Contract Management Market Poised for Consolidation

The contract management software market is moving toward a merger and acquisition spree. Choosing the right vendor can be a risky proposition. This does not mean organizations should delay a contract management purchase. Instead, it means decision makers should carefully weigh the pros and cons of purchasing an Oracle or SAP module versus a best-of-breed solution.

Base Requirements

In order to obtain the business benefits from contract management software, the application must have the following functionality:
- Central searchable contract repository.
- Contract templates.
- Redlining and version control with check-in/check-out capability.
- Integration with Microsoft Word.
- Basic reporting capabilities.

Best-of-Breed Solutions

Contract management solutions offered by best-of-breed vendors like diCarta, Hummingbird, i-Many, Ketera, Nextance, Selectica, and Upside Software deliver many additional key features:
- Alerts triggered by contract conditions.
- Supplier compliance enforcement.
- Central repository.
- Analytics and audit tools.
- Easy-to-use interfaces.
- Contract renewal management.
- Integration with enterprise systems.
- Rich Microsoft Word integration.
- Robust template and clause libraries.
- Scalable to 10,000 documents.
- Span across all spending categories.
- Supplier portals.
- Workflow engine.

Financial Suites

Major enterprise software vendors like Oracle and SAP offer contract management modules for their Supplier Relationship Management (SRM) applications. However, they only track the contract start and end date, key prices, volume, and attachments. They still lack the functionality provided by best-of-breed solutions to perform analytics on the right contract prices and terms, manage conflicts, and assess compliance.

Consolidation Looms

To complicate matters the market is ripe for vendor consolidation. Info-Tech believes that within the next two years Oracle and SAP will bolster their financial suite offerings by acquiring key contract management vendors to increase product functionality. This will likely occur after best-of-breed vendors look to increase market position by merging with a competitive offering. As a general rule smaller vendors with $20 million to $50 million in revenue are prime takeover targets for dominant vendors with weaker competitive targets.

With market-leading solutions now providing a similar range of functionality, we expect larger vendors to look at consolidation as a means to increase market share. The most likely candidate for making an acquisition is i-Many or Selectica. Although these companies botched a merger last year, with revenues of $40 million and $30 million respectively, they remain market leaders. Potential acquisition targets include diCarta ($18 million revenue) and Upside Software ($10 million revenue).

Hummingbird is the largest best-of-breed vendor ($220 million revenue), but it is turning its focus on its Enterprise Content Management (ECM) platform. For the next year we expect management's primary objective to be absorbing its recent acquisition of RedDot Solutions, a Web Content Management (WCM) vendor.

Recommendations
1. Large enterprises with a significant Oracle or SAP infrastructure and requiring base functionality should look to add the respective vendors' contract management module.
2. Large enterprises requiring advanced functionality should implement a best-of-breed solution with pre-built integration for enterprise systems.
3. Smaller organizations without Oracle or SAP applications should implement a less expensive best-of-breed solution.

Bottom Line

Consolidation in the contract management space is imminent. The survivors will have both financial clout and an innovative product roadmap.





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