In the last couple of years there was already some CPQ Software Vendor consolidation when Oracle acquired BigMachines, PROS acquired Cameleon and Infor acquired TDCI. My question is: “Will there be more consolidation going forward?”. I think so but before we look at the why, let’s look at the current CPQ market.  As you probably know, the Configuration/Price/Quote (CPQ) market is expected to grow for the foreseeable future (see also our recent blog post –> “Configure/Price/Quote (CPQ) has a bright future”).  So far that means there is lots of room for many different CPQ Software Vendors to offer their solutions and be successful. The new CPQ solution offerings go beyond the traditional Manufacturing and High Tech Industries  and targets other Industries like Medical Devices, Pharmaceuticals, Distributors and many more. This is a good development for the customers since these additional solution offerings will ensure a healthy competition, more capabilities and steady or lower prices for the different CPQ Software Vendors and their solutions. On the other hand it is important to notice that it is getting harder for CPQ solution buyers to determine how a certain tool is providing unique value to their company, industry or business case. We currently track ~ 28 CPQ Software Vendors on a regular basis to stay up to date on what they offer and to understand the sweet spots of their Solutions. Note that many more CPQ solutions are available.

One question worth considering is: “What does it mean for YOU when the CPQ market is expanding into the foreseeable future?”

Let’s start with two facts

  1. For CPQ Software Vendors to exist they need customers (and/or funding from i.e. Venture Capital Firms). Which in turn means they must be selling their solutions. As long as the market is ready to absorb these solution offerings they get sold, implemented and used.
  2. Out of the ~ 28 CPQ Software Vendors we track at least 14 vendors have less than 200 employees.  That is 50% of the vendors! Note further that out of the 14 vendors 8 vendors have less than 50 employees.

Now let’s look at the Merger & Acquisitions (M&A) Market where Baker & McKenzie is forecasting that the M&A Market will accelerate until 2017/2018    —>  see link below.

Add the CPQ market forecast and the M&A forecast together and here is what I see:

  1. Many companies (acquired and acquiring) will use CPQ solutions.  Some acquired companies will have to change their CPQ solutions to the CPQ solution the acquiring company uses. Alternatively the acquired company may keep using their CPQ solution but needs to exchange CPQ data with the acquiring company easily (in order to enable a combined reporting).
  2. If Point 1. is correct this could mean (especially) for the smaller CPQ Software Vendors either they
  • Go out of business (over time) or get smaller because acquiring companies (which tend to be larger) tend to use CPQ solutions from larger CPQ Software Vendors OR
  • They will need to provide support and/or tools to simplify the process of exchanging data from one system into another system

We can assume it would be a sizable effort to provide the support and/or tools. Hence the question becomes: “Do the smaller CPQ Software Vendors (with less than 200 employees) have enough manpower to continue their CPQ tool development and to support the potential M&A related work?”.

I wouldn’t be surprised if some of them cannot deal with this workload and hence expect that the CPQ solution market will further consolidate in the future. In addition to that there are a number of CPQ Software Vendors which appear to offer similar solutions, with similar capabilities to similar customers. If previous markets, like e.g. ERP systems, are any indication this will lead to market consolidation.

A tip for every CPQ buyer may be to think about a CPQ Software Vendors capabilities, market position and company size  by the time you purchase the tool to ensure your company will have a successful and long-term relationship with your CPQ Software Vendor.

A tip for every CPQ Software Vendor may be to specialize or generalize enough and to grow quickly enough to not fall victim to the potential M&A scenario above.

Baker & McKenzie M&A Forecast from 2015-2020: http://www.bakermckenzie.com/news/globalmaipoactivityjun15/