On June 1st, Tangoe announced that that the company closed its acquisition of IBM’s Rivermine Telecom Expense Management (TEM) business.
The IBM Rivermine business, acquired through the acquisition of Emptoris, provides fixed and mobile telecom expense management software and related services. The acquisition gives Tangoe one of only a very few installed bases – that are comprised of global, blue chip clients – outside of its own portfolio of customers. Gartner estimates that Tangoe made the acquisition for a multiple slightly above one time revenue.
The market for telecom expense management is a highly competitive landscape in terms of the number of providers; however, for large multinational companies that are looking to create a global standard for TEM software and services there is Tangoe and few others (e.g. Vodafone Global Enterprise, Dimension Data and Accenture immediately come to mind). Even a few TEM roll-up efforts by private equity investors have either lost steam and/or visibility in the market.
IBM’s exit from the TEM market speaks volumes to how difficult it can be to create a fast growing and high margin TEM software and service business. Today, CSPs and IT Outsourcers are not going to build a TEM service delivery business. Instead, these service providers are going to private label one or more trusted regional providers. But make no mistake, more CSPs and IT outsourcers will bring TEM services to market and it is within this strategy that we are seeing the world’s largest TEM deals being bundled into large network outsourcing agreements. This means most TEM providers never know about the largest opportunities unless they are invited to participate by a partner or when they read about the deals in their Google News feed.
These market challenges have created confusion in the go-to-market strategies of hundreds of TEM providers. Today, most TEM providers are more focused on on growing into broader IT Financial Management (ITFM) services instead of growing/consolidating the market for which their telecom knowledge is their most defensible moat against competitive entry. Given Tangoe’s dominance in the TEM market, it makes sense to expand into broader ITFM.
The challenge for Enterprises moving forward is how to engage the market of providers for global TEM solutions in a shrinking field of global expertise. I’m always happy to have that conversation.
Let me know what you think.