IBM and Emptoris: Key Challenges and Opportunities

Please click here for our first post in this series, covering the initial IBM acquisition announcement of Emptoris.

In a series of posts in the coming weeks, we'll tackle a range of customer, company, competitive and market implications for the recently announced IBM and Emptoris transaction (which is estimated to close in Q1 2012). We'll continue this series in this installment by taking a look at some of the key challenges and opportunities that IBM and Emptoris will face together in this sector. Up next (likely next week), we'll turn our attention to what it means for customers. Let's begin:

Emptoris/IBM Challenges

  • The transaction does not provide IBM with a true cloud-based approach to sourcing, spend analysis, supplier management, contract management, etc. By "cloud" we mean a solution based upon a largely virtualized deployment model that allows for multi-tenancy across customers (with initial, rapid deployments measured in hours or days) and the ability to collectively share intelligence and benchmarks across the community. Yes, Emptoris can be hosted and they can probably technically claim to be cloud-enabled -- but true virtualization and cloud approaches are different. Make no mistake about it: Emptoris is enterprise software (with the option to deploy in a SaaS manner). And we believe this is nothing to be ashamed of (see "Opportunities" below)
  • Emptoris is developing on multiple platforms across existing solutions and acquired companies; there are limited integration touch points and IBM will need to work to consolidate the solutions on a platform basis to find development economies of scale as well as to develop a stronger, integrated suite value proposition that a true integrated, end-to-end approach can deliver
  • There aren't many customers left willing to pay huge sums for enterprise software in a big bang manner, which can make it hard to grow consistently quarter-over-quarter (even if you have a better mousetrap than others). Under IBM, Emptoris will need to find new ways of slimming down their otherwise enterprise-class capabilities to deliver more bite-size chunks
  • IBM still has a material hole in the eProcurement and electronic invoicing areas in terms of best-in-class solutions. Partnering with vendors like SAP, Oracle, Coupa, Basware and others remains an option, but based on the acquisition strategy, we would expect to see potential moves here as well. Given the willingness to buy Emptoris and support a CD-based model, Basware might fit the DNA if IBM were to make a more aggressive move in this area; or perhaps IBM might pick up a small player like Verian (with capabilities in disproportion to its brand), if they value the CD deployment flexibility, Coupa could be a game-changer for IBM, but the deployment model and DNA could not be more different
  • IBM and Emptoris risk being outflanked by a range of vendors with newer, easier to use solutions as well as providers with a more rapid ability to configure their solutions for specific industry, category and highly dynamic use-case environments. Next generation competitors can do this, in part, by taking a platform-driven configuration approach vs. one that can require extensive code-level customization when bespoke tailoring is needed

Emptoris/IBM Opportunities

  • IBM is sitting on a potential gold mine in taking the Emptoris solution to customers with eight-figure budgets and willing to pay for extensive customization for complex, global roll-outs; the fact IBM has these customer relationships should go a very long way to helping ease the challenges Emptoris faced in going after a shrinking percentage of the Global 2000 willing to pay for something that was highly tailored for their environment
  • IBM will be able to target services procurement solutions across a range of complex categories. Starting with Telecom Expense Management (TEM) gained from Emptoris (Rivermine), IBM will now have a best-in-class toolset for one complex service. This is a further complement to the Coremetrics acquisition in the marketing services analytics area. We expect to see IBM look at further complex category solutions in print, legal spend management and related areas. It is likely we will see IBM also consider further development on the Emptoris (Click) services procurement platform for temporary labor and other SOW categories -- or perhaps the acquisition of another platform in this area
  • Emptoris and IBM both have the right idea in targeting procurement MDM and facilitating a solution to overall spend and vendor master data controls and records. Previously, IBM had the technology to pull it off. But now with Emptoris, they have the subject and domain expertise to bring concepts to reality. The use case for Initiate Systems (also an IBM company) alone is huge if applied to procurement, supplier, spend and related areas. At Empower (Emptoris' customer event) we saw a rapidly thrown together attempt at a homegrown procurement MDM system. If IBM can rapidly take Emptoris' IP and ideas in this area and re-platform them quickly onto their own MDM and CDI capabilities, they could potentially be at a huge competitive advantage
  • With Emptoris, IBM has a head start against other procurement BPOs including Accenture, Genpact, ICG Commerce, Infosys, WNS, Xchanging and others in having a significant technology asset of its own. Now, whether it proves the right one remains an open question, but for now, it is a differentiator in the sales process where BPO sameness often dominates the discussion
  • Emptoris acquired a small supplier management vendor called Xcitec earlier in 2011. Spend Matters research suggests that supplier management (inclusive of supply chain risk management) is the fastest growing sector of the procurement technology market. Our analysis suggests that including content, this market is growing at 35% CAGR per year, at minimum. With Emptoris, IBM will have the ability to accelerate the adoption of supplier management technology within its customer base, inclusive of basic supplier relationship management (portal, registration, on-boarding, data collection, performance, communication), supply risk management, supplier diversity management and program-specific activities in the extended supply chain (e.g., compliance management for REACH/ROHS, restricted/toxic substances)

- Jason Busch

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