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Deltek's Second Bite at the IPO Cherry (Part IV)

Written By: Predrag Jakovljevic
Published On: May 16 2008

Part III of this blog series analyzed the relatively recently launched Deltek Vision 5 [evaluate this product] and Deltek Costpoint 6 [evaluate this product] suites. It also tackled the related potential opportunities for Deltek. For one, key up- and cross-sell opportunities should come from:

  • Additional modules, especially from the newly minted Deltek EPM [evaluate this product] suite: The majority of new Deltek customers initially purchase a single module or a select few modules of the suite (e.g., project management, financials, human resources [HR] or timesheets) and add more modules a few years after implementing the initial modules; and

  • Migration from entry-level and/or legacy products to Costpoint or Vision: Deltek GCS Premier [evaluate this product] is a low-cost entry-level application suite designed for smaller contracting firms. As GCS customers outgrow these systems, there is opportunity for migration onto Costpoint. Similarly, we expect legacy Deltek FMS, Sema4 and Advantage customers to migrate onto Vision or Costpoint (depending on industry), as their scalability requirements exceed system capabilities. These legacy products were designed for small professional services firms.


As for focused geographic expansion, due to largely offering products that support only English, Deltek's initial focus will logically be on English-speaking countries such as Canada, the UK, Australia and New Zealand. International geographies have so far represented only a few percentiles of total revenue, but the company plans to generate 20 percent from international markets over the next three to five years, mostly via expansion into the UK and Australia/New Zealand.

Deltek has identified nearly 40,000 mid market consulting and architecture, engineering & construction (A/E/C) firms in Canada, the United Kingdom (UK), Australia and New Zealand as potential customers. The vendor is also targeting the construction industry in the Middle East.

To that end, Deltek's international sales and consulting staff have recently expanded in part with a completed integration of Welcom International into Deltek in 2006. The company also established 24x5 support in the UK in 2007, while 24x7 support is now available for all customers. The UK staff has more than tripled since 2006 with additional support from direct sales hires underway.

In addition, the Canadian staff has more than doubled since 2006, while the Australia and New Zealand presence is expanding through the reseller focus. We should look for a number of international marketing campaigns in 2008 and beyond.

Becoming More Partner-Friendly

Deltek has lately also been expanding its alliance network and ecosystem in various ways, starting with expanding indirect sales channels. For a value proposition by product, Deltek Vision's value add reseller (VAR) partners can provide broader coverage, particularly to access the big opportunity market of companies with less than 50 employees. Vision VARs can also provide localized implementation and/or support, while the independent software vendor (ISV) partners can fill certain functionality gaps and/or extend the solution into complementary areas.

On the other hand, the lower-end of the architecture, enginering & construction (A/E/C) and professional service markets has been served with Deltek Vision Small Business Edition (since June 2006) while mid-sized to large firms have been targeted with Vision 5. In both cases the latest cutting-edge enhancements like the above-mentioned Visualization are used for project management. Nearly 2,400 project-focused firms are Vision clients today, whereby the product recorded a nearly 50 percent growth rate in client base in 2007. The Deltek Vision partner network was also doubled in last couple of years.

Focus has always been a Deltek's friend over the years, so it has been a conscious decision to target the current verticals where the vendor has a presence with Vision and not expand into a myriad of others. Deltek only moves into new verticals when it has the organizational commitment and resources to fully engage the new vertical.

Recently, the vendor has made the decision to focus heavily on the consulting market for Vision (where it already has about 200 customers), which includes Management Consulting and IT Consulting. Deltek Vision Consulting Edition seems well suited to succeed in this space given its strong resource planning capabilities.

On the Deltek EPM suite's indirect channel side, resellers can deliver access to opportunities not targeted by the Deltek's direct sales team (e.g., federal agencies, smaller businesses, etc.). VAR's can also improve consulting bandwidth constraints in that regard. Deltek is actively recruiting additional partners within the UK for the Deltek Vision and EPM products, and also strengthening its international partner network for Canada and the Asia-Pacific region.

The company's commitment to market penetration via recruiting partners can be best seen via a recent slew of press releases in that regard on its corporate Web site. Deltek is also keen on expanding relationships with complementary technology partners such as Microsoft, Primavera, IBM/Cognos, Oracle/BEA Systems, Actuate Corporation, etc.

