IBM's Acquisition Of Emptoris Moves It Squarely Into The ePurchasing Software Market — Watch Out For Fireworks

IBM today announced that it will acquire Emptoris, a leading vendor of ePurchasing software products, with strengths in eSourcing, spend analysis, contract lifecycle management, services procurement, and supplier risk and performance management (see December 15, 2011, “IBM Acquisition of Emptoris Bolsters Smarter Commerce Initiative, Helps Reduce Procurement Costs and Risks”). That IBM made an acquisition of this kind was not a surprise to me, given that the heads of IBM's Smarter Commerce software team at the IBM Software Analyst Connect 2011 event on November 30 had laid out a vision of providing solutions for the buying activities of commerce as well as the sales, marketing, and services activities. Indeed, in the breakout session in which Craig Hayman, general manager of industry solutions at IBM, laid out the Smarter Commerce software strategy and showed the vendors that IBM had acquired in the sales, marketing, and services arenas, he said in response to my comment about the obvious gaps that IBM had in the buying area that we should expect to see IBM acquisitions in that area.

What was a surprise to me was that IBM acquired Emptoris. My prediction would have been that IBM would buy Ariba, because of the long relationship that has existed between these companies. In contrast, Emptoris has generally worked more with Accenture, and not as much with IBM.

Still, in hindsight, the announced acquisition of Emptoris does make sense. Emptoris has consistently scored high in our Forrester Wave™ evaluations of eSourcing and CLM and has good offerings in the other areas. This immediately helps IBM fill gaps in the product portfolio it needs to offer to compete in the buy-side software space. Emptoris also has a list of 300 or so Global 2000 clients, which would appeal to IBM. From the Emptoris perspective, the deal also makes sense. Emptoris itself has been battling headwinds from specialist competitors such as Ariba, Zycus, and Upside Software, as well as from SAP as it upgraded its own ePurchasing product portfolio. The last matters, because much of Emptoris' early success came in selling eSourcing, spend analysis, and CLM into the SAP client base at a time when SAP's offerings in these areas were clearly weak. With SAP now having much stronger products in these areas, it has been winning back clients from Emptoris (and others). So having the deep pockets and resources of IBM will help Emptoris compete better.

Questions and challenges remain, though. In this domain of the application market, we can clearly put a headstone on the old IBM claim that it only did middleware, it didn't do apps. There is no question that in the Smarter Commerce space, IBM does apps. As such, it is now head-to-head in competition in the ePurchasing market with SAP and Oracle, as it already has been in the sell, market, and service areas of Smarter Commerce. How well IBM can do in selling applications rather than middleware remains to be seen. Also unclear is how this will impact its systems integration business in implementing SAP or Oracle ePurchasing apps, since they are now much more likely to work with SIs such as Accenture or Capgemini that don't compete with them in the ePurchasing market.

One potential advantage is that the applications that IBM gained with its acquisition of Emptoris are all what I have called "smart computing" process apps, in the sense of including high degrees of analytics, collaboration, and focus on optimizing balance sheet assets (see the November 3, 2011, “Market Overview: ePurchasing And Contract Life-Cycle Management In 2011 To 2012” report). IBM, with its strengths in analytics, can bolster Emptoris' already strong offerings in these areas. Still, SAP and to a lesser extent Oracle are already going down the same path, leveraging their own BI and analytics products. And SAP and Oracle are much stronger in the ePurchasing market then they are in the selling, marketing, and services domains. So IBM's success here is by no means assured.

IBM also still has gaps in its buy-side product portfolio, notably eProcurement, eInvoicing, and supplier network services. The first two are primarily transactional apps that benefit from tight integration with ERP systems, where SAP and Oracle have (or have the potential to have) strong advantages over a vendor like IBM without an ERP system. So IBM may decide to live with these gaps, relying instead on ISV partners such as Infor. On the other hand, IBM will want to become more active in the supplier network market, in order to link its (or competitors') sell-side apps used by suppliers with its (or competitors') buy-side apps used by corporate buyers. IBM already has Sterling Commerce to provide this kind of connectivity for large firms that use Sterling's EDI network. But it may want to supplement the Sterling EDI network with a purchase-order-and-invoice-specific supplier network. Ariba has the largest of these (which is why Ariba may still be an acquisition target for IBM), but there are others such as OB10 or Perfect Commerce that are available.

In short, IBM's acquisition of Emptoris opens a new competitive front for IBM versus Oracle and SAP; makes IBM an important player in the ePurchasing market; and opens the door to more acquisitions, both by IBM and by its new competitors in the ePurchasing market. Let the games begin.