First off, both companies are clients of mine – and fairly active clients.
Second, I have a very long history with KANA; I covered them at Gartner and I worked for a wholly-owned subsidiary of KANA for about a year when I left Gartner (eVergance, later became KANA Professional Services). I continue to cover them now, and they are, as mentioned, an active client.
Third, I have been told over the years that I have a soft-spot for KANA, that I never exercise “tough love” with them when they were not doing things right, and that I am kind to them (I could dispute that by showing you my notes over the years I cover them, but not going engage in that war). All the above is true, probably so on the soft-spot, but I have spent the better part of the last 15 years following them and their market — I have a soft-post for anyone in that market; I am partly responsible for most of what happened in it for the past 15 years and I’d like to think of it as any parent does for their kid: even when they want to join the circus, you still want them to do well (of course, you worry about them also and try to help them with the triple back-flip off the wobbly trapeze).
Disclaimers out of the way– as I always say, just because you are a client or I know you do not mean I will not provide fair commentary. This is probably one of those cases.
Ever since the acquisition of RightNow Technologies by Oracle the position of “leader” in the eService (or Web Customer Service as my replacement at Gartner wants to call it – preposterous, I tell you) market has been vacant: Oracle is preparing to launch a full-attack on the market with RightNow later this year, but not yet deployed. While RightNow has the lion’s share of the market, the acquisition by Oracle caused ripples in the market that are just now beginning to smooth out. This is a market that historically needs a leader and a close follower. For a while, back in the early 2000s, KANA was that leader and several others (like eGain, RightNow, Primus, and many others) followed as the challenger.
The position of leader had been outstanding for some time, even the position of challenger has been vacant as the most likely candidates had fallen into hard times, or were missing critical strategies, or something else. That is not the issue though, the fact that there is no clear leader in the market is bad for business, as organizations looking at an MQ or Wave are confused by how many similar vendors there are and cannot quickly find a differentiation: purchases are placed on hold, or discontinued until the market stabilizes. There were many “in the works” prospects to become that leader in the past 12-18 months (yes, even before RightNow’s acquisition the issue was already rearing its ugly head due to lack of competition in the number 2 spot), and many other potential mergers and acquisitions discussed.
Some of them interesting, some of them needed — work. Alas, the merger of KANA and Sword Ciboodle (if I am going to be honest) was not at the top of my preferred deals. I look at deals in a different manner, I would’ve prefer Sword and Moxie to join forces, technically speaking it would’ve been sweet, but I never discounted KANA acquiring anyone in the market – I knew they were in the path (recent acquisitions of Overtone, Lagan, and Trinicom were part of a larger strategy that included something of this nature eventually) and that SC was attractive to them (with some help from their advisors, of course).
The merger/acquisition/whatever-you-want-to-call-it between these two companies is a good move for three reasons (but, there are two caveats and one big caution area to watch out for).
First Reason: Organically, no one was going to get to the size they will be (~150-200 Million US Dollars) and that we needed to have a leader in the market (I am going to have to discount RightNow for now since they are still trying to put their go-to-market together and see how they sell it; will revisit that in about 6 months or so). This leader, as explained before, is necessary for the prospects to regain confidence in the vendors and stop “sniffing” around trying to find some other way to do the things they need to do. This, in conjunction with the return-to-spending that is going to happen in the second half of the year (both as a result of technology refresh projects as well as emerging from the “nuclear winter”) augurs really well for the market.
Second Reason: KANA needed new technology. As much as I admire how far they took what they had (some of the “old” products are over 15 years old, some close to 20) and how loyal their customers are (especially for email and ERMS and what later became Brick Street which was previously marketing), it was time for a change. Their new product, SEM, still has room to grow and mature in the market and that is what it is doing – but their standard eService components were in need of an update. In spite of some of the best technology in the market being present in there (including avant-garde products like Hipbone for screen sharing – one of the best co-sharing and chat solutions in the market ever which they acquired some time ago), they need to bring new technologies that could potentially work better with a SaaS or even a cloud computing model.
Third Reason: Sword Ciboodle needed more resources, more presence, more backing – and a more stable “home life”. Indeed, the PE firm that acquired the group that owned Sword Ciboodle (Sword) was not a good “parent” and the need for them to become independent and cast their own fate had been the handwriting in the wall for quite some time now. Ciboodle would be a far better and larger player right now in the market if they wouldn’t have had to deal with a lot of the stresses and constraints that the PE firm that acquired Sword placed on them in the past year or two (and that Sword had placed on them before that). Ciboodle has outstanding, brilliant as they would say in Scotland – right Clare?, people in the company that were not allowed to take the product to the position it should’ve had. This new arrangement will give them more room to grow and do the things they need to do.
My good friend and former colleague Michael Maoz reminded also that KANA had acquired Lagan and Overtone.
Lagan should remain a viable, independent business (as it has until now) that continues to produce excellent revenue and good position in the government space; hopefully they can also leverage some of the components and platforms that will be created in the near future – but that is not essential for Lagan to continue to deliver value. As for Overtone – their performance has been — spotty at best but has great technology. That technology should be integrated into the new platforms.
The combination of Sword Ciboodle (called the Social CRM part of this deal by those in the press that don’t get the deal and what it means) and KANA (called the traditional call center in this deal by those that still don’t know what they are talking about) brings a lot of potential value. Ciboodle had leveraged their past as a BPM-come-CRM vendor and fully emerged as a great product for WCS (contact centers) that recently began to also cater to their Social needs – including communities. Indeed, the ability to do communities and other social channels was one of the attractive features that KANA saw in them and it worked quite well within their strategy.
The SEM platform that KANA continues to build, and is starting to release into the market, is surely going to benefit from the features that the Ciboodle suite will bring. The underlying platform that Ciboodle has could potentially make the SEM move a lot more interesting and powerful. The company’s press release says they are saving 12-18 months of development for both products by coming together; while I don’t concur on the timeframe, I do agree that bringing these two products together at this time saves them both development time for the components they needed going forward (Ciboodle good solid platform for cloud-developments, KANA more features and functions to round up their offering).
Several conversations with many different people in both organizations, at different levels, yield the beginning of a vision for the future. Kate Leggett has done a good job of summarizing this strategy on her blog, I suggest you read that for sure (link at the bottom of this post, don’t want you to get distracted by clicking on it half-way through mine, know what I mean?).
I see this becoming a tale of three platforms: 1) SEM for core processing and management of customer experiences, potentially ending in a cloud PaaS model, 2) a KANA+Ciboodle (K+C) product to deliver a call-center/contact-center product in the short term that would eventually leverage the SEM platform better, and 3) Trinicom as an SME play that delivers similar value as K+C in the mid-market. This is where I see things going in the next 24 months or so – or at least where I’d like to see them go.
I am still working with both of them, so I am hoping something close to or similar to this will be the emerging strategy.
I said before there were two caveats for this deal, here they are:
Caveat 1) Culture. I think that my good friend Paul Greenberg said this already in his comments to MyCustomer.com (Kate also mentioned it in her post) and I fully endorse their comments. Both companies have very different cultures – tremendously different. The merger of cultures is never easy to do, and this won’t be an exception. I am certain that there will be losses in key people on both sides due to this issue, but I hope it gets minimized. Finding a culture for the new entity is going to be critical as a first step to re-establish themselves in the market as leaders. Without finding a common model that can be leveraged across countries and product lines, it will be very, very hard for them to make the integration between the different products work. Culture should be job #1 at the new KANA.
Caveat 2) Management. This is a tad trickier. I know all of the management at both companies; most of them are friends and long-time business partners. They all bring exceptional experiences and knowledge to the table and they all will be critical to the success. The management structure and the ability to bridge distances (KANA has a fairly large presence in EMEA already via Trinicom and Lagan, now adding to it with Ciboodle, in addition to their HQ in Sunnyvale and Ciboodle’s presence in APAC) effectively is going to be a very hard thing to do. I am certain – as in any other merger of similarly sized organizations – overlaps will emerge and people will be lost due to these overlaps. I would prefer that new positions be created for most of those overlapped people, not because they are friends but because they are all very valuable to the new entity (I know what they can contribute). As I told KANA and Ciboodle when asked in my talks with them, I have my ideas — but it is still early and I know that management will be a very important element in the consolidated world of K+C.
This is getting long – my apologies. I used to write these as private notes I distributed to clients only. I decided to change and share my opinions with everyone — so, deal with the length in exchange for brilliant analysis and insights.
Last thing left to discuss — OK, before the advice – is the big caution area I mentioned above.
This is an issue of market, timing, and plans and strategies from other vendors. While execution is always a concern in these deals (and I never give merged entities any points or value until they prove that they can deliver on time and as planned – something that KANA had trouble with in the past but fixed with new management), in this case it is much more important. The timing of this deal coincides with the shift from many of the vendors in the market to cloud-based model, to more focused offerings, and to more competitive partnerships. In addition, the move to agile development and shortened release cycles, the hunger from the market to begin to implement the strategies they “cooked” in the first half of 2012, and the desire to fix what 4-5 years of neglect did to customer service departments (mostly due to spending freezes brought about by the economic malaise of the past 5-6 years) are shortening the window-to-deliver.
KANA does not have the traditional 18-24 months to execute most merged entities usually get; they have around 12 months to implement a reality-based strategy backed by early integration results and a model that supports the proposed future. This is unfortunate, as more time would yield an incredible powerhouse of customer service (and it likely will in future releases); but I think it is doable. It is the combination of the short timeframe with the two caveats mentioned above that makes me stop to ponder.
Alas, since I am going to continue to work with them – they will be fine (play superhero music here, fade to black, roll titles — and roll your eyes, but don’t Rickroll – please). OK, cheeky self-serving plug there, but that means I am done with the analysis.
Some advice to users, and we can sign off this 2700+ words “blog post”.
If you are a current user of Ciboodle or KANA – don’t fret.
The products you know and love are going to continue to exist and be there as they are today for the near-term (2-3 years), by which time you would’ve had to re-examine where you are going and the new entity will have the new play all figured out. Good news, KANA learned their lessons from the last time (I was working there, painful lesson to learn) about discontinuing products without a strategy or replacement and how to support products that are predicated (at least, they seem to have done so) and you will have a better time in migrating to the new products when time comes.
If you are currently evaluating or considering KANA or Ciboodle, make sure you get a full briefing on strategy, including timeframes and milestones and that it matches your strategy. If you can, wait for them to deliver on the first milestone before you make your final decision (although I realize this may not be viable to most, you want to make sure they do stay on track somehow). If you cannot wait, make sure you continue working with your contacts in understanding the changes that are happening and how the products will be affected before making a decision. If you cannot do that either, your worst case scenario would be a change in product (not features, likely architecture and functionality) in the next 2-3 years; if your strategy can support that, go forward.
If you are a KANA competitor and you don’t have a retainer in place, consider one for 2013 (sorry, another shameless plug – but now I am really done) and I will advise you how to proceed.
Your turn, if you are still reading, please tell me what you think will happen to KANA, Ciboodle, and K+C going forward or anything you want to add… What do you think?
Did I miss something? Ask below and I will reply with the most information I can. I won’t reveal the final price (got some data about that) because it makes no difference – but it is a fair price in line with traditional non-bubble valuations (no, it was not $5 billion, but close)
Kate Leggett summarizes the deal very, very nicely in the Forrester blog
Michael Maoz is releasing a First Take as soon as the Gartner editing machine allows, if you are Gartner client – get it; worth the read.
MyCustomer.com coverage, including Mr. Greenberg’s insightful comments
(note: most coverage was poor and mindless, won’t feature it here)