Eci Acquires Digital Gateway: Good For The Industry?

Last week ECi announced the acquisition of the last independent industry specific ERP, Digital Gateway (DGI). It appears as if this acquisition has caught many by surprise as DGI’s outspoken CEO, Jim Phillips, has told anybody who would listen that he would never sell out (That infamous “read my lips” mantra that seems to be followed in history by the exact opposite event). Jim’s reasoning seemed to be founded on his belief that being an independent software provider was good for the independent dealer. I believe Jim has at times loved me or hated me—if you know Jim you know that he let me know first hand how he felt—depending on if he thought I had said something that either helped or hurt the sales of DGI’s product, e-automate. That said I have always respected Jim as a businessperson and find him to be one of the most competitive people I know.

This article isn’t about Jim but you cannot speak about DGI without speaking about Jim—they have been one in the same for some years. With the benefit of hindsight I believe Jim brilliantly executed on a plan that increased the value of his company, DGI, significantly. While relentlessly taking ECi’s customers—partly by bashing ECi at every opportunity and certainly because he seemed to have a superior product—Jim positioned DGI as a “must buy” for ECi. I don’t know the details of Jim’s contract with ECi but I do know if I were ECi I would want to ensure that Jim stuck around through the transition of DGI into ECi. It simply would not sit well with DGI customers—many of whom left ECi over the last three years—if Jim sold and left. There is great messaging coming out of ECi and DGI, but my bet is that Jim sticks around for 18 – 24 months and then is off to his next investment (there’s no way that guy is going to sit around “in retirement”). Jim deserves whatever he earned—he built a great product and was a relentless competitor; kudos to him.

I don’t believe ECi is the same company—culturally—that acquired OMD. My interactions with their senior team indicate to me that they are good business people that realize the former executive team made a significant error with their pricing strategy. I certainly don’t anticipate a repeat of that catastrophe. Nevertheless, there is no disputing that ECi has a virtual monopoly on the industry specific ERP. Not a legal monopoly—you can buy and customize a product from Microsoft, Oracle, or SAP—but for all intent they have a monopoly because of the significant switching cost. How will that monopoly play out over the next few years? Nobody but the senior team of ECi really knows but I will give you my thoughts:

Platforms: It is illogical for ECi to develop and support over the long-term three different products for the exact same industry. You can bet that at some point in the future you will not have OMD, LaCrosse, and e-automate. The question becomes how does the transition to a single platform occur? Do you simply reduce development of OMD and LaCrosse and allow DGI to sell e-automate to current users of ECi’s other products? I cannot imagine that anybody would pay a new license fee to switch from one ECi product to another—would you? But if you don’t have a choice—if it is either buy a complete set of new licenses for “product C” instead of “product A” from the same company—or suffer through with a vastly inferior product, even after you paid years of maintenance fees, I guess you would have to swallow your common sense and pay-up. Maybe you will get a special price! Keep in mind this scenario is simply a possibility at this point and it is possible that ECi will simply move everybody onto one platform as part of the licensing fee their customers have paid for years while waiting for an upgrade.

Remote monitoring: ECi owns all of the industry ERP packages and they also own FM Audit, one of the industry leading remote monitoring software products. If I were ECi that product would be embedded in my ERP and I’d collect the monthly fees from all of my customers. In the short term I’d simply offer great pricing and integration. If I owned one of the other remote monitoring software products I’d be knocking down the doors of the direct operation that are on Oracle!

Other software products used by the industry: Let’s first consider that all of the brain trust at ECi doesn’t have to spend a single second focused on competition in the ERP space—there is none. They don’t have to spend any time on remote monitoring: You don’t need more than one of those. You now have a lot of smart people who understand software cold and who are going to be looking for growth because they have virtually every dealer in the industry. That has to be scary for providers of other products specific to the industry. DGI has remote tech, which seems to have caused some fits for other players in the industry as dealers moved from OMD to e-automate. Dealers now pay for data on service, reporting, etc., all areas that can now bring additional revenue to ECi since they will have a lot of time on their hands. Maybe it is an opportunity for more vendors to hit it bid with a sale to ECi….maybe ECi will simply start to offer the same product without acquiring incumbants.

Publications and trade shows: Multi-page ads, large booths and sponsorship of industry sub-groups have been a hallmark of the war for market share in the ERP space. Why do you need to advertise if you have all of the customers? Back to the platforms section, if ECi is going to try to convince you to buy one of their other products—while you’re paying maintenance fees on the current product—I guess some advertising will continue. But you certainly don’t need two large booths at trade events and there is no reason to take out multi-page ads positioning your product as better than your competitors (that would certainly be odd….ECi stating one product is better than the other……), which means less revenue for those in the advertising space.

As you can read, I think the roll-up of the industry specific ERP systems will have effects throughout the industry. That’s life in the big city as I believe both ECi and DGI have executed extremely well on their strategic plans. I don’t buy for a second that it will be good for the industry—unless ECi is going to pass all of the savings on to the customers—or that our industry in under siege from anything other than a mature industry. Do you run into a lot of VARs selling MPS? Your local stationary company selling MPS…..or the nationals for that matter? If you are a stationer you are definitely under siege as MPS providers take your toner business but that is net new business for the copier channel. For the next few years copier placements will decrease, printer placements will grow, and volumes will remain fairly constant in both areas. There is still room for smart companies to grow revenues and profits.