A Perfect World? Nope, CorMine Has Got Some Serious Work Ahead...
It's official. CorMine has purchased Perfect Commerce and has even adopted its name. But the headlines and news stories will only tell you so much. Inquiring minds should ask the hard questions:
- Why did CorMine ask much of the Perfect management team to leave immediately following the deal? Only a handful of Perfect's former executives remain. Usually, executives depart after a transition period -- not immediately.
- How does CorMine plan to continue down the massive product rationalization path that Perfect started to embark on (consolidating nearly a dozen different technologies and platforms)? Where are the resources and expertise to do this?
- How long will companies paying maintenance revenue to Perfect tolerate products which have essentially stalled in the innovation cycle?
- How does CorMine plan to go to market selling both software and services successfully -- something that companies like Ariba have struggled to do over the years, failing to keep pace with the growth rates of fast growing providers focusing only on software or services (not both).
I could go on with these questions -- and would encourage Perfect customers to ask the same ones -- but I don't have time over the next couple of days to dig into at the level that I want to. Further exploration will need to wait until next week on these virtual pages. But in the meantime, I wish CorMine the best of luck in this deal. Perfect's last investors, Apax, lost most of their $30 million investment. At the time, I told them not to do the deal in an unpaid due diligence call (you know what they say about free advice, I guess). But Apax made the investment anyway and lost nearly all of it in less than 24 months. Let's hope CorMine does better than the Wall Street geeks on their deal ...
- Jason Busch
- Why did CorMine ask much of the Perfect management team to leave immediately following the deal? Only a handful of Perfect's former executives remain. Usually, executives depart after a transition period -- not immediately.
- How does CorMine plan to continue down the massive product rationalization path that Perfect started to embark on (consolidating nearly a dozen different technologies and platforms)? Where are the resources and expertise to do this?
- How long will companies paying maintenance revenue to Perfect tolerate products which have essentially stalled in the innovation cycle?
- How does CorMine plan to go to market selling both software and services successfully -- something that companies like Ariba have struggled to do over the years, failing to keep pace with the growth rates of fast growing providers focusing only on software or services (not both).
I could go on with these questions -- and would encourage Perfect customers to ask the same ones -- but I don't have time over the next couple of days to dig into at the level that I want to. Further exploration will need to wait until next week on these virtual pages. But in the meantime, I wish CorMine the best of luck in this deal. Perfect's last investors, Apax, lost most of their $30 million investment. At the time, I told them not to do the deal in an unpaid due diligence call (you know what they say about free advice, I guess). But Apax made the investment anyway and lost nearly all of it in less than 24 months. Let's hope CorMine does better than the Wall Street geeks on their deal ...
- Jason Busch
1) If your numbers are correct, the Perfect management team burned through $30M and failed. Why retain a failed team, especially since the new mission (outsourcing) is likely to be so different from the old? This is a positive move IMO.
2) With regard to product rationalization (of acquisitions), some of the e-sourcing suite vendors have an analogous problem. Perfect's issues in this area are not unique to them.
3) It's hard to switch horses, and if the horse is working OK, why not keep it on the job? Many users fail to see any distinctions between generic product offerings in the e-sourcing space anyway, so it's hard for them to get excited about marginal differences trumpeted by marketing departments who have long since lost all credibility.
4) Outsourcers have a different model than software+services companies. They can utilize whatever tools they like. Owning a set of tools means that CorMine can underbid other companies that have to pay for tools, and that CorMine can drive tools development along lines that are profitable for CorMine.
I'll respond to the other points later.
Thanks for chiming in BTW.
Does anyone have any other thoughts?
Thanks for breaking the story last month... I try to follow your blog and am appreciative of the thoughtfulness of your posts.
As a former CTO who adopted Commerce One platform for a top-tier VC funded vertical industry-specific eprocurement startup back in 2000, I think the new entity has a lot of potential. My former startup got acquired by a Nasdaq-listed company and they are a leader in their vertical. They continue to use C1's J2EE stack. Also, one of my former employers which is one of the world's largest procurement organizations continues to use another product (reverse auctions) that Perfect acquired prior to its C1 acquisition.
