New Vendor Acquisition Strategies in the Enterprise Applications Field

Analysis of SSA Global's Latest Acquisitions

Although its consolidation appetite is not diminishing by any means, SSA Global seems to be showing signs of more deliberation and even restraint, rather than jumping the gun to indiscriminately gain market share. Once seemingly insatiable, SSA Global now admits that growth by acquisition is no longer as straightforward and cheap as it used to be in the early 2000s, due to the increased costs of install base acquisition. Namely, while the vendor has paid on average $37,000 (USD) per customer for its 13,000 acquired customers, recently Oracle apparently paid about $2 million for each acquired Retek customer. Thus, while acquisitions at the right price will continue, SSA Global is shifting its focus towards providing extended solutions rather than acquiring peer enterprise resource planning (ERP) products.

This is Part Three of the six-part series The Enterprise Applications "Arms Race" To Be Number Three.

This article continues a comparative analysis of SSA Global and Infor, two contenders in the fierce ongoing competition to be number three (after SAP and Oracle) in the world of ERP vendors. See The Enterprise Applications "Arms Race" To Be Number Three for background information and a discussion of vendor similarities, along with Contributing to the Rejuvenation of Legacy Systems in the Enterprise Resource Planning Field. The other leading contender is Lawson Software. For a detailed discussion of Lawson, see New' Lawson Software's Transatlantic Extended Enterprise Resource Planning Intentions.

By its own admission, until 2003, SSA Global was merely a collection of ERP products, with a desire to consolidate. At that time, its only established ERP product extensions were the embedded Cognos business intelligence (BI) nuggets, the acquired Warehouse BOSS solution, and a collection of disjointed third-party products (such as Applix for customer relationship management [CRM], Logility for supply chain planning [SCP], and Digital Union/Verticalnet for sourcing and procurement). Acquisitions were focused on ERP as well as on the associated research and development (R&D) investment. This state of affairs is in contrast to today's nearly complete SSA Global solution footprint and delivery of converged solutions having predictable and published product roadmaps. Also, the acquisitions have become rather more strategic, bundled as they are with balanced development investment, and deliveries on promises of continued support.

Although many might still consider SSA Global's acquisitions to be opportunistic, the vendor has long instituted a so-called "4M approach" underlying the evaluation of acquisition candidates:

• Motivation—is the candidate motivated?
• Money—will there be sufficient payback?
• Method—does the candidate have the right people?
• Match—does the acquisition fit SSA Global's "big picture"?

The vendor's goal is to ensure that it keeps customers for life. In order to do that, it must preserve the customers' investments while continuing to deliver a long-term product strategy of convergence, modernization, and vertical focus, all in a predictable and incremental manner. The short-term strategy, on the other hand, is to enhance the value of current applications in delivering the functionality (with a consistent tempo of releases) that customers have been asking for, by delivering integration to extension products like CRM and supply chain management (SCM), and by delivering first-rate support.

SSA Global' s three most recent acquisitions in particular, E.piphany, Boniva Software, and Provia Software, may indicate a new phase in the vendor's acquisition strategy and development cycle.

Epiphany—A Good Strategic Fit

In the fall of 2005, SSA Global completed the acquisition of E.piphany, Inc. (also known as Epiphany), an innovative but financially long-struggling global CRM solutions provider. As a result of the merger, Epiphany now operates as a wholly owned strategic CRM division of SSA Global; shares of Epiphany common stock have been delisted from NASDAQ, and deregistered with the Securities and Exchange Commission (SEC).

Unlike many earlier SSA Global acquisitions, Epiphany certainly cannot be categorized as providing an outdated product. In fact, the embattled CRM vendor, which now prefers to drop the dot from its official name, was famed for trying to put the e (the electronic business moniker) into CRM, and was a big name during the dot-com era. Its CRM analytics were (and arguably still are) an important part of e-commerce and e-business development. To a certain degree, it succeeded in building a business on applications related to marketing automation, call center management, real-time customer analytics, and real-time interaction. These applications (the Interaction Advisor, Insight Advisor, and Lead Advisor modules) peaked at $125 million (USD) in annual revenues in 2001, with Vodafone, Nestle, Gap Inc., Citibank, Virgin Holidays, HBOS, and Barclays all signing up as users. However, revenues have since fallen sharply, closer to the $70 million (USD) mark.

Epiphany's products have been widely implemented among business-to-consumer (B2C) companies that have large numbers of direct customers, such as wireless carriers, travel and transportation services, banks and other financial services firms, telecommunications, utilities, and retailers. The catch with these customers, however, is that they tend to spread their applications portfolios over multiple providers, making Epiphany's revenues much less impressive than its customer list. In fact, Epiphany has never shown a profit in any fiscal year since it went public in 1999. Thus, in August 2005, after 7 years of consecutive losses, including a whopping $2.6 billion (USD) hit in 2001, the innovative CRM provider fell into the arms of SSA Global, for a quite surprising $329 million (USD) in stock. This was all the more surprising given that the company had revenues of about $75 million (USD) and losses of $16 million (USD) in the previous 12 months (although a significant cash position of about $160 million [USD] would have been a good rationalization for SSA Global).

