RedPrairie and JDA announced their intention to merge by the end of 2012. The reason, according to the new joint-executive leadership, was to create a multi-channel solution for the retail market. Interestingly, RedPrairie was well on their way to creating just that, on their own. So was this merger necessary to fulfill the multi-channel requirements? Maybe not.
Since the mid-nineties, there has been conjecture within the supply chain market about how interesting a mega-merger might be between a supply chain planning company and an execution company. Now that it is likely to happen, it is worth looking at this deal from a few vantage points, and asking a few critical questions.
Why do this deal? Does it actually help get us to a true multi-channel solution?
Can they deliver on the big promise for multi-channel?
Can the "Newco" deliver a multi-channel solution in a time frame that provides their investors a return for their investments?
What is the impact on the current buying decisions that CIOs and users may be considering?
Why Do This Deal?
To meet the intense current and increasing requirements of the Omni-channel world, the meaningful integration points in today’s retail chain are on the consumer side—between mobile, social and ecommerce and the ability to provide fulfillment. In other words, shoppers are looking for instant fulfillment—a current price at a current location. To create a true Omni-channel application, consumer mobile apps, ecommerce and order management, demand sensing, dynamic pricing, and fulfillment all need to be in the mix. We have been championing this in our Merged-Channel Nirvana publication. To accomplish real-time fulfillment, granular views of current inventory across the channels are a critical component.
A good warehouse system such as RedPrairie’s, when integrated to the retail shelves—whether in stockrooms or in-store—can provide this important component in the Omni-channel vision. RedPrairie also has acquired many of the above capabilities, such as ecommerce, in the last two years.
The other critical element—consumer mobile (think location, coupons and social apps)—is still outside the realm of these companies today. Having an app company in the merger—now that would have been a real game-changing deal, one that would have allowed them to fulfill the stated goal of this merger: the multi-channel mobile play. (Hmmm, maybe the next move?)
RedPrairie might have continued to forge ahead on Commerce Suite, developing and acquiring to create that vision. But I am not sure this deal gets them there. Or was the real goal, perhaps, to compete in the private equity game,1 using mega-mergers to create larger software companies that have some scale to keep up with global markets? Create a $1billion+ sales company with a portfolio of interesting products. Not a bad goal, by the way, considering the rest of the software market has been on acquisition shopping sprees for the last few years. $1B-sized companies with $400M in the bank can do all sorts of things that smaller companies can't!
Integration or Indigestion? Can They Deliver?
The merger is a good deal for the JDA investors—they get a premium price for their shares in a challenging market. But is it a good deal for the Newco owners? Or the current and future customers? The journey ahead may be a bit bumpy in order to deliver the stakeholder goals.
There are headaches to come, which is not to cast any aspersion on the Newco. But we all know the merger day-after: new product plans, contention over what pet projects to keep or shelve, and longer-than-planned development cycles. Beyond product issues, mergers foster job insecurities and competition for the key jobs; ultimately key talent is often lost to other firms (an issue that has been plaguing the supply chain market of late). These are significant hurdles in the way of the goal.
And although they talk about the cloud, today that means hosting. Omni-channel requires more. It requires an inter-enterprise solution that integrates trading partners in a traditional sense—collaboration between the manufacturers and retailers for fulfillment—and with mobile and web-based consumer apps.
Going private gives the Newco a lot of options in the SaaS world that a public company may not have. So that angle could be useful in planning the future nuances of their SaaS offering. (You can read Current View of SaaS in this issue.)
The Newco will need to be a new co in more ways than one, in this new reality.
What Will it Cost?
Given the premium paid for JDA, as well as the costs associated with achieving the above-stated goals, the Newco will be under pressure to keep software licensing and support fees high and development costs low. However, for software pricing, the general trend in the market is going in another direction. Subscription-based cloud pricing (with low to no upfront costs) as well as intense competition to win deals is putting pressure on pricing. This, ultimately, will affect revenue and profits.
Interestingly, this move will probably bring out more intense (if it could get any worse) competition from other providers such as Aldata, whose Omni-Shopper Suite launched this week; and the big ERP providers: SAP, Oracle, Epicor, and NetSuite, whose retail footprint has grown. In addition, companies such as Revionics, Tools Group, Quantum, Logility, DemandTec and JustEnough continue to innovate and claim market share. All this puts pressure on the Newco to develop faster and compete more often on price. Margin squeeze ahead. You can read more about that competition in Wheelers and Dealers.
In addition, who’s watching their back? With Servigistics recently bought by the aggressive PTC, parts planning (a mainstay of the old i2) in high tech and industrial just got more gas and tigers in the tank (salespeople) to push the deep portfolio that PTC acquired. However, over focus on retail could hurt the base in discrete manufacturing that i2 nurtured throughout its history.
However, the value of what the Newco can provide is unparalleled in many ways. Many of their software modules are the best in their category. Their challenge, though, will be to keep their eye on the market realities and pick wisely to enhance those with the most ongoing value to all stakeholders.
Impact on Current Buying Decisions
To CIOs and users who were planning to purchase planning or execution systems, it appears as though the mega-company choices—the Newco vs. SAP, Aldata’s new Omni version, or Manhattan’s standalone warehouse solution—are starker. Interestingly, these mega-firms leave the transportation market untouched, we feel, since they can’t really compete with the likes of Descartes, GT-Nexus, MercuryGate and others who outstrip the functionality in the mega-companies to date, and are strong cloud leaders.
A turn-key multi-channel—from consumer to fulfillment, well that is another story. It will continue to be the integration chore it already is for the foreseeable future.