News this month that Amazon is about to acquire French package delivery service Colis Prive is further evidence that the boundaries of e-commerce are in a significant state of flux. While Amazon is reaching closer to the customer and investing further in the very non-virtual world of warehousing and delivery, traditional players such as Visa and UPS are extending their reach into the e-commerce value chain from the other direction. From a merchant’s perspective, the move is very much towards a best-in-class approach to solutions, with Amazon among the very few that are in a position to own versus outsource, given the scale requirements needed to deliver many of the capabilities that are proving to be high-value differentiators at the service levels the marketplace is demanding.
E-commerce today is a multi-trillion dollar market. Global business-to-consumer e-commerce transactions were over $1.6 trillion last year while business-to-business transactions were over $5 trillion. As such, the e-services industry continues to explode, and we’re seeing some notable shifts in what it takes to win as a service provider in this vast and cut-throat market.
Last month we examined the evolution of connected applications to integrated applications, specifically within the Human Capital Management software sector. In this article we take a closer look at the underlying technologies that are enabling an integrated approach, and what types of applications might benefit from such approaches in the immediate future.
Integrated or connected, what is the difference?
In the world of enterprise software, the term “integrated” is used liberally to describe systems that “connect” and pass data to each other. But the word integrated suggests these systems are actually woven together, which is rarely the case. At Bulger Partners, we debate these nuances frequently, and most of what we see in software today are connections, not integrations.
Every software sector has experienced, and continues to experience, some level of consolidation. Often, as we’ll discuss below, the consolidation is driven by the desire or need to expand product capabilities and deliver additional solutions to customers. Every organization evaluates build versus buy strategies, and often there are compelling reasons to acquire an existing platform rather than build it from scratch.
An interesting case study can be found in the Human Capital Management (HCM) industry, where rapid and increasingly expensive consolidation occurred between 2005 and 2012. While this consolidation created connectivity between offerings and has no doubt improved the offerings of the HCM industry, new demands from vendors will require enterprise software companies to take the next step towards true integration.
“He who sells what isn’t his’n, Must buy it back or go to prison.”
Daniel Drew, 19th Century American Financier
In Part I of this series, we covered several ways in which tech diligence identifies technical debt and other risks that can lead to unexpected costs and value impairment. In Part II, we explore other technical and legal IP issues that could require unplanned work, delay shipment, or, in the worst case, land an acquirer in a lawsuit over licensing that exposes proprietary intellectual property.
Throughout my career I have led hundreds of diligence assignments, first as a CTO and Corpdev exec, then as a venture investor, and most recently as co-head of a software-focused strategy consulting practice. While this work has covered all facets of diligence, a majority of these assignments have been product and technology focused. But what continues to surprise me, even in the tech sector, is the number of deals we see going down without sufficient product and technology diligence. In this article we explore the risks investors and buyers are taking by skimping or skipping this fundamental input into investment and acquisition decision making.
When to consider the technology stack in your exit strategy
We spend a lot of time helping private equity investors and tech executives think through exit planning and exit strategy. During those conversations, we are often asked how much a company’s tech stack matters both in the attractiveness towards an acquirer and in the ultimate valuation. While there are numerous anecdotes to support a wide variety of conclusions, we thought that given the significant change we have seen in this landscape the past few years that a more methodical approach was warranted.
In the world of Enterprise Software, on-premises solutions are becoming rare.
The economies of scale that comes with the cloud combined with the innovation
and agility of fully SaaS ISVs has led to a world of primarily SaaS-based enterprise
applications. However, there are vestiges, particularly with large conglomerate ISVs
(Oracle, IBM, Microsoft, SAP), of classic on-premises solutions and deployments.