Sitecore's announcement last week of its acquisition of partner Hedgehog caused a bit of a fuss in the web content management world. Hedgehog is a digital consultancy focused on implementing Sitecore and other marketing technologies. At the root of the disquiet is the suggestion that Sitecore, through the acquisition, is dipping its toe into the client services ecosystem, revenue that it previously was committed to preserving for its legion of agency partners.

Vendors Move Into Services: Cause for Alarm?

I get it. As soon as a software vendor goes anywhere near services, the alarm bells across the market should start ringing. Buyers should be concerned not only about the viability of their chosen vendor, but what it means for the services and partner ecosystem that supports their project.

There's a sad industry trope of the struggling software vendor that pushed hard on services revenue in a final throw of the dice to live for another day, either to balance the books or improve the value of the company for some kind of Hail Mary M&A move, investment or even to make payroll.

I've been there. I’ve worked for vendors that leaned a little too heavily on services revenue to make the numbers (early in my career one vendor encouraged sales to roll up pre-pay services contracts and call them software deals) and have worked for vendors whose primary motivation behind certain acquisitions was the rollup of revenue and company valuations, not part of a strategic master plan focused on the clients well-being.

But in the case of Sitecore and Hedgehog, this seems unlikely. Sitecore is no longer a challenger in the web content management field — it is an established vendor, with a hefty 1200 person staff (according to LinkedIn), a reported 300 new customers a year, revenues on the rise and a well-established position in the minds of the likes of Gartner and Forrester. Not suggesting anyone is too big to fail (just ask Vignette and Interwoven), but the comparisons with other vendors we’ve lost from the industry, such as Ektron, seem a bit off the mark.

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Plenty of Clients to Go Around

As soon as a vendor talks about services, it will disrupt the partner ecosystem, which in this case is one Sitecore has carefully cultivated. You could argue Sitecore's partner-focused strategy was the fuel that motored it to prominence past the now forgotten old guard of the market. A partner strategy of courting digital agencies that I know from experience was the envy of many competitors who struggled to emulate it.

On this point the acquisition seems hard to understand, but even the most cynical would struggle to realistically suggest that the enormous ecosystem and economy that is Sitecore services could be disrupted by an 80-person team. If the claimed figure of 300 new clients a year is true, that alone is a market for over $40 million in services (assuming each client requires $150,000 in design and implementation services — which is probably conservative).

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Sometimes We Can Take Acquisitions at Face Value

I have no inside scoop beyond the publicly available information. But based on my 20 years of experience in this industry, working for Sitecore's competitors, working as an analyst and taking competing products to market as a consultant, I think we need to take this news at face value: Sitecore is buying skills, not revenue.

Having a viable services team is valuable for a vendor. Feedback from the field is essential intelligence for product development and in the age of cloud, contemporary software vendors need a number of skills outside of product development, which a services team can deliver.

Plus, of course, every enterprise software implementation has the vendor's name across the door. No one calls their project “The Accenture Project” — it’s called “The <vendor name> Project” and client success sometimes comes at the cost of parachuting in the A-Team to get things back on track. When supporting higher margins of software, a vendor can financially take the hit of providing free services far better than the implementation partner can, and knowing there is this nuclear button gives confidence to the buyer.

Sitecore's commerce functionality, as well as its new DAM and PIM capabilities via its STYLELABS acquisition last fall, requires support, inspiration, guidance and skills for the partner ecosystem to include in their Sitecore practices and get in front of their clients. This is always a challenge for a business, like Sitecore, which is dependent on its channel to keep clients current.

So, unless Sitecore really is seeing the relatively tiny Hedgehog as an unlikely knight in shining revenue armour, I think it's safe for clients and partners to take a deep breath and relax.

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