There was big news in the supply chain software world this week, as JDA Software announced it was buying i2.
| Gilmore Says:
"But we need innovation for the long term. The large players have the resources to innovate, but we also need smaller, emerging companies as well to push things forward and rethink paradigms."
What do you say?
Send us your comments here
Whether you are an i2 customer or not, I think the event is worth noting, and that the move does end an era in the supply chain software industry and so impacts almost all of us.
It’s funny because a few months ago I wrote about the end of another supply chain era, with the point being that we’ve moved beyond globalization being thought of as “we’re sourcing or selling globally,” - but from a mostly home country perspective - to having the center of supply chain gravity truly move to a global basis (see End of a Supply Chain Era?). The end of this era is much different, but in part related. Scale is increasingly important in everything.
It’s no secret that there has been a tremendous amount of consolidation in the supply chain software industry, just as it seems there has in virtually every other industry. There have been so many acquisitions, it is hard to even list them all.
Part of this has been driven by the recognition in some of the larger software companies that much of the revenue from customers is “sticky” – things like professional services and software maintenance. So, much of that customer revenue continues after an acquisition, but a lot of the overlapping costs (HR, accounting, some sales and marketing, some office space, etc.) can be whacked out – “cost synergies” is the polite phrase to use. Voila – these acquisitions turn out to be pretty profitable. Too many of them in the past got into trouble with complex integration efforts between the acquirer’s products and those of the acquired company – now the deals are generally looked at much more pragmatically, from a bottom line perspective first, software solutions second.
I must admit a certain respect for i2. I followed them closely as an industry analyst in the late 1990s, and later competed with them in the software world for awhile. The company has always had some very smart people, starting with founder and until recently chairman Sanjiv Sidhu. But there were many others. i2 always had huge ambitions, and really wanted to (and often did) solve some really big supply chain problems for its customers. Every year at Planet, i2’s user conference, there were simply some outstanding stories, some of which we have recounted here. I am still trying to get around to writing about the interesting supply chain journey of Continental AG, the tire company, which I heard in May at this year’s event.
The sale to JDA marks the end of an era though, as Gartner’s Andrew White agrees, because in the late 1990’s i2 and Manugistics together really sort of built the supply chain planning and optimization market. There were others, to be sure, but those two companies provided much of the thought leadership and energy that drove the market and technology adoption forward, to which even their competitors benefit today. Now both “Manu” (in 2006) and i2 have been acquired by the well-run JDA.
If you weren’t part of it then, it is hard to fathom what was happening in that late 1990s era. It is no exaggeration to say that many, many companies came to believe they were at a competitive disadvantage from not having acquired i2’s solutions, and to a lesser extent Manugistics (which never had the sales and market flair that i2 did). The prices i2 was able to command for its products in those heady days seem mind boggling today.
A good friend of mine, who sold for i2 in that era, told me he floated an unbelievable price in about 1999 to a company for one deal, which balked and ask for something far more reasonable. My friend basically told them “Sorry, no discounts, call me when you are ready.” They did so a few days later. My friend bought a big house.
Back then, a stock industry analyst had written that “When i2 goes off the cliff, there won’t be any skid marks.” And that’s about precisely what happened. There turned out to be huge accounting issues. There was a mad and fateful push to reach $1 billion in annual sales, and that led to some really bad deals and some very poor projects. The talent pool started to return to the industry norm as the company hired like crazy. They made some poor acquisitions.
In early 2001, i2 announced with much fanfare that it had reached the $1 billion sales level for 2000 – or so it seemed. Restatement after restatement later, I am not sure what the real number turned out to be, but it was far from a billion. Its current revenue is about $250 million.
Manugistics also went sour, from (in my opinion) some bad management decisions (and hires), and also from “i2 envy.” If it had stuck to its knitting instead of chasing i2 all over the place, the end may have been at least partly different. In any event, it’s hard in a sense to believe both of these pioneers are now gone as independents, though JDA continues to use the Manugistics name for some of its planning products.
So, given all that, here is what I think is worth knowing about the whole supply chain software scene:
- It doesn’t matter who your current or potential software provider is, they could be acquired. The way things work today, it shouldn't bother or impact you that much, not nearly as much as before.
- As I discussed with AMR’s Greg Aimi a few years ago, the days of a small software company growing into a large one, at least through “organic” growth, are probably over. If a company has a new solution, technology, or approach that gets enough interest from the market that it can get to be $20-50 million in sales, one of the big guys will simply take it out. There may actually be bidding wars of sorts among the large players to acquire the company, if they have customers and innovation.
- But we need innovation for the long term. The large players have the resources to innovate, but we also need smaller, emerging companies as well to push things forward and rethink paradigms. I note Procter & Gamble’s adoption in recent years of both Inventory Optimization and “Demand Sensing” technologies from smaller companies, for example.
- The one real wild card is “software as a service,” or on-demand/hosted solutions. If this really starts to take hold, it could significantly change the way we think about supply chain software and how it is acquired and deployed.
The world changes very fast these days. We’ll continue to keep you up to speed as best we can, and take an occasional look at the past when it’s relevant – or worth remembering.
What’s your take on the i2 acquisition – or the changing supply chain software market? How do you look back now on the frenetic software times of the late 1990s? What could i2 or Manu have done to have not lost their way? Let us know your thoughts at the Feedback button below.