NETTING IT OUT

Big news in ecommerce last week. On November 2, Oracle announced its intention to acquire ATG. This is a $1 billion acquisition that will close during 1Q2011 when Oracle buys all of ATG’s stock at $6.00 per share. $1 billion is about five times ATG’s current revenue. The $6.00 price per share is almost a 50 percent premium over recent share prices.

The companies describe the rationale for the acquisition as their approach to addressing the requirement for cross-channel commerce, a requirement driven by a convergence of online and traditional commerce. That approach is a unified CRM, retail and commerce platform. Oracle has the CRM and retail systems. ATG brings the commerce, commerce that includes merchandising and customer service as well as the traditional catalog, shopping cart, transaction processing, and account management.

The rationale makes sense. There is absolutely a cross-channel commerce requirement. Ecommerce suppliers had begun to address in the past two or three years with merchandising, shopping carts, and transaction support on mobile channels, social channels. They’ve also begun to support the contact center channel with offerings that put the standard ecommerce applications on agents desktops with added capabilities for order management, returns and refunds, and account management. ATG Commerce already supported mobile and social channels. ATG Commerce Service Center, an add-on feature, provided contact center support. (We evaluated it in March 2008.) However, ATG Commerce does not provide the marketing, sales, customer service, and account management capabilities of CRM systems. It also does not have the order management and distribution capabilities of retail systems. That’s the stuff that Oracle brings to the deal. In time, a unified, cross-channel commerce, CRM, and retail platform could result.

This acquisition is not a merger of equals, not even close. Oracle is two orders of magnitude larger than ATG is just about every business dimension. Oracle is a $27 billion firm with 105,000 employees and a huge portfolio of database, infrastructure, business intelligence, and business application software. With its recent acquisition of Sun Microsystems, it’s now a hardware company, too. On the other hand, ATG is a $200 million firm with 575 employees and a software portfolio of its ecommerce offering, ATG Commerce, complemented by a suite of “Live Help” applications that deliver assisted-service to the online ecommerce experience.

What makes ATG attractive are its ecommerce software and its customer base. ATG was among the first ecommerce suppliers. ATG Commerce dates back to the 1990s. ATG Commerce quickly become a leading ecommerce platform and has maintained an ecommerce leadership position. We’ve been evaluating it since 1997. Its strengths are in personalization and merchandising.

In the acquisition announcement, ATG CEO Bob Burke stated, “More than 1,000 global enterprises rely on ATG’s solutions to help increase the value of their online customer interactions.” 400 of these enterprises, including the best brands in retail, use ATG Commerce. Of the leading ecommerce suppliers, only IBM WebSphere Commerce has a larger customer base, but no larger and no stronger in retail than ATG.

Note that Oracle has had its own, internally developed ecommerce platform. It’s called iStore and dates back to about 2000. iStore has never been a strong offering and it does not have a large customer base. Its appeal and success has been among organizations that have made a commitment to Oracle software. “We’re an Oracle shop and iStore is Oracle’s ecommerce offering,” has been the way many iStore customers have justified (or rationalized) licensing the offering.

Every M&A event has winners and losers. The winners in Oracle’s acquisition of ATG are:

• ATG shareholders. ATG shareholders get $6.00 per share. As we mentioned above, $6.00 is almost a 50 percent premium over recent share prices.

• ATG’s prospects. ATG’s prospects will now consider doing business with a $27 billion firm rather than a $200 million firm. They’ll also get to consider having a single source supplier for their strategic application portfolio.

• Oracle. Oracle will have a stronger software product line. ATG Commerce is a big improvement over iStore.

• Oracle’s prospects and customers. Oracle will be able to deliver a complete cross-channel commerce solution, a better solution than Oracle currently delivers.

The acquisition losers, too—IBM, ATG Knowledge customers, ATG Commerce development, ATG employees, and, perhaps most significantly, the near-term ATG Commerce business. Here’s what we mean.

IBM had been the 500 pound gorilla of ecommerce. Until this acquisition, ATG was the second largest supplier. Now, Oracle will be a 500 pound ecommerce gorilla, too. IBM WebSphere Commerce will no longer be the default option for organizations that do not want to do business with small suppliers.

Oracle has an R&D staff of 28,000 and spent $3.3 billion on R&D in its FY2010. On the surface it would seem that, as an Oracle product, ATG Commerce would get to leverage Oracle’s larger and more broadly skilled R&D resources. However, Oracle has been spending about 12 percent of revenue on R&D while ATG has been spending 18 percent of revenue on R&D, 50 percent more! Also, ATG’s R&D focuses on the Java technology of its software portfolio. Oracle’s R&D certainly has Java skills but Oracle’s software portfolio uses a much broader technology set, PLSQL and the proprietary technologies of the acquired PeopleSoft and Siebel technologies, for example. ATG has been a bit slow to bring new version of ATG Commerce to market. We can’t imagine that within Oracle that it’s going to get any faster.

The acquisition was announced in early November. The deal will close some time during 1Q2011, somewhere between three and five months from now. That’s a long time and it’s a time that includes the end of the year software spending spree. Few details about the future of ATG Commerce have been disclosed. Organizations considering the purchase should be concerned, perhaps sufficiently concerned to delay their purchase decisions. Minimally, they need to see a plan from Oracle. Within an announcement FAQ document, Oracle stated “Oracle has initiated a review of the ATG product portfolio, and when the evaluation is complete, Oracle will be providing guidance to customers in accordance with Oracle’s standard product communications policies.” That guidance can’t come soon enough.

ATG’s current staff will suffer through this three to five months, too. While the top execs likely know about their futures in Oracle, the majority of ATG’s 575 employees face uncertainty, not a comfortable feeling as the holidays approach.

Oracle’s objective for this acquisition is that unified, cross-channel commerce, CRM, and retail platform. If Oracle achieves that objective, then this acquisition will be a big winner...