The Blackbaud/Convio deal is not done (and in fact has been delayed for a third time), but it has sparked an increasingly heated debate about what the post Blackvio/ConBaud world will look like. The easy answer is less choice, less innovation, and higher costs. Based on previous Blackbaud acquisitions, those are good bets.
What is harder to answer is the question of what is driving Blackbaud to make this very expensive acquisition which will saddle them with over $300 million in debt. Taking out a competitor; buying revenue (especially Convio’s valuable subscription revenue); and obtaining clients they couldn’t win with their existing products are all good possibilities and certainly have factored into past acquisition decisions.
But I think there is something deeper going on. Blackbaud is a believer in the Best of Vendor business model which says that clients should buy all of their “solutions” from one company. The theory is that clients benefit from the vendor’s ability to integrate multiple functions into one comprehensive suite. It also provides clients with “one throat to choke” which is a troubling image yet somehow comforting to many nonprofit executives.
The problem is the Best of Vendor model has utterly failed to deliver on innovation, integration, and usability. Ask Raiser’s Edge clients what they thought of the release of version 7.92, a release that actually said this was the “new” version. The headline on that press release should have been “Why Haven’t We Given You RE8? Because We Don’t Have To.” As for integration ask anyone with multiple modules how “easy” it is to get data back and forth between them.
Turns out the throat that gets choked when you buy into the Best of Vendor pitch is the clients. They face ever increasing costs for upgrades, new modules, training, implementations, conversions, hosting, API’s, etc. etc. etc. For evidence look no further than Blackbaud’s recent crediting of $3.4 million to 4 early adopters of its vaunted eCRM.
I put forward that the primary reason Blackbaud is buying Convio is that Convio was Â starting to enjoy some success getting organizations onÂ Salesforce. Salesforce is all about the Best of Breed world, a trend Blackbaud must fight at all costs. With Best of Breed you are able to select the applications you need and integrate them on a common platform. Rather than one throat to choke, you have vendors working full-throttle on particular aspects of your mission. If one of them doesn’t live up to your expectations you can simply select another. This keeps pressure where it should be, on the vendor to innovate, deliver what they promise, and keep prices in check.
Another reason Blackbaud wants Convio out of the picture is that Convio was starting to be seen as a viable competitor. Their acquisition of StrategicOne, and their combination of Common Ground with their online communications platform under the Luminate brand, made them look a little too much like Blackbaud’s Infinity suite. It has never been a secret that Convio wanted to be Blackbaud when it grew up, so the folks in Charleston decided it was smarter to take them out now rather than risk being unable to buy them later.
Some are asking what Blackbaud will do with Convio’s Common Ground. Bury it in a deep dark hole is the most likely answer. Why? Because they can’t afford to let their clients on the Salesforce platform where there will be applications that compete with theirs. Do you really think that Marc Chardon is going to allow clients to process donations with someone else? Not when he is collecting 5% on top of credit card fees. How about screening and analytics? WealthEngine is on Salesforce and would love to have all of Blackbaud’s clients easily accessible.
And what is even more threatening to Blackbaud is that on Salesforce there are applications like Affinaquest, a donor management system built by Jeff Shy who created Sage Millennium. That means there are viable alternatives to the very core of what Blackbaud offers. As a member of the Board of Affinaquest I can tell you first-hand that organizations are already saying no to Blackbaud’s out-of-date closed software systems, and yes to a future of more choice and lower costs.
Given the latest delay in the acquisition process we have time to think some more about the future. I am optimistic that what we are witnessing is the beginning of the end of the Best of Vendor age, and the start of the Best of Breed era for nonprofits. There will be many struggles ahead as there always are in times of change, but change is coming and no amount of acquisitions can stop it.
I agree with most of your points and think what you all doing with Affiniquest is awesome,
but to think Salesforce is not in the Best of Vendor model is absurd, IMHO. SaaS providers have constructed a system where they can take the benefits of “best of vendor” — low customer acquisition costs, selling adjacent products, ultimately revenue and mitigate all the associated costs — they get you guys to pay R&D costs in vertical industries and have no particular incentive to support specific vertical players like Affinaquest since ultimately whoever wins, Salesforce wins.
Now the idea that SaaS providers eliminate the many negatives of the traditional best of vendor model is right on, but those limitations were mostly the problem of client server architectures rather than “best of vendor”.
It’s good to know that when Affiniquest is $80M in revenue and facing declining growth rates in their best of breed business that at least someone on the board will be arguing that the company should remain best of breed and not expand into another product areas to serve your clients and grow revenue. Of course, that basically means Affiniquest will never be a public company… as a veteran of many a mission-based nonprofit technology provider, if that is the plan, I’m going to send you all a huge fruit basket.
Thank you for your comment. We are actually not betting on Salesforce.com, we are betting on Force.com. As a tech veteran Iâ€™m sure you know this is PaaS not SaaS. The platform is to application providers what SQL; VB; .NET, etc. is to software developers. You are right that Salesforce benefits from our work, just like Oracle and Microsoft benefit from traditional software companies using their products. The difference is that PaaS provides developers a way to work with each other through the platform so that end-users donâ€™t have to go through the painful â€œintegrationsâ€ required for two software vendors to communicate.
