Well, as Sandy Kemsley pointed out, this deal closed fast.

Equally quickly, Lombardi shows how a SaaS product can catch up to the news (or at least start to), by releasing Blueprint to Websphere Business Modeler integration today.

Good start to the new relationship – I just wish all the products were as easily rationalized!

Hint: it wasn’t about tech, or product overlap, or filling product gaps.

Brian proposes that the acquisition is actually about market, channel, and the great unknown (the end game).  The market is big and growing fast, and the companies within this market are small and growing fast (even the laggards).  This inevitably ends in some kind of merger frenzy or pileup (check out what happened to the EAI vendors 10 years ago, or CRM vendors 10-15 years ago).  Brian claims none of the technical issues matter – I’m not sure they don’t matter at all, but he makes a pretty strong claim that they might be irrelevant next to the market and business forces at play.

Second, he points out that the channel strategy is key.  As a Lombardi partner, we can attest that Lombardi was putting a fair number of partners into the field, and doubling down on that strategy in 2009.  We attended a very diverse partner conference in April that was affirmation of the strategy for both Lombardi and the partners.  But the bigger issue is – IBM has a massive channel of sales and partnerships through which to push product and solutions.  In the 90’s I saw IBM acquire Tivoli, which I believe was about $100M in revenue at the time, and in less than two years, it was generating $700M in revenue out of that business unit.  IBM can definitely turn the crank on certain software categories (past performance being no guarantee of future returns).  If Lombardi BPM gains a certain mindshare within that channel, then IBM will reap huge returns off of this acquisition.  Brian argues that this is the key driver of the acquisition.

Third, the end game – Brian argues that because no one knows what it will be, it makes sense to place more than one bet.  Again, he makes a compelling business argument for why investors (and companies) won’t be satisfied with just one offering that touches on the BPM space.

Its a good read, highly recommended, and I’ve also cross-referenced it in my running blog post on the acquisition.

There’s been a lot of coverage of what it means for IBM to buy Lombardi.  Jaisundar proposed that this would upset the balance of power and cause more acquisitions… But perhaps the side effect he (and others) didn’t foresee was the positioning of the remaining BPM vendors (pureplay or otherwise) for the benefit of their suitors.

First we have Appian’s CEO posting here.  I don’t blame him for putting a stake in the ground that Appian is going to win, and positioning that the only two vendors left that matter are Appian and Pega.  Savvion might disagree, as would a few others, but nevermind.  He states that they’re the only ones strong enough to survive (by which, I would suppose he means financial strength, but he leaves that as an exercise for the reader’s imagination.  I don’t blame him for slagging IBM as killing innovation – in any acquisition like this, that is a very real possibility, and will determine whether this is a successful buy or not (at least, for folks who don’t work for IBM).  But methinks he doth protest too much, and may be trying to make sure that potential suitors remember that Appian still exists in case they want to get in the game by buying something.

Next, we have ActionBase, one of my favorite non-traditional BPM offerings.  In a previous post Jacob Ukelson made the argument that Sharepoint should be a better BPM tool than it is.  Now he argues that Sharepoint + Actionbase is that BPM dream team:  unstructured content + unstructured process… If that isn’t a pitch for Microsoft buying a nice Sharepoint add-on I don’t know what is.  Analysts are frothy thinking about how Microsoft or SAP might want to counter IBM’s move, and this is one option.

I’m not sure that unstructured process + unstructured data is the dream of every IT shop, but it is certainly a combination prevalent in many processes and organizations.  And of course those two offerings could work well together.

So it looks like everyone is putting on their finest Holiday Sweaters and looking to make a good impression for their potential sweethearts.  It’ll be interesting to see if there really is a wave of acquisitions or if this is it.

Its the creative destruction process of capitalism at work.  I just hope BPM doesn’t get lost in the woods in the process.

Rashid Khan, formerly of Ultimus, asks the question:  is BPM the jack of all trades and master of none?