In justifying the merger, the two parties cited two major synergies between them. First of all, out of 450 Epiphany customers, there was reportedly a significant 20 percent of shared customers in the manufacturing, finance, and services industries, with certain cross-selling opportunities owing to the complementary nature of the products. Epiphany filled a major gap in the SSA portfolio, with respect to inbound and outbound marketing automation and analytics (see Why Are CRM and Analytics Intrinsically Connected?), sales force automation (SFA), online solutions, and e-commerce. Some marketing automation features are certainly top-notch, such as collaborative filtering (identifying cross-selling campaign opportunities based on past purchases), real-time data mining and decision-making (using static and dynamic customer attributes while the customer is browsing online), and predictive analytics capabilities (see Predictive Analytics; the Future of Business Intelligence). Although SSA Global had some CRM capabilities with Baan (via the acquisition of Aurum and subsequent in-house developments), these were inconsistent and lacked sophistication, so that the customer demand and mind share for the SSA CRM suite have always been very low. On the other hand, SSA CRM's native strengths lie in sales configuration, order management, and field service functionality, which are not areas that Epiphany covers. Once the integration is complete (some time in 2007 at the earliest), the SSA CRM offering should be more well-rounded and appealing than current native offerings for users of Baan or the Applix add-on on the business planning and control (BPCS) side.

However, concern remains that the two companies have thus far not had much of a common market focus. Namely, while SSA Global is oriented toward business-to-business (B2B) applications (primarily in the realm of manufacturing), Epiphany has largely focused on the aforementioned B2C markets in service industries. These install bases naturally have separate functional and support requirements, and only time will tell where additional outlets will arise once the immediate cross-selling opportunities are mined. SSA Global contends that manufacturers too should be interested in reaching customers directly via marketing campaigns (with the help of analytics), as shown by recent success of marketing automation specialists such as Unica and SAS (see Should Uniqueness Vouch For Marketing Automation Niche Players?). Also, since SSA Global had a considerable business in service industries even without Epiphany (for example, with KPN as a customer), there may actually be more of a common market focus than might appear at first glance. With Epiphany, 37 percent of the installed base is now in the services sector; conversely, a significant percentage of Epiphany's customer base was in the manufacturing sector.

But the second synergy—shared adoption of technology based on open standards and service-oriented architecture (SOA)—might be even more compelling. Namely, while Epiphany has long leveraged J2EE- and SOA-based technologies to rewrite its products, SSA Open Architecture explored in Part Two of this series remains in part a statement of direction, since many of its products will need much retooling to conform to the SOA vision (although fewer will need retooling as of the third release of the product in the spring of 2006).

The vendor will need developers experienced in these technologies, and by buying Epiphany, it has acquired a development organization which is already at the place SSA Global is aiming for. Apparently, the former Epiphany Customer Relationship Backbone (CRB) platform has already been rolled into SSA Open Architecture (6.0, the first release where CRB and Open Architecture converge, is due in the spring of 2006), and the SSA SCM team has been delivering new warehousing management capabilities while leveraging the savvy of its CRM colleagues.

In summary, existing Epiphany customers will breathe a sigh of relief owing to the strength of a global company behind the CRM products; this assures financial viability and continued R&D. Indeed, CRM is a strategic area of investment for SSA Global, and the Epiphany's team in San Mateo, California (US) has been supplemented by engineers in India, the Netherlands, Dallas (US), and Toronto (Canada). As they have done many times before, SSA Global will commit to continued support for all CRM products. On the other hand, existing SSA Global customers will eventually be exposed to a more complete sales force automation (SFA) and call center solution that enables sales (and service of customers) across multiple channels and lines of business (LOBs). Some customers may benefit from a comprehensive marketing automation solution both for B2C and B2B environments, but all solutions will be under a sole SSA CRM brand which includes all current capabilities on a modern J2EE platform, both for CRM solutions and all future development activity.

The go-to-market CRM strategy for SSA Global consists of maintaining and growing business in B2C verticals, where it plans to maintain a distinct sales structure to focus on traditional Epiphany market segments (such as the financial services and telecommunications sectors). Also, the vendor will try to widen cross-selling opportunities in its installed base by leveraging existing SSA Global sales teams and specific offerings targeted at the mid-market. The idea is also to expand sales into eastern Europe, Latin America, and the Asian Pacific (APAC), by leveraging a global sales organization and providing tier one language support. SSA Global will also try to leverage strategic alliances in some sectors, for example, with IBM (for financial services, retail, and manufacturing), with Capgemini (for telecommunications), and with some resellers such as Harte Hanks and Merkle (for the mid-market).

