When it Just Clicks -- Marlin, Emptoris and Click Commerce
The second and more important reason that the eLance solution has been a product in search of a market is that Click had virtually no sales force supporting it. And a third reason -- which we should not ignore -- is that Click did not cultivate the MSP services partner ecosystem like their competitors (and/or provide a full service MSP capability themselves like an IQNavigator or ProcureStaff). But what type of solution is the Click services procurement product and how does it stack up relative to its competitors? In this post, I'll provide some background on Click and Emptoris' rationale for doing the deal. In my Friday Rant tomorrow, look for additional commentary on what the buyout means for the market and what I believe Marlin's strategy will be to grow the Emptoris asset.
Over the years, Click has attempted to differentiate from the competition in multiple ways. For example, while other providers base pricing models on a percentage of spend running through the system, Click provides flexibility by offering multiple approaches, including a perpetual license model. In the past, Click has tended to attract larger Fortune 500 companies like HP interested in highly customized behind-the-firewall deployments. HP's goal, for example, was to deploy the solution across 38 countries (including multiple languages, currencies and different work rules) as part of a profit center to manage their sell-side services partners (i.e., re-billable labor management). Motorola has a similarly complicated deployment spanning 21 countries. As of my last briefing with them, Click supported 8 languages in the application.
What Click's customers have in common is a focus on managing services spend that goes beyond just contingent labor. Many are using Click to manage other services categories. Some of these include facilities management, software, leased services, financial services, brokerage contracts (managing receipts and payments from trading), utility services, consulting, outsourcing, call centers, marketing agencies and print.
Around 50% of Click's customers use the system primarily for contingent labor while the rest focus on either specific targeted categories such as those listed above or a collection of services spending categories. The ability to fully customize large global deployments to a level that is difficult in SaaS implementations is one of the advantages of the platform for those companies with an installed software mindset. Click customers tend to be more sophisticated than average procurement organizations. In my discussions with them, I learned that 100% of their customers have made investments in eProcurement systems already (albeit with varying degrees of success).
Recent enhancements to the Click services procurement platform include new types of business process enablement (e.g., retainage based contracts), enhanced supplier management capabilities, and improvements in compliance management. Going forward, prior to the acquisition, Click had planned to make further investments in building market intelligence data into the application, further building out and localizing the UI framework, enhancing the ability to customize and drill-down on dashboards, and driving new levels of reporting capabilities. Additional plans also included new reporting features and search driven buying to simplify the services requisitioning process.
Why do I think Emptoris acquired Click (or why did Marlin, for that matter)? I have two theories. The first is purely financial -- the deal could be done on a highly accretive basis primarily on valuing services and maintenance revenue (versus new deals). Clearly, acquisitions will be a key to Emptoris' growth strategy in general. Avner Schenuer, Emptoris CEO, told me this week that "when we did the deal with Marlin, we created a list of forty companies to acquire and narrowed it down to 20 and then narrowed it down to six". I also know anecdotally from other vendors that Emptoris has been out aggressively talking to other companies in recent months. It feels to me like this is a bet the farm strategy on non-organic growth.
My second theory is that Emptoris is looking for logical footprint extensions that they can up-sell into their installed base. When I spoke to Emptoris about the deal, they told me that less than 10% of their current customers currently have a services procurement solution. I personally suspect this is a bit higher because I know a number of Emptoris customers that do (e.g., GSK uses Fieldglass) but still, even if the number is 20%, services procurement represents a good market opportunity to push into their current and future core supply management customers. I also suspect that Emptoris will gain a good channel for Click services procurement selling through their SciQuest, an Emptoris partner. Emptoris will also need to learn to embrace the MSP partner ecosystem -- something that Click failed to do -- but I suspect their experience in partnering in general should help in this regard.