It is certainly a fair question.  As he points out, BPM is broad, maybe overly broad.  And he also points out that based on the punditry, you would expect BPM to be a much bigger market than it is today.  Of course, part of the problem is that many companies, wanting to leverage the BPM banner, will relabel what they do as “BPM” and this can help stifle the growth of the real BPM providers.

He then outlines four challenges for vendors:

1. The market, defined as the sum total of all the things BPM can address, is very large.
2. No single vendor or product can address the entire market. And if they try to do so the product becomes bulky, expensive and hard to maintain or upgrade.
3. Customers have a very hard time discerning what BPM solution is best suited for their needs. And if there is one product that will suit their needs, it is unlikely to meet some other needs in the same organization.
4. Vendors are unable to say no to opportunities that potential customers define as BPM but do not fit in the profile of what the vendor can deliver. BPM products always have recourse to customization via programming which theoretically can be made to do anything, albeit at the cost of agility. So vendors pursue opportunities that may not make sense.

Its hard to argue with these points – points 1, 3, and 4 I can agree with without much reservation.  And #2, I would say it is actually a tough choice for the vendors:  either bulk up the product to address these markets, or keep the product more focused but leave a lot of work for the customer to adapt the product to their needs. Either path is risky.

Rashid proposes that vendors focus on horizontal slices of BPM (e.g. modeling, or workflow automation) and interoperability, in order to solve the focus problem, and in order to help customers answer the “what does it do” question…

But this conundrum affecting BPM affects the software business as a whole.  CRM companies wonder if they should also be sales process companies, and vice versa.  MRP companies became ERP companies.  ERP companies became “Stack” vendors.  And before ERP was well-defined, there was a lot of jockeying for what was “in” or “out” of ERP.

The key economic forces compelling software companies to broaden their offerings are:

1. The need to avoid getting flanked by a competitor who does your focused product, but also does other products.
2. The need to flank your competitors in similar fashion.
3. The need to get the most value out of your sales force overhead that you can – more products to sell means that the sales rep has more opportunities to take advantage of their good relationships by selling more software.

These are essentially sales-efficiency arguments-  you have spent a lot of money on your sales force.  So what you can you do to extract more expected revenue from them?  Either:

1. Increase the odds of winning a deal (flanking/positioning)
2. Increase the lifetime revenue per customer (more software products/licenses to sell)
3. Increase average sale per transaction (more software products/licenses to sell)

So these forces are pushing software companies to broaden their offering with either features or products. Simultaneously, the approach of having a narrow focus is risky:  if you can’t create a compelling differentiating advantage for your horizontal slice, then you can get disintermediated quite rapidly and easily.  But if you CAN build this sustainable competitive advantage, and get the market to recognize it, then you can build a nice moat around your product line and really benefit from your focus.

The other trick is – say you only sell the optimization piece – and it is designed to work with various BPM tools – if you are early in a market’s development, you could face the very real risk that the customer isn’t even sold on BPM software yet, let alone your specific tool.  You still have the problem of explaining BPM to them, and getting them to realize that it could be of benefit.

I think as the BPM market gets larger, there will be interesting horizontal and vertical opportunities for software companies to say “look, here is the better mousetrap for optimization” and to then show how it is better than the existing solutions and get it sold as a value-added piece of the puzzle.  This is (roughly) how scheduling software was briefly the darling of enterprise software in the 90’s – before all of the fast-growing scheduling companies hit the wall and were acquired by larger ERP companies.

It looks like BPM may already be big enough for a good horizontal BPM modeler to come along and steal the show – but one wonders if that play will be a commercial or an open source play?  Similarly, a process engine could OEM into other BPM software vendors, if the market gets big enough.  But I think that expecting customers to piecemeal these solutions together is asking too much these days of their lean and mean IT departments.  The integration will still have to happen with the vendors.