Last but not least, the vendor is implementing new partner programs to support domestic and international partners. What should help in that regard is the recent appointment of Taylor Macdonald as Vice President (VP) of Worldwide Channels and Sales Alliances, given his deep partnering experience while at Sage Software.

Competition Cannot Be Undermined

Deltek claims to have not noticed an increase in competition from SAP or Oracle lately. Deltek believes that SAP does not seem to be committed to this space from a product roadmap perspective, whereas Oracle still does not recognize the project-focused space operationally within its entire mushrooming organization.

Indeed, Oracle still has products' rationalization issues (i.e., to cobble solutions together from former Peoplesoft, Oracle E-Business Suite [EBS], Siebel and JD Edwards to offer a full "fused" suite). Neither Oracle nor SAP reportedly has a fully dedicated sales force targeted exclusively to the project-focused marketplace.

Yet, fierce competition can come not only from SAP or Oracle, but also from many Tier Two enterprise resource planning (ERP) vendors with a focus in the aerospace & defense (A&D) industry. As also pointed out in the Enterprise Systems Spectator's blog post, Deltek has strong project management and project accounting functionality, but it lacks integrated product data management (PDM) integration, complex engineer-to-order (ETO) manufacturing and the field service/repair features that A&D clients typically require.

In other words, for many prospects, it is still not a complete project-based manufacturing solution, where project manufacturing and ETO-oriented products like IFS Applications, Epicor Vantage, or Consona Encompix and Relevant INFIMACS II can better fit the picture, to name only some (for a more comprehensive competitive landscape, see Part II of this blog series).

Staying Away From On-demand, For Now

One potential stumbling block could come from the company not yet having any plans to roll out "on-demand" versions of its software, which would allow customers to download its applications over the Internet, and which is a backbone of businesses such as Salesforce.com and NetSuite.

Software as a Service (SaaS) vendors such as Salesforce.com, ADP and RightNow compete only in Deltek’s peripheral customer relationship management (CRM) and HR businesses, and pose little threat to the company’s core project management and financial application businesses today. Still, there is a risk that they gain traction in the enterprise applications market over time, as on-demand ERP offerings evolve, and on demand adoption increases.

SAP Business ByDesign, Oracle CRM On-Demand and Microsoft Dynamics CRM On-Demand are some high-profile recently launched and/or improved on-demand offerings, which these mighty vendors plan to market and sell more aggressively in the near to mid term.

While the resonance for on-demand has been pretty low with Deltek customers, especially in the conservative government contractors market, the existence of on-demand ISVs like OpenAir might indicate the SaaS deployment model's viability at least in the professional services market.

It bears noting, however, that Deltek does offer its software in a traditional single-tenant hosted model through various partners, and they have gained some traction offering their solutions through this model.

Improving Brand Awareness

There are indications that Deltek is a leading brand in the core government contracting and A/E/C industries. Deltek plans to continue improving brand awareness through a targeted marketing campaign that will include: local customer forums, focused trade shows and advertising in relevant trade magazines.

I believe that this is the right marketing approach (on a micro-level) for this conservative market segment, and is likely to continue improving awareness of the Deltek offering in the foreseeable future. Improving awareness will facilitate migration onto the Deltek platforms from legacy manual or point project management systems, given the benefits of Deltek products and services and the inability for service firms to manage growth using manual and legacy point systems.

Still, in the bigger scheme of things, time will only tell whether Deltek will be right in seemingly resisting any radical change on positioning/messaging and believing that doing the right thing by customers is enough in the market. Sometimes it simply isn't -- e.g., the US is very much a Hollywood culture, and if you don't have a slick recognizable catch phrase (e.g., "Just do it!") or can quickly spit out a clear differentiating message in 10 seconds or so, you will not advance in the long run amid the bigger brand names.

The debate will thus go on whether Deltek's conservative marketing approach was the right one over the past three years or so. This would be the result of a product-centric marketing strategy that is more concerned with project-oriented feature/functionality, without an apparent enlightenment to evolve the original project-centric messaging that was described in Part I of this blog series.

Every vendor must reinvent itself into something new/interesting every few years at a minimum. Deltek's continual focus on things like EVM or project portfolio management (PPM) without any sizzle might begin to sound a bit flat after a while, at least in the global market.

But we may find out soon. Namely, in only a few days, during the Deltek Insight '08 annual user conference, the vendor might come out with a number of new refreshing messages and themes.

Till then, what are your views, comments, opinions, experiences and so on? Do you think Deltek is going in the right direction?
 
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