Call in the dogs, ICM heats up
There are many fine companies in the incentive compensation market but I would bet that almost any one of them would like to be in Centive’s shoes this morning. This morning (November 5), Centive and ADP announced a new alliance in which ADP would private label Centive’s Compel product to its customers as ADP Incentive Compensation Management or ICM.
We have all seen private labeling agreements before and they are not automatic home runs for the parties involved, especially the smaller company, but I think this could be. For one thing, both ADP and Centive are in different parts of the same business. ADP is traded on the NYSE, has about $8 billion in revenues and more than half a million customers. The relatively small overlap means more upside for both parties — ADP has terrific market reach and Centive brings a new capability to ADP.
Like any large company ADP needs to find ways to continue growing and there is no better growth potential than one right in your sweet spot. ADP can also make reasonable claim to being the granddaddy of the on-demand market since they have been delivering payroll services that way since long before on-demand was fashionable. Given Centive’s on-demand orientation the announcement is another strong endorsement for the model.
Centive is much smaller and as a private company it does not disclose its revenues but we can be reasonably certain they are somewhere south of $8 billion since the press release states that the whole incentive compensation market was worth a relatively modest $250 million in 2006.
The market’s quarter billion dollars in revenues was divvied up among multiple vendors including Varicent, Xactly, and Callidus — a big fish in that pond — among others. The question that immediately comes to mind is what happens to that market?
Considering that ADP has such great market share you have to assume that ADP is already providing services to many companies that are also customers of those vendors. Moreover, ADP will now be selling ICM into accounts that these vendors are also trying to penetrate, and given ADP’s ability to deliver a unified solution it might make selling a separate incentive compensation solution quite a bit harder for the rest of the vendors.
That’s not the end of the story though because in my mind the incentive compensation solution has not been fully articulated yet by any vendor. So far most companies have concentrated on the payment aspect, which is logical, but there are other issues like sales territory planning that are just starting to be considered. At Dreamforce for example, Centive and a new company, Makana, were each talking about their new planning capabilities and I am sure other vendors are following suit.
You have to wonder what an alliance like this might do to the evolution of the market. For example, will ADP’s clout make the market evolve faster? Will ADP decide to partner with other ICM vendors to achieve some sort of suite? Will ADP’s market presence cause the market to consolidate faster than might be expected? Will the market consolidate in the same way it might have if the emerging vendors were allowed to play out their hands?
One never knows nor can one predict which is why this event is so fascinating. So my thinking is that this is the kind of event that, in a flash, drives a market consolidation and that’s why if I could own any incentive compensation management company today, I would want to own Centive.