The combination of Epiphany and SSA Global may be a win-win situation for both camps of customers, as evidenced by recent increased momentum in the market place. Namely, again dispelling the perception of only milking installed ERP bases, SSA Global can still boast (although not to the degree of its supply chain execution [SCE] team) thirty new CRM customers in the last twelve months, and fourteen in the last four months alone (since the acquisition). Most of these customers came from the vertical segments, namely, financial services (for example, Charles Schwab, Banco De Brasil, Credit Social des Fonctionnaires [CSF], Golden 1 Credit Union, and American Express Merchant Services); insurance (Linea Directa, Hartford, Pacificare, Well Point, and Dahlberg Assurance Brokers); telecommunications and utilities (Essent Cablecom, Telefonica, and Energies De Portugal); retail (Specsavers Opticals, Family Christian Stores, Bombay Company, Etam, and Macys.com); and consumer electronics (Sony Computer Entertainment and Yodabashi Camera). Often, these new customers came at the expense of fierce and respected competitors such as Siebel/Oracle, Amdocs, Unica, and Sigma Dynamics.

The vendor pledges to continue to make significant investments in order to expand the SSA CRM solution suite, via in-house development, acquisition, and partnering. SSA Marketing Version 7.0, slated for 2006, will lead the market in terms of breadth and depth of marketing automation functionality, with its upcoming enhancements:

• goal-based arbitration and dynamic arbitration logic, for maximizing revenue and margins
• meta-learning, to optimize offer messaging with real-time analytics
• sophisticated decision-making strategies by customer segment (with the ability to test, learn, and fine-tune these strategies)
• real-time miner enhancements (the ability to learn by customer group, channel, or time period, and to use multiple real-time miners on a single offer for advanced learning)
• the ability to use statistical models in real-time decisions
• multi-row customer profiles
• rule sets, global rules, faster rule definition
• User interface (UI) and reporting interface enhancements

Furthermore, all planned SSA Sales, SSA Service, and SSA Marketing releases beyond the 7.0 version will deliver new or enhanced CRM capabilities, including seamless integration with ERP offerings

The table below shows the due diligence and go-to-market homework (with key target segments analysis) conducted by SSA Global following the Epiphany acquisition:

Boniva

While the Epiphany may partly align with SSA Global's established business model of mining its installed customer base by bringing new CRM functionality (such as marketing analytics and call center applications), additional install bases, and particularly a CRM mind share to the SSA Global portfolio, the August 2005 acquisition of Boniva Software, Inc., a human capital management (HCM) start-up, was a pure technology buy, since there were hardly any current customers there. Boniva's J2EE-based strategic talent management portfolio of e-learning, employee recruitment, skills management, and performance management applications has already been integrated into the SSA HCM solution. The suite should now enable companies to automate core processes such as human resources (HR) administration, benefits, and payroll, but should also offer capabilities such as self-service, analytics, and workflow, in order to better connect managers and employees in real time. Built on open standards (including J2EE and extensible markup language [XML]), SSA HCM can be deployed on multiple platforms, including the UNIX, iSeries, and Microsoft Windows operating systems.

Provia

In early March 2006, SSA Global announced the acquisition of Provia Software, Inc., a Grand Rapids, Michigan (US)-based mid-market provider of order-to-delivery SCE solutions, such as the ViaWare warehouse management system (WMS); the FourSite order management system (OMS) and billing solution for third-party logistics (3PL) providers; labor management solutions and yard management systems (YMS); visibility and analytics solutions; transportation management systems (TMS); small parcel shipping (SPS) systems; radio frequency identification (RFID) systems; and scheduling solutions, all recently enabled as Web services, and integrated within the ViaWare suite (see Provia Tackles RFID in a Twofold Manner).

Despite our initial impression that SSA Global was thereby crowding its SCE solution portfolio, the acquisition of Provia should provide the vendor with a small-to-medium market SCE solution which affords a more cost-effective approach for distribution-intensive companies. Provia's solution complements SSA Global's existing supply chain management offerings, which target larger, high-volume distribution fulfillment customers, whereas the existing SSA Global WarehouseBOSS mid-market solution remains for IBM iSeries customers. By adding Provia, SSA Global now believes that it can offer SCE solutions for any company supply chain (no matter what the size of the company), in many more vertical industries and geographies.

At second glance, there might indeed be strong synergies between SSA Global and Provia. This is especially true given that many of SSA Global's customers serve the same industries as Provia (including 3PL, consumer packaged goods (CPG), food and beverage, high-tech and electronics, wholesale, and retail), and also given that Provia has been integrated with SSA Global ERP solutions at many customer sites. The acquisition of Provia's products should strengthen the SSA WMS offering and market share immediately, owing to a focused 3PL sales and marketing team. Provia has a strong position in the 3PL market, which represents about half of its customer base (with such customers as Menlo, NYK, and Hanson); SSA Global also has a strong position in the global 3PL market, with tier one customers such as UPS, DHL, FedEx, and BAX Global). Provia products will thus address the lower-end 3PL markets in North and Latin American with a lower TCO solution, whereas the products that come from former EXE will address tier one 3PL and the high-volume warehouse operations markets globally.

As expected, there will be a drive towards a common SCM SOA solution in the long-term. At first glance, existing SSA WMS customers should expect to benefit from Provia's Visibility and Analytics solutions. Conversely, Provia's existing customers may benefit from SSA SCM solutions, such as Slotting, Event Management, voice-directed systems, and TMS.