Saba takes the gloves off

Saba just pounced on the Click2Learn/Docent combination like a white tiger on an aging Las Vegas entertainer. An email to customers and prospects this morning says the merger offers nothing good to customers, prospects, managers, or investors. The only winners are greedy executives. If you agree with Saba, you'll see this as a new level of candor. If you favor the merger, this is a new low in mudslinging. Decide for yourself....

Dear Saba Friends,

We would like to take this opportunity to share our thoughts with you on a recent announcement in our market. On October 20th, Docent and Click2Learn announced a merger of the two companies. The new entity to be created will have a new name, which was not announced. Both companies claim that a "new" product platform will be developed and offered to the market sometime in the future.

At the same time they vowed to continue to support and maintain the two legacy product lines. The companies also said that they will achieve profitability while only cutting 20% of their expense base. These claims appear to be optimistic. They do not take into consideration the customer overlap and customer attrition that occurs in this type of merger.

The choice of these two companies to merge is a curious one, because it is their customers who seemingly will get the least benefit. Neither company has upgraded their core technology to a new platform and their products, sales organizations and market coverage are largely overlapping. Both Docent and Click2Learn customers are going to face some difficult decisions.

Who Benefits from this "Event"?
Typically, when a merger like this takes place the benefits are readily apparent. In analyzing the early information on the announcement, it is not clear who actually benefits.

Customers and prospects?
Given that the product road map and technology platforms are undefined and that cost cutting will occur, innovation and customer service will clearly suffer. New prospects will have to choose between two platforms nearing the end of their useful life on the promise of future innovation on a third platform.
Click2Learn appears to be taking the lead on product strategy, which is not surprising given that the product leaders at Docent left the company some time ago. For all practical purposes, the Docent product has been rendered obsolete. This organizational structure indicates a leaning toward Click2Learn's Microsoft-centric architecture. Neither company has an enterprise-class J2EE platform today, nor it does it appear that the new entity will head in that direction.


Both Docent and Click2Learn are unprofitable, with a combined loss of $4.1M in their most recent quarters. To make this merger worthwhile from a financial perspective, the combined entity will have to cut its costs dramatically. The companies have publicly admitted to a plan that involves cutting at least 20%. We believe that number is artificially low. They will have to do a substantial consolidation in sales, customer support and R & D.
Neither company gains an expanded market footprint from this merger. Both operate primarily in North America and have many of the same system integration and distribution partners. There is also a customer overlap that will limit future revenue growth.
The management teams are the most likely beneficiary of this merger — both from vesting of stock options and buyouts. Customers should look closely to see what benefits are being directed to the management team.

What does this mean to the industry?
In the short-term, this announcement will create confusion for individuals who have either recently made a purchase decision with either of these vendors or were considering either of these vendors for a planned purchase. Companies and partners dealing with Click2Learn or Docent should immediately question the vendors on the implications of this announcement and its impact upon product direction, product support, company leadership and viability.

On the positive side, there will be fewer vendors, further highlighting the value propositions for companies like Saba that have stayed focused on the long-term objectives. Now more than ever, organizations considering the purchase or expansion of an enterprise learning suite should carefully evaluate the strategy and motivation of their vendors. "Merger of Equals" transactions often result in lowered customer service and innovation. Mergers for the sole purpose of consolidating cash and buying customers are transparent to the market and the customers themselves. No decision maker wants to be in a situation where they have purchased a product line that is soon to be discontinued.

What does this mean for Saba and our customers?
We have always been focused on the long-term success of our customers. Four driving principles continue to define Saba's leadership position in this industry.

1. Customers' Success
Our commitment to customer satisfaction has never been stronger. Saba just completed highly successful user conferences in Chicago and Amsterdam where hundreds of our customers and partners continued to reiterate their support for Saba, enthusiasm about our product strategy and broad endorsement of our global presence and deployment capabilities. We have made continual and substantial enhancements to usability in each release of our product line and we have expanded our team of services professionals who are able to provide expertise that is specific to the industries where our customers are deploying
their solutions.

2. Product Leadership

Over the past two years, Saba has invested heavily in R&D to build and deliver the fully J2EE-compliant Saba 5 platform, continued to innovate on our 3.x platform, most recently with the delivery of Saba Enterprise Learning 3.5, expanded the Saba Enterprise Learning Suite with Saba Analytics, the market's most powerful learning analytics solution, and for the first time, expanded beyond our core learning market with Saba Enterprise Performance 5.0. As the only company to have delivered an integrated learning and performance offering on a J2EE platform, Saba is uniquely differentiated in our marketplace and continues to be the leading innovator in the Human Capital market.
3. Leading Delivery and Execution
In addition, Saba is the market leader in delivering business solutions among our competitors in North America and worldwide markets, including Europe, Asia Pacific and Japan. More and more of our customers choose Saba because of our unmatched ability to deliver and deploy enterprise-class solutions on a worldwide basis. None of these fundamental strengths are challenged, let alone addressed by this merger of second-tier players.
4. Industry Leading Vision
As a pioneer in enterprise learning, Saba continues to define the future direction of the industry. In our market, true business performance is driven through the intelligent integration of learning and performance and measured by industry-leading analytics solutions. This is a core part of our vision and it is the heart of our product platform.

Thank you for your continued support and interest. Please contact your local Saba representative if you have any questions or would like to share your perspective on this announcement.


The Saba Team

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Posted by Jay Cross at October 22, 2003 11:17 AM | TrackBack

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