Daily Archives: February 29, 2012

If Your Supply Management Vendor Gets Acquired, Is It A Good Thing?

Over on Software and Services Safari, Brian Sommer recently asked about Cloud Software Consolidation — Is It All Good? It’s a fair question, as there has been a lot of consolidation in this space, between SaaS/Cloud and non-SaaS/Cloud vendors alike, and a lot more is still rumoured.

The companies will always spin it as a good thing, and if the acquisition happens, chances are that the investors (that control the Board of Directors), think it is a good thing, but that doesn’t necessarily mean it is a good thing from an existing customer point of view. As Brian notes, investors are looking for deal synergies, up-sell or cross-sell opportunities, cost reductions/efficiencies, etc. and customers want to know if the product will be around several more years, whether the product will get enhanced over time and what happens to customer support. And the problem is that these two sets of goals are often incompatible.

What usually happens is:

1. Existing Customers Get the Short End of the Stick.
For example, they will be promised new, different, technical architectures that may make some of their prior integration efforts no longer valid.

2. The Acquired Product Often Gets Slated to be Decommissioned.
And the customer has to migrate or lose access to functionality entirely. (And if the innovative start up was bought by the lumbering gorilla, functionality will typically be lost.)

3. The Acquired Product Is Frozen in Time.
It may be supported for the length of time in the newest customer’s original contract, but forget about improvements. The existing customers will be lucky to get bug fixes.

4. Prices Increase
After all, the new company, which probably has a higher overhead, has to make a profit after spending all that dough on the acquisition!

5. But Vendors Still Create Incredible Works of Fiction to Explain How the Products Will Be Rationalized Into Their Product Line.
Which are too amazing to explain in a few short words!

And, most importantly, no one ever discusses the real economics of the transaction and why it was driven in the first place. And Brian does a great job of summarizing what typically drives these deals in Cloud Software Consolidation — Is It All Good? the doctor strongly recommends that you give this post a read. It is worth your time!