Pretzel Logic – Enterprise 2.0

SuccessFactors, a very well known provider of business software, particularly with an HR and Workplace performance focus has acquired enterprise social business software provider, CubeTree.

The terms of the deal from the press release are as follows:

SAN MATEO, Calif. and REDWOOD CITY, Calif.  – May 3, 2010 – Today SuccessFactors, Inc. (Nasdaq: SFSF) announced a definitive agreement to acquire CubeTree, Inc. a visionary leader in the rapidly growing social business software category. SuccessFactors is acquiring the company for $20 million in SuccessFactors stock at closing plus a contingent cash payment three years from closing to bring the value of the total consideration to $50 million.  There is no contingent cash payment if the value of the stock issued exceeds $50 million at any point during the three year period and to the extent the holders have disposed or hedged their holdings.  The guarantee is considered contingent consideration and will be recorded at fair value and marked-to-market each quarter through the statement of operations.

 

Couple of thoughts:

• $50 million doesn’t seem like a whole lot when compared to your average enterprise software deal but there’s more to it. Whilst CubeTree counts SAP, Cisco, LG, and Adobe as customers, I’ve confirmed that at least 2 of these companies do not use CubeTree across all employees. So the pricing seems warranted.
• On the $50 million thing, another point to consider. Many founders/CEOs of E2.0 companies have been open about that fact that social software is not hard to build (form an IP stand point). So effectively the exit for most will end up being an execution play or a technology transfer. In that context, $50 million on the table looks pretty good.
• Based on my interaction/work with the space as a whole, HR or employee productivity focused offerings are very serious about adding social and collaborative features to process. It’s the most natural fit in the enterprise. SuccessFactors is ensuring that they have a forward looking solution. And the timing is perfect.
• Cash is king of course, but the $30 million payout may well be a good bet for the CubeTree team. And it also goes easy on SuccessFactors’ wallet. Following little or no innovation in the last decade with respect to Enterprise Software, we’re at the beginning of a new cycle of overhaul when it comes to enterprise systems of record. In some cases its due to the need for SaaS, in others, its the need for better engagement. And as we see here, you get both. The likely hood of upside for CubeTree and its investors is better now that its been for a while.
  • For that cross section of customers that use both SuccessFactors and Saleforce.com, they now have an alternative to SalesForce.com’s Chatter, should they choose to look for one. Ben Kepes covers this.
• For the Enterprise 2.0 segment, my sense is that this is actually very good news from a valuation stand point. There are a few players such as Jive Software, Socialcast and Socialtext that have been attracting somewhere between reasonably sized to very large customers for a long time. And the emerging Enterprise 2.0 services ecosystem (disclaimer: My firm is one of those) will only raise awareness for the applicability of these technologies to address business challenges. If CubeTree could secure $50 million after it’s relatively short life, the prospects look good for other prominent players in the space that have a marquee customer base and as important, highly engaged platforms.

About a year ago I sensed that standalone Enterprise 2.0 faced serious commoditization and the lack of process and context was going to be a big problem. I still consider these to be significant impediments to getting to IPO for most vendors. That said, Chatter and now CubeTree serve as excellent reference architectures for other traditional enterprise software companies to see how process injected with engagement can lead to accelerated business performance for end customers. And subsequently look to make a purchase or build their own.

Congrats to both companies.  I’ve heard nothing but good things about CubeTree when its come up in conversations and it’s great to see that they have found a good home.

I just saw something go by by my tweet stream that brought back some old memories (thanks @rpolom) – the 2009 Gartner report on the horizontal Portal Vendor landscape. Here’s the Magic Quadrant:

Around 2001, I led a strategy and execution planning engagement for a then F500 Hi tech firm looking to recast how its 9,000 strong global sales force collaborated with the rest of the ~40,000 person organization. My teams charter was to identify breaks in the interaction process with sales engineers, global field marketing and sales operation and devise a plan to improve the ‘contact to revenue cycle’ for sales reps via new collaborative constructs and sales intelligence access.

As part of this we were also on the hook to put an execution and operational plan in place. That ended up including a technology solution from the portal marketplace – the sizzling hot technology that promised to provide a single homepage to data and information from scores of traditional ERP and custom built systems. My team looked at 27 vendors. Yes 27!  Here’s the list from one of the drafts that I dug up:

Thats a snapshot of where this Portal Market started. And look whats left based on the Gartner MQ above.

On to the Enterprise social software landscape:

Dion Hinchcliffe’s lays out the market in this vendor landscape diagram in this post “Assessing the Enterprise 2.0 marketplace” below thats a prettier E2.0 software equivalent to my table above.