What’s really interesting is, if BPM vendors have trouble with the broad scope of BPM… what does that say about the vendors who consider BPM only a checkbox on their list of 1000 products?  They’ve got to compartmentalize if they’re going to realize the focus they need.  Or, I guess you could buy Phil Gilbert and Lombardi to get that “vision and focus” thing you’ve been missing… I’ve always thought the main barrier to stack vendors “getting” BPM was (a) a lack of focus, and (b) lack of believing that such focus was necessary or worth it, and really it isn’t a lack of technical know-how or capability.

So, any BPM vendors out there following Rashid’s advice and getting more focused, more narrow?  or staying narrowly focused?

The news hit the wire this morning (early for me, as I’m sitting in San Francisco this morning).  I got a phone call at about 5:20am PST to give me the news (thanks, I think?!).

The Lombardi press release touts a shared belief in customer success, a good product and culture fit, as well as good ole market opportunity:

“Any discussion on business improvement inevitably leads to improving the processes that are at the heart of every company,” said Craig Hayman, general manager, IBM Application and Integration Middleware. “Recognizing this, IBM has strengthened its presence and investments in business process and integration software to meet these growing client demands. Lombardi fills out our company’s portfolio in this key area.”

Lombardi already supports Websphere, and  was an early adopter of the app server in the BPM space (I can testify, I was there with Lombardi’s first Websphere clients).  In Austin, we’ve certainly seen a history of IBM successfully acquiring and expanding software companies that were acquired (Tivoli and Webify come to mind).

I’m sure there will be more news as the day(s) go on, I’ll try to just keep this post updated with the latest, unless something comes up that deserves an entire post on the subject.

Congratulations to the Lombardi team, who have been breaking ground in the BPM space for years now, and yet staying focused on making customers successful, not just on the latest bell or whistle on the product road map.  I think there’s a good chance, depending on the structure of the takeover, that some of Lombardi’s DNA will rub off on the BPM-focused parts of IBM.  I can see the effect Webify has had on IBM’s efforts, and I always thought Lombardi’s and Webify’s products would make for an interesting combination. Now we’ll get to find out, I guess!

More to come…

IBM press release here.

UPDATE: 12/16/2009 7:20am PST
Keep up to date with what the analysts (and others) are saying on Twitter:

And then we have a post from Phil Gilbert on “The Second Decade of BPM“. Phil’s take on where BPM is headed, with an interesting look back:

I can’t begin to convey the impact this will have on how and where BPM will be practiced, going forward. In the blurb above on this blog site (which was posted when I started this blog in 2005), I said that by 2010 process will be the primary prism through which large companies view themselves; and that by 2020 the management of process will be “second nature.” The first of those milestones has come to pass: process is not simply the way business operates itself, but manages itself.

Phil has a pretty good sense of the big picture.

Second, because Lombardi has focused on the business user, we have also focused on how to engage and support the business user. The work we’ve done on culture, change management, governance and BPM methodology is the best in the industry. Lombardi University and its role-based curriculum, along with tiered certifications and advanced mentoring, means that Lombardi can help IBM scale their business customers more quickly into the world of BPM. Lombardi’s On-Demand Assistance program is also built from the ground up to allow fledgling BPM teams built on business-first principles to still have a technical safety net under them.

This quote illustrates for me what I hope Lombardi can bring to IBM. A better understanding of how to support the business and help them achieve success via BPM, and a better sense of what BPM really could mean for the business world.

UPDATE 12/16/2009 8:45am PST
Austin Startup is carrying the standard press release.

And ebizQ has already launched a forum topic on the subject.

UPDATE 11:35am PST: More great coverage and viewpoints:
Dennis Byron discusses the acquisition, and is focused primarily on eliminating one more option from potential customers, and the inexorable force of consolidation.

Redmonk gives props to the Austin software and enterprise scene, as well as to the deal-making by IBM. The big question is how well IBM can incorporate Lombardi without losing its DNA.

Miko Matsumura posits that this might have been a firesale based on the language of the press release. Could be, Miko has more experience with this than I do. Regardless, I think the timing was good for IBM because I expect 2010 to be a big year for BPM software.