In my view, the timing is prescient for services procurement in general. Both Fieldglass and IQNavigator have turned in excellent financial results despite falling levels of temporary labor spend (as the economy declines). Regardless of current spending levels in the recession, services is becoming a "silent giant" in Avner's words and when "things pick up, we'll see an uptick in services spending". Indeed, services spend growth will most certainly be a leading indicator of a recovery. Avner gave me the usual competitive rhetoric around "ERP not being in this market" -- which in this case is completely incorrect -- but I do buy the notion that this will give Emptoris something else to go try and sell into the SAP and Oracle base.
Check back tomorrow morning for additional commentary on the acquisition in my Friday Rant.
- Jason Busch
Capturing the Silent Giant
Why services procurement? I don’t need an optimizer to explain this one. The answer for how this fits into our strategy is really very simple. When we asked our customers what their biggest problems were, we found a growing recognition that better management of services-based categories presents an immediate opportunity to impact their bottom line. As Avner mentioned, these categories represent the silent giant of the supply and contract management space. Our customers spend billions in SOW (i.e, project-based services), IT outsourcing, management consulting, and contingent labor. However, they specifically cited this area as a major headache. Here are some of the stories we heard -
• “When Satyam went under, we estimated that it would take four months to identify for the CFO and CIO how much exposure we had in IT outsourcing projects with Satyam because there was no solution in place to provide this visibility.”
• “We have 800 IT programming contractors from over 200 different agencies, and an analysis found the same individual working on two jobs at same time and being paid two different rates for these jobs.”
• “We found errors in invoicing with our paper based processes were leading to payment errors of 1.5% on average, and they were never in our favor…we process over $1billion of invoices annually, and we know we are overpaying suppliers by $15-20mm.”
You think it is just rhetoric about the ERP vendors not being in the market, but I disagree. Of course they have checklist functionality that probably meets the sniff test of a data sheet. However, I spoke to a number of our customers and they were emphatic that this problem can't be solved in their SAP or Oracle systems. One customer cited spending $40 million to implement an ERP SRM system for e-procurement (catalog based procurement, mind you, not services procurement) and only $45 million is transacted per year through the application. “Collosal failure” were the two words I heard through my end of the phone line. I mean, where is the value in that? And why should the customer believe that the ERP services procurement solution will have the adoption rates necessary to handle $1 billion of through put per year when the catalog procurement solution isn’t doing 5% of that number? So, we asked them what they are doing about it, and surprisingly, very few have deployed dedicated solutions to manage this problem. There is a less than 5% overlap in our two customer bases despite how similar they look.
We try harder
Why now? The answer to this question is also very simple. We don’t have the luxury of a monopoly position in the market. We can’t go back to our customers, show them a mock-up PowerPoint demo, ask them to take a risk on us that we will deliver a GA product in three years, and then ask them to pay $2 million and take 6 months to rollout an upgrade of their entire platform so they can use the solution. We are the challenger in this space and that means we have to work harder, deliver more and do it faster to win our customers’ trust and business. So, we went out and acquired the best solution in the market - the proven Elance solution owned by Click Commerce. We acquired the entire business – employees, customers and product. Like with diCarta’s Enterprise Contract Management and Zeborg’s Spend Analysis, this product has a strong track record with the largest deployments out there, it meets the needs of global companies and it easily fits into the heterogeneous ERP environment found in many of our customers. Now our customers can get the most impact from the “High Value but Hard to Manage” categories such as SOW based services, IT outsourcing, management consulting, and contingent labor, in the same way that we help them negotiate high value commercial sales agreements or source high value/high risk transportation and packaging categories.
Killing two birds with one stone
I can just see how Mrs. Zerkle, my freshman year English teacher, is rolling her eyes as I use yet another cliché. However, there is a broader perspective we want to show to our customers. Despite rumors to the contrary, Emptoris has a solid financial position, a growth strategy based on meeting our customers’ needs, the resources to pull it off and the willingness to move deliberately and quickly. And, here is proof of that.
I hope that adds clarity for your readers about why we are aggressively entering this space. We are excited about it, and we will invest in this business just like we invested in spend analysis, sourcing and contract management.
Kevin Potts
Vice President Marketing and Product Management
Emptoris