concern and challenge. SAP still needs to partner with or acquire a leading spend analysis provider to enable this type of visibility and capability. Ariba, Verticalnet, and Emptoris still have a much better story to tell for organizations that have not standardized completely on a single version of SAP.

Fifth, I believe the deal should be a boon to SAP's middle market efforts where Frictionless' ease of use and tight coupling with SAP's other SRM capabilities should give them a solid end-to-end product to sell. This could hurt On-Demand sourcing providers such as Procuri, Ariba, Verticalnet and Iasta which previously had an easy story to tell as to why companies should not even consider SAP SRM when it came to sourcing. Now, they will be forced to compete head-to-head in some deals (perhaps even against a "free" offering if SAP decides to give its new sourcing capabilities away as part of larger deals).

Hopefully this analysis will suffice for now for those looking for a quick hit Spend Matters perspective. I'm really bummed that I could not be in Orlando today due to a high fever, but I do plan to dig around for additional insight and scoop in the coming hours.

Jason Busch

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