In an unexpected announcement this morning, IBM announced its intent to acquire Varicent to enter the sales performance management market. For IBM this is a strategic acquisition, since it did not have any significant or dedicated applications for sales. IBM intends to acquire and place Varicent within the IBM Business Analytics group, which develops similar analytics and performance management application for other line of business and IT organizations.
For its part, Varicent, while growing and having used venture capital money, must have realized the potential of joining with IBM globally; Varicent’s headquarters are in Toronto, Canada and IBM Business Analytics is based in Ottawa, Canada. I assessed Varicent and its peer competitors in our Value Index for Sales Performance Management, where it was ranked as a Hot Vendor. In my last analysis of Varicent, I outlined the advancements in its 7.1 release and noted how it had been improving with workflow, mobile support, scalability and global expansion. The applications are made available to customers through renting in the software as a service and also as purchasing and installing on-premises.
If you are not already familiar with it, SPM is a category of applications for sales management, operations and reps that helps boost the efficiency and effectiveness of sales. If you want to see more about this category, you can see our research agenda, which outlines it clearly. Layering on top of SFA, which is about sales rep productivity for managing accounts, contents and deals, SPM is the next generation of applications for sales. The importance of dedicated applications for sales has been growing, as the use of spreadsheets has been hampering the accuracy and efficiency of sales; our recent sales performance management benchmark research found that spreadsheets are used in 93 percent of sales organizations and almost half (49%) state reliance on them make it difficult to manage sales efficiently. Varicent’s core set of applications are in areas of variable sales compensation and incentives, channel management, quota planning and territory management. Varicent customers are typically larger sales organizations; referenced customers include Elevon, Manpower, Starwood and Waste Management.
This acquisition leaves other companies I have assessed as peer competitors to Varicent, including CallidusCloud and Xactly, as potential acquisition targets by companies that want to get strategic and compete in this market segment. Synygy is another long-time provider in this market, but it is owned and controlled by its founder Mark Stiffler, who seems content with its current efforts and could be the last one standing if the others get acquired. All three were ranked as Hot Vendors in our Value Index for their breadth and depth of support for sales management and operations. Merced Systems was recently acquired by NICE Systems primarily for its applications for customer service agents, but it had a growing suite of applications for SPM too.
The big application providers in this segment, including Oracle, SAP, Salesforce and even Microsoft, have a window of opportunity to determine whether they want to become more strategic in this sales application segment through an acquisition. My analysis of these vendors in SPM found them Warm in our rating, which is below all the dedicated SPM providers. Here are my latest thoughts on each of them.
Oracle has begun to expand its application portfolio with Oracle Fusion CRM, but my analysis found it has not been as progressive as it could be in SPM. SAP, which has begun to expand its sales applications into the cloud with SAP Sales OnDemand, as I assessed, has yet to explore the full potential of SPM but recently expanded into cloud-based human capital management by acquiring SuccessFactors. Salesforce has been resistant to significantly expanding its portfolio in sales, as I pointed out in my analysis from Salesforce Dreamforce, and has been struggling to evolve its sales forecasting applications and even its sales analytics; it is not exactly ready for the more sophisticated sales organizations. Salesforce has instead been expanding out the mobile and social aspects of its offering and by acquiring Rypple as a social goal and engagement application that can be used by sales. Any of these three companies could be the next mover to buy into this segment, since their organic efforts for SPM have been slow and ineffective. As for Microsoft, it has not been as progressive in expanding its sales application footprint, and in fact was partnering with Varicent, which I am sure IBM will continue to support and layer on top of Microsoft Dynamics CRM. Other large application providers such as Infor and SugarCRM have been less active in moving beyond SFA and expanding into SPM.
It’s interesting that the SPM providers have not expanded into other application areas like sales forecasting, which currently is the top-ranked application requested by sales according to our latest benchmark on sales applications and technology. Vendor Cloud9 has been expanding significantly, as I recently assessed. For the sales compensation and incentive side of the applications, the market has a newer provider; Excentive, for instance, which I have assessed has entered the North American market from Europe.
What can we expect for the near future? Varicent customers should not be too worried; IBM is pretty strategic about its investments into business analytics. Its expansion into line of business areas like sales are part of the company’s work to build deeper customer relationships in the applications market. For IBM, it will be important to understand the nuances of marketing, selling, servicing and developing applications for sales as Varicent has been doing for many years. If IBM wants to become more strategic in this category, it should further invest to expand the applications using its analytics platform and technology. The first logical step would be to enhance offerings in sales forecasting and pipeline management. Next would be to expand and provide a dedicated application for sales analytics, since this was the second most important application that our research uncovered. This would include analytics and content covering customer performance, process and risk metrics for all of sales processes. Analytics was the top technology trend selected by 77 percent of sales organizations, and almost two thirds (64%) are planning to improve their sales analytics. The other dimension is that finance has been involved with the adoption of Varicent, as our research has found in over a quarter of organizations, for helping drive more insight into revenue and compensation information. Since finance is a key area of offerings from IBM, this acquisition will complement IBM existing efforts.
IBM customers who want to improve sales operations should examine what Varicent has to offer. IBM’s intent to acquire Varicent is a significant move, as IBM has been strategically expanding its offerings and recently launched its Smarter Analytics global and company-wide initiative, as I assessed. The Varicent purchase is part of IBM’s move to be a significant business application player in the enterprise software market.
Mark Smith – CEO & Chief Research Officer