Sandy Kemsley chimes in with the best run-down of the analyst call.

Update EOD 12/16/2009:
David Moser of Australia weighs in. He points out which communities might win or lose, based on this deal going through, in particular which customers. But he also points out:

And with what should be a significant boost to their market, some of the biggest winners could be Lombardi service providers. Watch out for skills shortages.

I happen to agree, that service providers (e.g. BP3) could be well positioned to benefit because, no doubt IBM can sell more of the same product with its much larger sales channel. It takes time for people to ramp up on a BPM product. For a time I expect there will be exacerbated shortages of Lombardi BPM skills, but of course we’ll try to help as best we can!

Bruce Silver also comments on the deal. The tone of Bruce’s post (and some others) is a bit somber – I think some of the folks out there were rooting for a Lombardi IPO or for a deal that made it more clear that Lombardi would still be providing leadership in the BPM space from a “vision” perspective. There is an emerging consensus among outsiders that “departmental” is a losing strategy. I think if it is a pricing/marketing strategy it has legs – potentially target lots of smaller installations to service departments, but if it is reflected in technical direction of the product it could be a real problem. There’s no reason the tech can’t scale much bigger than a department, but its still up to IBM-Lombardi to decide what the market positioning and pricing breakpoints are.

Tony Baer’s take on the acquisition titled “Early thoughts on IBM buying Lombardi“. His emphasis on Lombardi’s chief advantage to IBM is its simplicity – making it possible to address the business directly within the enterprise. He’s looking for the integration of Blueprint and Blueworks to be a good indicator of how this purchase is going to work out.

UPDATE 12/17/2009: Well the blogs keep rolling in with new thoughts or analysis.

Jaisundar’s take is that blueprint is a key piece of the puzzle by widening the user base for BPM and creating a demand funnel. So much comes down to how IBM handles it and whether they keep the Lombardi DNA, while adding to it their massive sales channel synergies.

Meanwhile, Richard Watson has a couple of witty posts on the subject of showers (listing the # of bpm products and related products IBM has purchased as an embarrassment of riches and portfolio overlaps – but also, market clout. In a previous post, he makes the best statement about this subject: “If IBM wants to become the leader in BPM, they need to get out of the data center and start thinking like business people.” – This is exactly why people are excited about the merger, and why they’re worried. Lombardi is not stuck in the data center mindset. Will that business-focus be lost in the merger? That’s the real fear.

And Derek Miers, well-respected for his thoughtfulness on business process and business improvement, took a look at this merger and concludes:

While the choice of dance partner was a little surprising, the desire for a liquidity event in the Lombardi management team was there to see long ago. They touted an IPO around this time, but in the current market that was always going to be difficult.

IBM brings the broad base and ability to grow. Lombardi brings market cachet / credibility that is hard to quantify – but everyone in BPM knows Lombardi and they’re well-respected. Derek’s take on Lombardi’s success:

As I have said to many other vendors, when people buy BPM products, they buy the promise of success. And I am sure Lombardi’s success in the market is as much down to that aspect as it is their leading technology stack. They help their customers understand how they will succeed in meeting their business objectives (rather than touting the beauty of their technology stack).

That’s exactly the point – the culture that Lance and I (and execs at Lombardi) tried to create in the services organization was around business objectives and customer success. Something we’ve endeavored to continue at bp3.

Update EOD 12/17/2009:
Clay Richardson of Forrester Research writes up his analysis, which includes:

Ultimately, this deal centers on the need for IBM to develop a more compelling story for the business. In many ways it is further validation of the IT-to-BT transition that we are seeing within the enterprise.

IBM already had their story down for the CIO and needed to develop a more compelling story for the VP of Operations, and the VP of Customer Service, and the VP of Procurement – in other words IBM needed to establish a stronger voice into the business. And this is what Lombardi does best as a leader in the human-centric BPM space.