So, if the new Perfect is able to take care of its loyal customers, they will not only continue to pay maintenance but also expand into other solutions that Perfect is able to offer...
Commerce One was not great at taking care of its existing customers, and the old Perfect did not score too well either. Hopefully, the new team has the vision and passion to sell some great procurement technology, in addition to the procurement services that they are already selling. If not, perhaps, they can put out all the old products as "open source" - I am sure Coupa will hate to see this as will all other players in the market ;)
What do you think?
PS: BTW, it looks like Apax is still in the play - they are not totally washed out... What was your reasoning for recommending Apax against the investment? Was it due to the management at that time? Or, do you think the procurement revolution is over?;) Or, was it due to the Ariba vs C1 wars from the old days - I know that most former Ariba loyalists from 1999-2000 era are not able to appreciate the client base that C1 built up, but you have tried hard to be balanced in your blog...
Very candid insights. Thank you.
Here are some thoughts:
First, I always thought Commerce One had a vastly superior "many to many" approach relative to Ariba (Tradex) in the B2B hey day. It ultimately took many years for Ariba to get their network up to speed and embrace that type of model at the same level. No question about it. You made the right choice at the time ;-)
Second, regarding the situation at Perfect, they've had a very hard time supporting multiple (read close to a dozen) different platforms with only a shoe-string staff. They have tried quite hard to embark on the product rationalization front, but a network without maintenance is like a lawn that goes un-mowed or a city street that goes un-policed. They simply have not had the staff levels to support the network and all of the products at the level at which they havee needed to (despite improvements from the recent management team).
Sandy Kemper's roll-up approach might have worked if they had a highly specialized integration team along with enough product management support to pull it off, but they simply bit off too much in too short a time frame without the infrastructure to make it work.
Third -- and this is to the first commenter -- CorMine did try to keep a number of members of the executive team but the serious salary cuts they showed to them were not interesting. Sure, the team might be construed as a "failure" by some, but then why would they have extended job offers to many of the executive team members? This says to me they're not serious about keeping existing C1 customers happy or maintaining that business model and enhancing the products. Maybe they roll it into their own solutions and BPO services ... that's fine. But that's a different game entirely, and if they hope to milk the maintenance revenue stream, then they've got some serious investments to make.
Fourth, open sourcing the products is fascinating. There's a lot of excellent code -- and hundreds of millions of dollars of development and R&D which went into the C1 platform -- and to see it winnow on the vine without innovative development to take it forward would be a shame. I would strongly support this strategy BTW.
Fifth, I heard the terms of the deal not only wiped out all -- or nearly all -- the equity of previous investors, but also gave them very little or no (assumption of debt and liabilities was the bulk of the deal, at least based on the rumors I heard). Maybe Apax has something, but they must have gotten a buzz-cut on the $30 million investment ...
Also, quoting investors (Apax) in a press release announcing the deal is just plain lame. That's probably because they could not get any analysts, bloggers or others to lavish praise on the deal. If I was an investor with even a few pennies left in something, I'd be sure to lavish praise on my own POS as well trying to eek out the last bit of return. Or just like Whole Foods CEO, I'd take it to Yahoo chat if I could get away with it ...
Curious to get your thoughts on this (as well as others). I don't have the answers. I just have some opinions, which might be wrong, of course.
It's easy. Here are some reasons:
- I thought they had too many products and too little on staff expertise / headcount to support them.
- They had a CEO that was not qualified to run a software company with multiple product lines with any degree of complexity (despite everything else he had going for him). I base this on having met Sandy and heard him speak at a Global Trading Web forum. After that meeting, I would have run for the investment hills given the complexity of Perfect and his inexperience in any similar situation in the past.
No doubt, Sandy is/was a charismatic leader. But he was not the person to lead in the situation Perfect got itself into. Also, given his significant personal wealth, I did not detect the drive and true need to make things work. I'm sure Sandy would feel the same way judging an investment if the CEO of his potential target had his own level of financial security. After all, as an investor, one looks for hunger in people, and those who have F&*#-You money already -- especially inherited, as I observed in my experience as a a scholarship kid at east coast prep schools and later in the ivy leauge -- are less likely to work 20 hours a day to make something work because they HAVE TO. To wit: Sandy was not exactly losing his ranch/estate if things turned South.
