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Onyx (Nasdaq: ONXS) got bought last week, in an all cash deal 
valued at US$92 million, subject to the usual regulatory rubber stamping. This was a semi-significant move in the continuing consolidation of the CRM industry, but let's not get maudlin about the roll up of another CRM pioneer. The world is not ending simply because one of the early market makers is being acquired and ninety-two megabucks is a tidy sum that could fuel more than a couple of long weekends in Vegas.
M2M Holdings, a holding company jointly owned by Battery Ventures VI, LP and Thoma Cressey Equity Partners, decided to buy the CRM pioneer for about $4.80 per share, a nice markup to the recent market price according to CEO Janice P. Anderson. M2M Holdings also owns Made2Manage Systems and is probably strategizing a synergistic pairing of the two application suites to deliver integrated front and back office applications to the market.
More Than Meets the Eye
That's about as far as I can take this. I am not a finance guy and truth be told, I don't have a lot of use for the machinations of finance. Nevertheless, from an economic perspective, I find this move potentially fascinating. A public company agreed to be acquired -- that happens all the time, but the opportunity the acquisition gives to Onyx is bigger than the news suggests.
Listen to Denis Pombriant (6:00 minutes)Like every other public company, Onyx was locked onto a treadmill marching to a quarterly number that is becoming harder and harder to make given the age of the market and the level of competition. Onyx was not the largest competitor, and they tried to compensate by carefully selecting niches where they could exploit innate strengths even to the point of down playing their CRM roots. As part of a private company -- owned by an investment partnership, the company, or more correctly, the new owners, have an opportunity to change the company's business model and perhaps launch a new IPO on another day.
To be sure, the private investors will be as results driven as the public market, but the thing that privacy provides is a longer time horizon in which to affect some necessary changes. Privacy provides patience.
Changing Business Models
So, what changes are we talking about? The business model. Changing the business model is something that an increasing number of companies will need to contemplate over the next few years, and acquisitions of the Onyx variety might become commonplace for a while as droves of software companies attempt to change their business models.
Specifically, if I had ninety-two megabucks and therefore a say in what happens next at Onyx (which I don't or I would be in Vegas) it would go something like this. Onyx was a competent provider of front office software via a complex solutions model. Say what you want about streamlining, configuration, and powerful new tools, if you delivered software on a CD or a DVD and sent in a small army of people to make it work for the customer , you were living in a complex systems world. There's nothing wrong with that, but the era of complex systems in the software industry is over.
What's interesting about Onyx is that they were also one of the earliest companies to dive into what was then called the ASP market, so the company has a good deal of relevant experience in the newfangled world of software as a service (SaaS) and that is where the future lies. SaaS is not simply an alternative way of delivering software. Those who think otherwise probably still believe the automobile is simply an unreliable alternative to a horse.
SaaS is really the manifestation of the change from complex systems to volume operations and that is what the business model change is all about. According to Geoffrey Moore's new book, Dealing with Darwin, volume operations is what happens when everybody sort of "gets it." In the CRM case, the core business processes have been figured out and rather than demanding customization, many users are opting for standardization which facilitates things like fast implementation, easier maintenance, and, most importantly, ROI.
Making a Splash
As you know, in a SaaS model you make money via the monthly subscription drip as opposed to the tsunami of a license agreement. If you try to make that transition as a public company you get clobbered: Wall Street will not let you bring in drips when it has been conditioned to tsunamis, however erratic their arrivals may be. So the option is to go private, to go through an exercise that in some regards looks like the reorganization of a bankruptcy. However, instead of restructuring the debt, the company gets to tune up the recipe for the secret sauce, how they make money.
A couple of years ago I floated the idea in this column that Siebel should buy itself back from the public market. To me the idea made a lot of sense. The company was sitting on about two billion dollars in cash, the investors were screaming about returns and dilution, and the founders were sitting on even more cash. If the will had been there the deal could have been done. Instead, Oracle (Nasdaq: ORCL) bought Siebel and the companies are working to rationalize a warehouse full of software that includes redundant systems from Peoplesoft (and its several acquisitions) and Oracle's homemade CRM as well as other products.
Will that acquisition be valuable? Perhaps. Oracle has lots of money and smart people to braid everything together, but the jewel in the crown is Siebel On-Demand and Oracle does not look like a company transitioning to SaaS in any meaningful way. There are some who tell a story about hybrid solutions, and alternative delivery models. If you want to know what I think of that idea, go back four paragraphs.
Denis Pombriant runs the Beagle Research Group, LLC, a CRM market research firm and consultancy. Pombriant's research concentrates on evolving product ideas and emerging companies in the sales
, marketing , and call center disciplines. His research is freely distributed through a blog and Web site. He is working on a book and can be reached at denis.pombriant@beagleresearch.com
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