Not so long ago, many industry observers were disinclined to take Accenture very seriously as a software vendor. For example, more than one insurance IT executive said to me that he wasn't overly concerned about Accenture's 2007 lawsuit against Guidewire because, in effect, Accenture wasn't really a software company.
The suit, which centered alleged patent infringement and other wrongs related to Accenture's Claim Components software, certainly didn't impede Guidewire's growth, and as the action plods on through the Delaware U.S. District Court, it doesn't seem to be going well for Accenture. In May 2011, Judge Sue L. Robinson granted Guidewire's motion for summary judgment of invalidity based on unpatentable subject matter, with regard to two of three patents at issue. An Accenture spokesperson notes that the judgment does not affect other claims within the suit, including questions about another patent. From Judge Robinson's opinion:
The court concludes that the '284 and '111 patents are directed to abstract and, therefore, unpatentable, methods and systems for generating file notes and tasks to be performed for insurance claims.Whatever this contest might have said about Accenture core competencies, it is abundantly clear today that the firm is no dabbler in the software business. In May 2010 Accenture formalized its strategy to build up package software as a separate business unit, with the launch of Accenture Software. In addition to the Claim Components product, Accenture offers the core P&C solution PolicyComponents, which is installed at four carriers in the U.S. and over 10 in Europe. The company offers Accenture Life Insurance Platform, derived from its 2006 acquisition of NaviSys, and it has reaffirmed its software strategy in a big way with the acquisition of Duck Creek.
To rephrase a couple of points we've reported on at I&T, the deal brought the insurance industry important benefits through the combination of Accenture's systems integration strengths and the quality of Duck Creek's technology. The latter presented the classic example of falling victim to its own success, enjoying sales that outstripped its implementation resources. As one wag has put it, many customers in the throes of implementation found themselves up Duck Creek without a paddle. Buttressed by Accenture's deep bench strength, the Duck Creek technology can only be even more attractive. As Celent senior analyst Donald Light has said, the Accenture/Duck Creek combination may reduce the number of options in the insurance market, but by creating an offering superior to what the companies offered separately. The deal also signals Accenture's bid to become a significant software provider in the mid- and lower-tier insurance software market.
All in all, the Accenture/Duck Creek deal has put a seal on a strategy that has profound implications for the insurance software market. How Accenture's strategy pans out remains to be seen, but industry observers are speculating energetically about what it means for software consumers, for rival software producers and for further M&A activity in the insurance software sphere.
For example, I had an exchange with Steve Hauck, co-CEO of Sword Insurance, who had points worth sharing.
Hauck believes that the deal will force other systems integrators to reevaluate their strategy within the insurance vertical -- and policy administration system vendors to reevaluate their systems integrators. Says Hauck:
The Accenture acquisition of Duck Creek certainly made every insurance IT vendor sit up and say "interesting" and what does this mean for me and for the market at large? On paper, the acquisition makes a ton of sense. Accenture has human gunpowder, Duck Creek has a good customer base (though specialty and silo oriented) and a modern technology offering. For the small/medium market, we'll see how comfortable Accenture will be with pricing. For the large, tier 1 market, we'll see if Accenture can augment the Duck Creek technology to scale to meet a broader and more complex need. Will Accenture allow Duck Creek to penetrate tier 1 policy administration replacement scenarios? This is the big question -- no modern policy administration vendor has had success here.
Relative to Guidewire or CSC, the Accenture/Duck Creek combination is unique. CSC is most dominant at the smaller end of the market and Guidewire relies on systems integrators for implementation -- neither really cracking the tier 1 PAS replacement opportunity. I'm sure both are taking serious notice of this transaction. I can't believe Accenture went into this transaction to singularly focus on the mid/small end of the market. Accenture will likely be successful with Duck Creek at the tier 1 level where they have a strong captive relationship with the customer. I'm not sure Guidewire has this kind of leverage. Then, the question will really boil down to whether or not Duck Creek has a product with the breadth of content and scalability to meet the complex needs of Tier 1 carriers.
Hauck sees the potential of the deal to affect pricing in the small to middle markets, opening up an opportunity for "upstarts," such as Exigen and ISCS, though they may have a less credible delivery proposition. He reiterates his skepticism about just how much competitive pressure the deal places on tier 1 vendors, while acknowledging the potential for Accenture/Duck Creek to break new ground there:
Show me a modern policy administration system vendor that has replaced a system for an insurance company business segment with over $2 billion in direct written premium in standard/ISO based lines of business. This transaction still doesn't clarify this market opportunity.
Not yet, anyway.