Kana and Broadbase sign definitive merger agreement

Enterprise relationship management software vendor Kana Communications Inc. and customer interaction software provider

Broadbase Software Inc. have signed a definitive merger agreement, which is set to close in the third quarter. The merger is subject to shareholder approval, and the combined company will be known as Kana Software.

"Primarily, (the merger) is around combining two companies that have established strong leadership," said Michael Bettua, vice president of corporate marketing for Kana Communications.

"The merger offers our customers a much broader platform on which to deliver communications and information and manage relationships with their customers, partners and suppliers," said Jay Wood, chief executive officer and chairman of Kana Communications.

"Many of the CRM suite vendors do not have the same depth of analytic capabilities that Broadbase brings to this merger," said Harry Watkins, research director at Aberdeen Group. "Increasingly, it's becoming clear that strong modeling, segmenting, exploration and profiling capabilities are central to the ability to capture the greatest value from your customer base and use it effectively."

"In the beginning, we will be focused on wrapping the analytics layer around our platform," Bettua said.

Both companies have been developing with a Java platform, using enterprise Java beans (EJB) and the Java 2 platform, Enterprise Edition (J2EE), Bettua said. The use of Java-based technologies will ease product integration, he said.

New products are in the works, although company executives declined to give specifics. "The opportunities (for new products) are incredible," said Steve Robins, director of product marketing at Broadbase. By combining Kana's e-business platform with Broadbase's analytical and operational applications, the companies' customers can expect to see a lot of integration between the different products, he said.

Kana Communications and Broadbase chose to merge because a strategic alliance would not provide the depth of product integration that the companies were seeking, according to Bettua. While Kana lacked a marketing analytics piece, Broadbase needed a common foundation, which requires deep product integration, he said.

The merger is part of the general trend in the CRM marketplace toward consolidation, according to Watkins. "I think this one is a very significant merger because both companies, in their own right, had established relatively significant footprints in their respective areas," he said. "The combination of Broadbase's analytics capabilities, together with the range of operational tools and the e-business platform that Kana brings... is potentially very powerful."

The new company also plans to upsell and cross-sell to its existing customers by merging its customer base, according to Chuck Bay, president and CEO of Broadbase. "Cross-selling and upselling can be much more productive in tough times" than trying to acquire new customers, he said.

"The merger combines two very strong lists of customers and provides a lot of cross-selling opportunities," Watkins said.

One downside to the merger is that Kana Software will have to slow down the pace of their business in order to integrate the software, from the data level to the user interface level, Watkins said. Yet the counterselling opportunities balance that out, he said. "Kana salesmen are now going to be able to walk into Broadbase accounts, and vice versa, with a vision of upselling and cross-selling," he added. "That should increasingly simplify their sales cycle."

Kana Software intends to have the data integration complete by the end of the fourth quarter this year, Bay said.

According to Watkins, this merger pushes the new company into competition with Siebel, PeopleSoft and Oracle, as well as companies such as Onyx, Pivotal and E.piphany, which focus on the midmarket.

"Sales are going to be slack initially," Watkins said. He then expects sales to increase substantially as Kana Software integrates the suites from the two companies and can have success stories to bring to prospective customers.

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