The other big difference is that Salesforce provides a tremendous amount of functionality that we donâ€™t have to create. That allows us to focus on the unique needs of our clients. I understand your position that Salesforce is using us, but I believe we are using each other. That $80 million you mentioned is worth a lot more because we donâ€™t have to spend the hundreds of millions Salesforce is spending on R&D and the support of the platform. Right now Blackbaud is advertising for a Platform Product Manager. We donâ€™t need one of those because Salesforce has a world-class team handling it.
It also helps that the Salesforce.com Foundation offers 10 free Enterprise licenses to nonprofits. They discount additional licenses 80%. There are hundreds of applications on the AppExchange that are discounted for nonprofits. That has already attracted 11K nonprofits and more are joining every day. That is a robust community that Affinaquest has ready access to through Force.com.
The potential of PaaS is being demonstrated today as many soon to be abandoned Common Ground clients are contacting Affinaquest to talk about switching. They love hearing that changing an application on Force.com is a whole lot easier than the conversion they went through to get on CG in the first place.
As for not being able to go public all I can say is HOORAY!! I have been part of two public companies and I donâ€™t need to go down that dark path again. Fortunately there are now public exchanges for private companies such as Second Market and Sharespost, so there are ways to become liquid without going public. I actually believe that many of Blackbaudâ€™s problems are caused by them being public. How else can you explain $22 million in dividends for a company that hasnâ€™t been able to come out with a new version of its flagship product for year? Why didnâ€™t that go into R&D? Because they felt the shareholders were more important that the clients.
Iâ€™m a life-long entrepreneur, and now an angel investor, focused on the social sector so I sincerely hope that folks like you embrace the app economy and the Best of Breed model. Iâ€™m dating myself, but imagine if WordPerfect, Lotus 1-2-3, and Harvard Graphics could have been brought together to provide us with the best word processing, spreadsheet, and presentation software. I imagine it every time MS-Office crashes my laptop. The social sector deserves better than a blue screen (or is it a black screen?).
Thanks again for your comment and we look forward to the basket.
My crystal ball is no better than yours, but I think it’s equally likely that Blackbaud could kill off Raiser’s Edge and replace it with Common Ground. I think they recognize that RE is nearing the end of its life, yet they’ve abandoned the effort to build a web-based version of Raiser’s Edge (aka RE 8). There’s clearly a lot of hunger in the market for open, web-based solutions and Common Ground could provide that for them.
Good article. I agree with Robert that the chances of Common Ground being used as the replacement platform for Raiser’s Edge are as likely as it being thrown to the side. WIth over 13,000 sites running Raiser’s Edge, Blackbaud has a narrow window for making good decisions for its clients after dropping the ball with Infinity world.
I for one would hesitate to put all of my eggs in an all in one solution basket. No vendor to date in my opinion has done it right yet.
I also do not believe there is truly a universal market demand for a cloud based and hosted solution. From the client perspective you lose too much flexibility, control, and ultimately money. I can imagine additonal income streams being developed from this model which would extend to the level of system performance a client might have available, as well as the wholesale potential fro Blackbaud to shut out third party consulting firms from providing implementation and customization services.
A narrowing of the field does in fact stifle innovation, competition and in the end will raise prices on a segment of the technical world which is under constant pressure to reduce cost per dollar raised.
Thanks, Steve, for the comment. Blackbaud has painted themselves into a bit of a corner with Salesforce because they are using Salesforce to back-up their story that they are not a monopoly. If post-acquisition they suddenly embrace Salesforce, then they mislead the DoJ. Of course, that is still an option for them, but I believe the most likely outcome is for Blackbaud to support Common Ground for as long as they have to while building their own private cloud.
As for the move to the cloud, it has been underway for years with online fundraising, advocacy, communities, and even Google Docs. People are realizing this, and when they see the chance to move their off-line fundraising to the cloud, they are making the move. As for flexibility and money I don’t think Blackbaud passes either test. Control, yes, but much of it is in Blackbaud’s hands – not the clients.
Thanks again for commenting. This is an important moment in our industry and we need to think, and rethink, about all the options and all the consequences.
While there has been migration of some services to a cloud platform, gaining organizational consent to realinquish the in house control over private/confidential financial and health data to the cloud is quite another proposition.
I think donor information will make the move much sooner than patient data. There are some interesting public/private hybrid cloud solutions being implemented where the patient data is in a private cloud and the donor info on Salesforce.
Healthcare might lag, but it will move to the cloud. Premised-based systems are dead technology walking. Fundraisers are not going to put up with the limitations as they face the realities of a 24/7/365 world. Of course there will be those who hang on as long as they can and fight the good fight against the future. I’m old enough to remeber when fundraisers didn’t want to give up their 3×5 cards and put data into RE1.