Friday Rant: Click and Emptoris — The Blind Leading the Blind Down a Smart Path?

Yesterday, I provided some context around Marlin's and Emptoris' acquisition of Click Commerce's services procurement solution. In this Friday Rant, I'd like to offer up some additional commentary and opinion on the deal. I'll make five observations in this post, all of which I believe are worth considering as we collectively think through the broader implications of services procurement growth in the market -- not to mention Emptoris' roll within it and how customers should think about choosing solutions.

First, I believe that Emptoris, for the better or the worse, is going to become a roll-up vehicle for Marlin in the supply/spend management area. When it comes to product innovation, this strategy is generally a bad thing. However, since there was limited innovation happening at Click to begin with since the original eLance buyout, I do not believe this particular deal is a negative for their customers and prospects. Just the opposite in fact. I believe strongly that Emptoris owning the Click services procurement asset will help promote the concept of services Spend Management much more aggressively to procurement executives. And this is nothing but a good thing.

Second, I believe Emptoris is underestimating the competition a bit. Unlike their diCarta acquisition, Emptoris did not buy a top vendor in the sector from a current traction perspective. They bought a distressed asset with solid underlying technology. Make no mistake: this is a turnaround situation where Emptoris will need to interject some new life into a solution set that needs some TLC -- and a new sales and marketing wrapper -- if it is to regain the traction of its competitors.

Emptoris should not underestimate the ability of other best of breed vendors to out develop, out sell and generally outperform the Click solution. Nor should they underestimate the ability of competing services procurement ERP products -- Oracle, PeopleSoft, Workday and SAP. Interestingly, SAP's latest eProcurement release, SRM 7.0, has got a number of services enhancements that make it a viable solution, even relative to best of breed competition. It's not market leading, but it might be sufficient for some organizations.

Third, the deal will introduce an interesting dynamic as Emptoris competes against Ariba. Ariba, which is "doubling down on services procurement" according to one source I spoke with inside the company, has not invested in product development, marketing and sales for their services procurement products at the same rate as other solutions in recent years. From my vantage point, Ariba, like Click, has only gotten in a small percentage of dealflow activity in services procurement in recent years.

Changing this will not be easy, despite their sizeable Spend Management footprint. In addition, Emptoris has the better functional mousetrap compared with Ariba at this point in time when it comes to services procurement -- especially when it comes to large, global customized deployments -- but Ariba has a better story to sell integrated services procurement into a broader Spend Management P2P deployment (and a better, lower initial cost deployment SaaS story as well).

Fourth, I got the feeling from a quick 30 minute chat that the Emptoris leadership team is somewhat wanting of knowledge about services procurement market dynamics in general compared with their best of breed competitors who live and breathe it everyday including ProcureStaff, IQNavigator and Fieldglass. The problem is that Click only has half a dozen or so non-development team members on staff with any understanding of the market relative to their competitors -- who have hundreds.

Even though Emptoris plans to keep the Click services procurement team, it will not be much help, because it's only a shoestring team. I know that Click is working to change their limited domain expertise. They've brought in one industry expert I know of in recent months who is consulting with them on better targeting the solution set and this guy knows his services (especially contingent labor) stuff. But one industry guru is not an island. This very well might be the case of the blind leading the blind when it comes to knowing the market. It's a bit like a rogue state having the bomb and not necessarily knowing how it works and what to do with it (but it's certainly a nice chip to have). I believe that Emptoris will need to bring in a team of outside experts quickly (e.g., the equivalent of kidnapping a cadre of Russian scientists) to catch up to their best of breed competitors from sales, marketing, channel and future product development perspectives. This will not necessarily be easy, but as I said, they do have a useful asset if they can make the most of it.

The fifth and last observation I'll make today is that Emptoris' entrance into services procurement represents a prescient but tangential market move. I do not necessarily believe that the Emptoris sales force will have an understanding of how to position the complex dynamics of services procurement to an audience that consists of HR, procurement, IT, business unit and functional leaders and even finance. Nor is the product a logical solution suite extension like supplier performance management or contract management. Still, I do believe that we'll see an uptick in services spending as the market eventually recovers and even in the interim, the move will surely help create value for Emptoris customers whose services categories go largely unmanaged -- from upfront sourcing to contract compliance.

As a final aside, this feels like one of those moves on the chessboard where Emptoris did not think through all of the consequences, but things will actually work out in their competitive favor despite what appears to be their general lack of understanding about the true market dynamics and inner workings of services procurement. To wit, if Ariba is interested in being a top five player in the services procurement market from a revenue and growth perspective, this all but forces their hand to buy Fieldglass (or to get much more serious about selling and further developing their own solution).

Incidentally, Fieldglass' valuation most certainly increased as a result of this deal. For Ariba, the acquisition alternatives are not as attractive considering buying IQNavigator from private equity firm GTCR would be tricky, not to mention the challenges of integrating lower-margin MSP offerings which are not as good a fit as Fieldglass with their business.

Indeed, It's a smart competitive move for Marlin and Emptoris when it comes to Ariba, even if they did not fully understand the consequences of what they did initially. Incidentally, there are a number of parallels between the type of deal Fieldglass would be for Ariba and what Procuri was for Ariba previously. I believe it would be a very astute decision -- that would be beneficial for both customers and shareholders alike -- at the right price.

Enough of my rant. What do you think? Will this energize the services procurement market?

Jason Busch

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