The Enterprise 2.0 solution landscape may well track the portal market evolution. To be fair, Enterprise 2.0 software does a lot more than portals but there’s some parallels to be drawn. Portals brought it all together with personalization around data and unified system access. But no cognizance of context or behavioral design for each participant type. A good chunk of Enterprise 2.0 software also promises people interaction and activity stream access as a better option to static portals. But for the most part, out of the box, it’s still general purpose ‘build it and they will come’.

That said, there’s a difference this time around. I’m seeing more and more instances of process centric business challenges where social software can help tremendously. As a consulting practice, our focus is enterprise performance acceleration and so that’s validation. The good news is that customers seem to be pushing social software/ E2.0 technology vendors to fix business processes relatively early in the lifecycle of this technology category compared to portals. That’s great news for both technology and services vendors that have a solution set and credible experience to help customers respond to real business problems. In other words, sensible applicable of social constructs as opposed to social as the cure all.

As for the E2.0 upstart vendor and services marketplace, I expect that a handful of vendors will do very well based on a “replace your intranet” value proposition. Even out of the box, the social software stack is far better than static intranets but its becoming a commoditized business. The rest better start focusing on line of business performance if they don’t want to get left by the wayside. In fact, as I’ve stated earlier, I think the market is far larger for that anyway.

Using Dion’s diagram as the E2.0 equivalent of my portal landscape cut out, any bets on what which names we should expect to see on the Garter MQ for Social Software in 2-3 years?

This morning brings a new relationship in the Enterprise 2.0 Services arena: Hinchcliffe and Co, an enterprise ‘web 2.0’ consulting and education provider, Asuret, an enterprise risk mitigation software and services provider and Socialtext, a social software provider join forces to deliver the first stack of services and software to take organizations through planning and technical implementation of social software projects.

Together, this alliance is set up to offer requirements and technical design, the necessary project risk management levers and finally, a well respected software suite to bring it all to life. Coming out at the customer end are solutions for social collaboration, intranet redesigns, customer communities, corporate social media, Social CRM and finally Business and Industry Social Networks.

As seen in the diagram below, the overall stack of service covers includes architecture and design, technology selection and application, as well as project management.

To compliment methodology and implementation experience brought about by Hinchcliffe and Co., the Asuret software + consulting service offers project risk management methodologies and processes to identify pressure points that can derail engagements in areas of stakeholder alignment, executive sponsorship, project management, business case and the like.

The promise of this alliance centers on the reality that in many cases adoption of Enterprise 2.0 tools today is low and that most organizations are still learning the social computing ropes. Moreover, as with any large scale IT project, social computing engagements also face skepticism around the management of risk, control and trust. The group plans to bring structured methodologies, risk management tools and with Socialtext, mature social computing software package to holistically deploy social software solutions.

There’s certainly a place for such a partnership where IT is looking for strategic technology services combined with mature social technology. The IT manager has been severely burnt in the past due to lack of a comprehensive program management methodology and ineffective risk mitigation controls. Both led to more delays and consulting change orders than she would like to remember. This alliance of course has to prove that it has the execution wherewithal to get business results and reduce project risk but as far as a framework goes, it’s clear that a lot of careful thinking has gone into the design of this service set. Oh and there are some very smart folks involved here so there’s no reason to doubt their ability to pull it off.

Another thing I particularly liked is the implicit acknowledgment that social transformation doesn’t always mean throwing out incumbent process and technology whole hog, in favor of social. The answer lies within a balance of best in process-laden technology (e.g. CMS) and new open constructs. As seen in the diagram above, this partnership is designed to help customers leverage existing investments in content and knowledge management and business intelligence and fold in social computing, where applicable.

The Enterprise 2.0 services market is beginning to take shape but is still very young. At this time, the ‘E2.0′ discussions that command the airwaves are taking place primarily at 2 levels: 1) Ten thousand feet above the customers head and 2) deep down in the trenches around tactical tool selection and post deployment adoption. Both important in their own right. However, there’s plenty of room between these two for alternate value propositions. This alliance serves as a credible option for many of those projects in the middle, especially ones that are spearheaded by the IT department.

I’m personally excited to see this alliance enter the ‘Enterprise 2.0’ services space. We can’t have a market without a marketplace so the more credible service providers that surface, the better for customers and the ecosystem in general. Congrats to all involved.

Here’s the official statement and some good write ups by CRM champs Paul Greenberg and Esteban Kolsky.

Disclaimer: Dion Hinchcliffe and I both serve on the advisory board of the Enterprise 2.0 conference.