As I child, I spent hours on my bed reading books. One of my favorites was Agatha Christie’s detective novel, “And Then There Were None”. In this book, ten people, guilty in the deaths of others, have escaped punishment; but are tricked onto an island. Each guest is mysteriously murdered one by one, until there were none. It parallels the nursery rhyme, Ten Little Indians. It is one of the best-selling books of all time.
Last year about this time, I wrote the blog post on Accenture’s acquisition of CAS. (Reference blog post http://www.supplychainshaman.com/demanddriven/my-take-accenture-buys-cas/). As many of my readers know, I have studied technologies to help the consumer product value chain improve promotion effectiveness for the last 7 years. As I do, I feel that I am reading Agatha’s book: they are being killed off one by one. My question is until there are none?
On Friday last week, IBM announced the intent to purchase DemandTec for 440 million. DemandTec, founded in 1999, currently has 355 employees. The company sold optimization software for revenue management (including trade promotion management for consumer products and price optimization for retail) as a Software as a Service (SaaS). The selling price is a 5.3 multiple of revenue to sale price. On a pure number basis, DemandTec served 50 retailers and 400 consumer products manufacturers; but on a revenue basis, DemandTec’s numbers were 75-80% retail. On the calls on Friday, the IBM team cited opportunities with Coremetrics and Unica. The DemandTec prior acquisitions of M-Factor and Connect3 offers real promise, but was not mentioned in IBM’s positioning. I believe that these opportunities offer more promise to retailers than consumer manufacturers.
I feel that the acquisition of trade promotion technologies is much like Agatha’s novel. They are disappearing one by one, but none of them have been very successful in driving customer loyalty.
The So What
The trade promotion market technology market is a troubled space. Retailers feel that they do not need CRM, but want optimization; and the DemandTec solution fit some, but not all of the consumer product companies needs. The Company’s desire to serve the value chain—retailers and consumer manufacturers together—was a great attempt; but at the end, it was more messaging than reality. All was not rosy. In 2011, DemandTec posted a series of losses and shares fell 22% through last Wednesday’s close.
- What does the acquisition mean for DemandTec Customers? As an analyst, with all acquisitions, I hear a lot of phone rhetoric. This acquisition was no exception. And, I am skeptical, because acquisitions and promises seldom live up to expectations. While IBM has made progress with its recent Coremetrics and Unica acquisitions, there is a risk that when companies are acquired they lose the passion of the founders. This is a consolidation play. IBM is large, moves deliberately, and customers will not see much change fast. DemandTec customers should stabilize their implementations, work with IBM to understand their plans, and be thoughtful on moving forward on new functionality. There will be more uncertainty than certainty.
- What does it mean for the market? The trade promotion market is a mess. In general terms, no customer is happy with any solution (reference posts at the bottom of this blog). SAP’s CRM solution continues to hit implementation roadblocks, and Oracle’s customer satisfaction remains low. The acquisition of CAS by Accenture and DemandTec by IBM should be good news for ProMax. ProMax, a new market entry from Australia, is trying to be the easier to do business best-of-breed solution.
- What lessons can we learn? Just as in Agatha’s novel, the trade promotion market providers are disappearing one by one; and, like the Indians on the island, they are all a bit guilty for the mess that this TPM market finds itself in.
The NOW What
In closing, I hope that IBM does great things with DemandTec. I would love to see a deeper more end-to-end solution. I would encourage IBM customers to discuss plugging the three applications– DemandTec, Unica and Coremetrics– into the IBM Netezza appliance for consumer products and retail.
But, things move slowly in this space. <Should I say island?> I don’t expect IBM to make quick changes, but I do wish them well. I am also waiting for Accenture to do great things with CAS. I would love for SAP’s TPM solution to be a better fit for the requirements and for Oracle to offer a better level of customer service. However, right now, they are all on this island called trade promotion management. There is time to fix the issue before there are none.
For more on the trade promotion management market, reference these articles: