Microsoft Acquires Parature: The Analysis

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On January 7th (officially, although embargo was broken by several analysts and press before then) Microsoft announced it had entered a definitive agreement to acquire Parature.  The terms of the transaction were not disclosed (although wild speculation abounds) and is expected to close during the first quarter of 2014.

ANALYSIS

Although the timing might make it look similar, this deal and the deal between Verint and KANA are very different.  Please read that post earlier in my blog for more details on that – I don’t want to make comparisons that are not appropriate for this analysis.

Microsoft has a glaring hole in their Dynamics CRM product line: customer service.  For as long as I can remember, this has been the case.  Even though they have – something, it is not competitive.  It does OK for small implementations, but as the complexity of the interaction grows it lacks the fortitude to deliver – and even worse in large scale.  This has been a problem as they try to grow into larger accounts and try to compete in the customer service market for position and presence.

As Microsoft tries to win larger accounts against the likes of Salesforce.com, Oracle (either with the Oracle Fusion product or RigthNow’s version of Customer Service) and others the lack of a structured customer service solution began to be noticed.  I worked with Microsoft before, both formally and informally, about this.  There was no doubt there was a need to be filled, the only question was what and how.

On the other hand, Parature was in the mend.  Recovering from a near-disastrous bad-CEO stint, they spent the past three years or so re-architecting their product.  From being considered a solution that could only cater to small and mid-size businesses for simple customer service, they saw early on the need to redo their product with two guiding principles: a stronger, cloud-based architecture and the need to refocus on Knowledge Management.

I have written extensively on KM these past few months, and will continue to do so in the many years to come.  We are approaching a paradigm shift in knowledge like we have not experienced before, mostly driven by the rush to aggregate knowledge in online communities and social networks.  The shift from knowledge-in-storage to knowledge-in-use demands new models, new architectures, and new behaviors.

Whether consciously or through subliminal knowledge, Parature developed their new architecture in a way that can both support the traditional models for KM as well as the new paradigm described above.  At least in my perspective, since I have not yet seen it implemented that way (not only by them, it is a nascent model and not getting sufficient traction in the market – yet, wait a few more months).

Microsoft making this acquisition for the knowledge management components primarily, and after looking in detail at this new architecture, brings the issue of knowledge-in-use and the paradigm shift to the enterprise level – and I cannot be more happy for that.  There are some very interesting new plays in KM that are leveraging this new model (Mindtouch, Transversal) and old companies cozying up to the concept (FuzeDigital , Jive, Moxie Software, and others) and this is the push that they will need to make it happen.

Of course, this only works if Microsoft realizes what they have acquired and puts resources and talent behind that effort.  I understand from my conversations that this is the case and this is what will happen.  Not only as an independent entity, which Parature will remain, but also as a way to bring the power of this architecture to the Dynamics CRM product and enhance their solution there.  A two-for-one special makes me happy.

Here is to hoping they keep on their current path.

CONCLUSIONS

I am bullish on the potential of this acquisition to accomplish two things:

1)      Reinforce the concept of knowledge-in-use by putting additional resources behind the work done by Parature as it remains an independent entity.

2)      Create a more complete enterprise-player out of Dynamics CRM (especially around customer service, but eventually leverage the KM power into other areas) and with a two-tier customer service solution be able to compete more fully with ServiceCloud.

While it does not fully complete the customer service product for Dynamics CRM, it does make it very competitive and with the right partnerships they can deliver that extended value.  While there is more, much more, that can be discussed about Microsoft, this is about this deal – and the bottom line is that has a lot of potential.

There will be changes coming down for Microsoft customers once the product is integrated, likely in the 1-2 years’ timeframe considering the speed and efficiency with which Microsoft completed integration with prior acquisitions made by Dynamics CRM, and don’t foresee significant changes for Parature clients.

It is a little early to see the changes for Microsoft customers but adding functionality for Customer Service is definitely in the works.  As any other vendor, I am sure Microsoft would want a higher price for the more features they will provide – but the functions should remain sufficiently separate so it would not be mandatory upgrade.

All customers, current and prospective, should understand the roadmap for the product but don’t ask for another six-months or so.  The current plan calls for remaining independent (which I don’t foresee changing – or will let you know) and slowly integrating the valuable components.  We will know in six months or so if this remains the same.

Do you see this differently?

Would love your comments…

disclosure: parature is an active client and I have helped them some in positioning and strategy for their new architecture and product.  microsoft is going-to-be (if their verbal commitments hold) a client again and has been in the past going back many years – we also had discussions leading to this event.  both vendors fell out of favor a couple of times before, but now they are listening to me and doing much better.  most of the other vendors mentioned are active clients or will be this year.  may be too late to say this, but I know everyone in the (soon-to-be-extinct) eService market and they all are, were, or will be clients.  no better way to ensure there is no conflict of interest in my opinion. needless to say, but mandated by the ftc, there is no conflict of interest as they all are very nice to me and give me tons of free stuff (like time, access to executives, responses to my DM and emails, etc). i don’t favor one vendor over another, just call them as i see them.

Verint Acquires KANA Software: The Analysis

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On January 6th, 2014 Verint announced their intentions to purchase KANA Software for a reported $514 million mix of cash and loan obligations.  The expected close date is first quarter of 2014.

ANALYSIS

I cannot say I am surprised that Verint finally got into the multi-channel customer service market.

I have been expecting this move since both NICE and Verint acquired EFM vendors in the middle of 2011 (frankly, I have been expecting this for longer than that – for both of them).  Of course, we should see NICE moving into the market within the next 4-6 months, and we shall see other vendors as well try to enter the market (vendors like Nuance come to mind initially, but also Aspect, Genesys, Avaya, and Nortel trying to expand their presence by acquiring more value and better knowledge management tools).  I don’t expect traditional customer service and / or CRM vendors to try to acquire any of the remaining vendors for customer service or sub-components like knowledge management – with a few exceptions (which would be addressed in commentary if it happens).

Verint has done a lot of acquisitions in the past.  Probably the most iconic for this market is their acquisition of Vovici in July of 2011 to bring in Feedback Management to their suite.  They have a complete suite of agent management tools (things like workforce management, training, scheduling, as well as analytics, reporting, and performance management).  They have also made acquisitions of function-specific tools (like fraud detection and telephony management).

Throughout these acquisitions a consistent model emerged: the acquired vendor does not retain their independence, nor do they retain their product as it was when acquired.  The main reason they are acquired is a technology or tool that Verint needs to complete their suite.

Vovici is a good example, where even though independent implementations of Vovici are still supported, their main message and go-to market is to incorporate feedback and analytics tools from Vovici into their suite and enhance the value the product provides that way.  There is no remaining product from Vovici that resembles or continues the old product.  This translates into a migration for customers that remain on the product if they want to continue using it (usually within 2-3 years, not right away) which brings with it a higher price tag.

Cannot fault Verint, or any other vendor, for trying to make money – it is the inconvenience it brings to their customers.  So far they have promised to keep KANA as an independent solution – but the discussion around the long-term roadmap was not very clear on how long that would last – or if that would be changed later.  It is clear that the main driving force for this acquisition was the integration of the product lines – I’d be surprised to see KANA remain an independent entity for the long-run.

I am also concerned with the nascent momentum KANA started to experience in the market.  Coming of their semi-recent acquisition of Sword Ciboodle (barely a year ago) and subsequent re-launch in the August-September timeframe, their presence in the market was just beginning to get solidified.  In addition, the acquisitions KANA made in the past 4 years since A-KKR acquired them (Lagan for Government, Trinicom for mid-market service suite, and Overtone for social media analytics) were not yet fully embedded into their business model, with no (Overtone) to modest (Trinicom) to good traction (Lagan had an exceptional year in 2013) on their own.

It is not clear what will be the fate of these different solutions, but it is clear that it brings another layer of complexity to the planning of the long-term roadmap.

If you read the coverage and the press release for the acquisition you will see that is presented as a marriage of Big Data and Analytics on the Verint side, and Customer Experience on the KANA side.  You would not be faulted to think that this is a match made in heaven, with the ability to deliver the latest and “bestest” solution in the market right now.  After all, customers are asking for Customer Experience and Big Data.

In reality, at least from my perspective, these are 2-3 years old marketing messages for both companies.  Verint will tell you they were founded on the concept of analytics – but the vast majority of their customers (at least all the ones I talked to, I have not talked to all 10,000 of course) think of Verint as a provider of agent management tools (in other words, they make sure the agents are there, trained, and ready to work with the right tools).  I have yet to meet a Verint customer that talks about them in terms of analytics as a core differentiator (even though they had speech and text analytics offerings for some time).  They also made more acquisitions in the past 2-3 years that shored up their solutions, but they are not known primarily as an analytics vendor.

Similar fate for KANA and Customer Experience, it was not until the past two years or so that they began to focus on this message and positioning.  KANA is known for their knowledge management and multi-channel service solutions, not for their focus on customer experience.

The positioning may describe what value they could bring to bear, but it belittles the value they do have to offer.    Both solutions are far better and more complete than their positioning for marketing purposes, and both of them together deliver a complete customer service offering – which takes away one of the strong points of this acquisition if ignored for the benefit of marketing buzz.

About sixty percent of the customer service customers are laggards or late adopters for the technology to power their contact centers.  Partly due to refresh cycles that take too long, partly for amortization and ROI expectations, and partly for the fact that refresh cycles tend to fix what’s broken more than innovate – Customer Service is a laggard technological function.  In this context, more customers are asking for integrated suites like the one KANA and Verint are proposing (there is a healthy demand for an integrated solution among late adopters that are not as interested in the cloud, customer experience, and analytics as they are in delivering multi-channel solutions that are effective).

The up-to-the-minute marketing message they are positioning is taking away from the potential to deliver into that market.

See the following chart (I developed this with my friends at Moxie Software and am using it here with their permission) for a better understanding of how the two vendors come together:

CS Architecture

KANA’s value comes from offering a unified desktop, knowledge repositories, case management and channel management (which was extended by the acquisition of Sword Ciboodle).

Verint value comes from offering agent management tools and some analytics – with an additional set of predictive and proactive analytics for optimization as well as more analytics tools added lately.

In spite of the wonderful marketing buzz of the new message that integrates optimized analytics and customer experience, customer service buyers would be more comfortable seeing a chart like this that addresses all their needs rather than listen to a marketing message that leverages timely buzz words.

I am very interested and hopeful in seeing this deal go through based on the former, not because they can master all the latest and greatest marketing words in their message.

One final item to focus on as they move the deal forward is the cloud.  No, not talking about hosted-apps-in-a-browser and calling it cloud, am talking about the change in infrastructure that brings a three-tier open and public cloud to bear for organizations.  Neither of the solutions is built for or supports that model (yes, they both could – not the standard offering).  Both the solutions are cloud in the old-fashioned hosted applications running through a browser with API access, not in the open, three-tier model.

While this may not be an issue currently for virtually all of their clients, it will become an issue within the next 2-3 years as the open cloud infrastructure begins to take hold inside the organization and more and more organizations begin to migrate their contact center hardware and software to that model.

CONCLUSION

As with any acquisition or merger, some good and some bad in this deal.  Bad is the potential change imposed on customers – although it is not yet confirmed and Verint promised to offer a roadmap based on keeping KANA independent soon.  The roadmap past years 2-3 will be critical to squelch that criticism and show the long-term viability of this acquisition.

Good is the potential to fulfill the demands and needs of the majority of the market and position the product as an all-in-one suite to deliver to expectations from their customers.  If they avoid the cute marketing words, of course.

Existing customers should get a “certified” roadmap from Verint to understand their intentions and direction and match it to their strategy.

Customers considering bringing either one of the vendors in the organization should make sure that their needs will be filled today – but also that potential conflicts with other future needs or existing solutions don’t put a hamper in the integration.

Other vendors in the market should understand that this signals the beginning of the final consolidation for the eService market and find the ecosystem that best fits their need and / or potential acquiring partners in a relative short term.

Anyone else should contact me for a more detailed discussion of where you are, what you need, and how we can make it work for you.

What are your thoughts?

Do you see something I missed in this deal?

Comments welcome, of course.

disclosure: KANA is and has been a wonderful client for a long time, dating back to my first days as an analyst almost fifteen years ago.  I cannot recall any year since then they were not a client.  It is with sadness I see them being acquired one last time (I am quite certain they won’t remain independent for a long time, see above), but looking forward to potentially working with Verint.  Verint was a client of Gartner’s in my past life, but other than a few briefings we never worked together.  They were never a client of thinkJar – although if they are smart they will pick up where KANA left off (I believe KANA has the contract for 2014 in their possession… but we can figure that out later).  As you read this you will realize that whether they were / are / or will be a client means not much as I will be fair in analyzing their situation and the potential for the deal.