If he’s right, this is good news for Lombardi and its customer-base (and prospective customers). He follows up his points with Phil Gilbert’s plan to push the envelope with Blueprint even further “to collaborate on scoping and discovery for enterprise process initiatives.” As he says, IBM is weak in that area, and there’s little overlap. His basic take is that this is a capability buy as much as a technical buy. If he’s right, it bodes well for the future of BPM, or at least the future of IBM BPM!

Update EOD 12/18/2009: You thought we were done with the updates? you were wrong!

Dr. Diaz, on the IBM BPM Blueworks Blog, gives another IBM angle on the acquisition – conveying a sense of confidence and positivity in the IBM strategy.

John Reynolds, of Lombardi and soon IBM, writes a pretty good defense of the “Department” positioning – after all, what is “bottom-up” BPM if it isn’t a department level solution that scales up to meet your enterprise strategy, vs. the top-down BPM approaches that IBM has been using so far:

It’s not really a technology issue – Lombardi’s solution scales quite nicely. It’s a methodology issue… Some tools really enhance the “Top Down” (Enterprise) approach, while others really enhance the “Bottom Up” (Departmental) approach. Offering both seems like a pretty good idea when you think about it.

Update 12/21/2009:
Jennifer Dubow (@jennifer_dubow) posts a link to an IBM F.A.Q. on the Lombardi acquisition. Hits all the high points with no muss, no fuss.

Update 12/22/2009
Neil Ward-Dutton of MWD Advisors recaps the responses of vendors, which generally provide for fun reads. Of course, if you read their blogs without, somehow, realizing their corporate affiliation you might fall for their bias without correcting for it. Its only natural for competitors to see this as an opportunity to try to steal a march while IBM / Lombardi are distracted by integrating two companies – but having been on the other side of this – it didn’t often work as well as we would hope – often the buyer was able to keep the momentum going in the 12-18 month timeframe.

Update 12/29/2009 Jim Sinur weighs in with Power Vendors vs. Pure Plays, positing that the Power Vendors are catching up. I don’t see the catch-up that Jim is mentioning, but I do see catch-up-by-aggregration and the question is whether any of the remaining pure-plays have enough heft to out-innovate the big guys. Obviously small vendors with a tight focus can continue to outpace bigger players in their niche, but the wide Pure Play field has been thinned with this acquisition…

Update 12/30/2009In the ProcessMaker Blog, Brian makes one of the most compelling statements about why IBM bought Lombardi (and although he didn’t address why IBM bought other Business* companies – e.g. iLog, FileNet, Cognos, Webify, etc. – the same logic applies quite well). The short version: it is about addressing markets, not technology. And if Lombardi addresses a particular market, and is scaling, then IBM can plug that into their vast sales and partner channel and really wring value out of it. The thesis rests on the assumption that the BPM market is hot – but that’s a safe one.

Update 01/06/2010 The debate spills over into 2010. Neil Ward-Dutton reprises his previous review with a more considered analysis and the summary is that perhaps IBM really is buying Lombardi to get a better “business-facing” solution – but that they just don’t want to admit that blatantly in their external positioning. Its an interesting read.

Update 01/08/2010Gartner’s Janelle Hill and Jim Sinur report on the acquisition for Gartner. Basically they advise getting ready for a move to Websphere if you aren’t on it already, in a timeframe of two years, and tout the BPM DNA acquired in the Lombardi acquisition.

Bruce Silver just posted a review on IBM’s BPM BlueWorks.  It doesn’t “ship” til end of June, so we can’t play with it yet but apparently Bruce has had a sneak preview.

It sounds like  interesting stuff, and surprising (to me) coming from IBM.  I can’t help but think that people will be especially interested in IBM’s cloud/hosted offerings because anyone who has had to install IBM’s software will be happy to avoid either doing it or paying IBM to do it for on-premise installation. I can also see some instant name confusion with another SaaS offering in the BPM space:  Lombardi’s Blueprint. One wonders if there just weren’t enough adjectives for this kind of software so “Blue” just had to be used…

We’ll have to take a look once it goes live and see if it lives up to the high expecations Bruce has set!