- Many of the acquired products were not best in class (which in a young market, is a recipe for disaster from a growth perspective).
- I thought they had a very questionable record of customer service to that point -- and if your customers aren't lavishing praise on you as a young software company, then you have nothing.
- The market dynamics at the time (i.e., the competitive landscape) made things look risky.
I hope this answers your question(s).
"I got the code integration blues ..."
Recent history contains many examples of open sourcing of old code that nobody cared about -- mostly by companies who were failing or had already failed. I'm not aware of a single circumstance where such a company was materially aided by such a strategy.
I recall a wall street analyst report claiming that poster child Covisint (which truely started the exchange "arms race" in both the vertical industries and between C1/Oracle/Ariba) was going to have a market cap 20x of GM. I believe that analyst is now a President of a major software vendor.
The original incarnation of many of the vertical exchanges was really a form of a scam - shifting expenses of the participants to look like revenue in the exchange. No wonder the model has basically died off.
The GPO flavored exchanges couldn't get any traction. Telcos had a fundamentally flawed model (Emergis anyone) - who trusts their telco with the financial info? Banks had a better opportunity with their small business customers, but immature technology & unachievable expecations combined to result in failure.
Only transaction delivery oriented exchanges (ie retail) seem add value and last -- but the margins in that business are extremely small. Look at the VANs. Companies really need to augment the transaction delivery with services to be sustainable w/ a decent margin. But forget about high growth or successful IPO.
Jason, on your next visit to the bay area, perhaps we should do a meetup or something similar... It will be great to see you and others with whom we share this interest/passion in procurement technology :)
To Anon1: Of course, the ol' C1 stuff isn't as cool technologically today as RoR in Coupa, but I know that there are some potentially very interesting plays on not only the J2EE version of C1 but also the older ASP/COM version... BTW, if you are Dave, or if Dave @ Coupa is reading this, I would like to mention that I'm missing your blog - please count my vote for restarting it :)
As you probably already know, Dave's blog is still going, but with wider scope... but, like you, I miss the old one.
But most importantly, Coremine now has Perfect's clients, and has to keep them.
So they can throw resources at the crap and questions mark products, and maybe the clients will stay and wait it out, even though this was the story they got from Perfect for years.
Or even better (IMHO), OEM some best of breed stuff and upgrade these clients. The timing is perfect (no pun intended...really). Coremine's service heritage promotes this approach, and there are plenty of opportunities out there (e.g. best of breed products to OEM).
Even if they fix the C1, etc. stuff, that just brings it up to the level of everybody else (Ariba, Ketera, etc.)...so why not go for the trophy!
1. I don't know of any execs who were asked to leave (which isn't to say there aren't any, just that I don't know of them). Of course the pre-merger CEO is no longer CEO, but as he is on the board of directors, he can't really be said to be gone. The first commenter mentioned the $30M in VC that evaporated, but to be fair, the current leadership did not do that; they are just paying for the sins of the fathers, so to speak.
2. Apparently the new CEO thinks that the resources to take Perfect down the path to integration, er, perfection are in Virginia. Others might think that most of the resources that *could* do it, or at least assist with it, were booted out or are walking out the door on their own. Yes, other companies have this problem, but they also have some experienced resources with which to address the problem. If you think it was a slim staff before, just wait.
3. Companies may not tolerate product offering stagnation for as long as some would think. Existing clients want cleaner products, and new clients want new features. There is more than one way to have to pay for the sins of the fathers, and one of those ways is having to focus on developing low-ROI customizations to which you've already committed, leaving little room to make high-ROI improvements to the system.
4. I have no idea how CorMine plans to sell software and services effectively. If "owning a set of tools" and 'driving tool development along lines that are profitable for CorMine' were as easy as it sounds, Perfect Commerce would have had an IPO a long time ago.
I’ve been told that CoreMine plans to migrate the KC datacenter to VA in six months. Good luck folks. They obviously have no idea how complicated the beast is that they’ve acquired.
I don’t know how they plan to retain their current customers. When I was there were around 20 people in operations and we were buried. Now they have four people. The only thing that may save some of their customer base is that separation can be financially painful.
whalers on the moon ...