Friday, 23 December 2011

Commoditisation of e-Sourcing Software

December 22, 2011 2:11 PM | Categories: Guest Posts, Cloud

Spend Matters welcomes a guest post Market Dojo, a Bristol-based e-Sourcing solution start-up.

As technology advances, the most sophisticated products of the past become nothing more than amusing artifacts. Take the early versions of the car or the television or the mobile phone. My grandparents used to recount the stories of embarking on glamorous week-long trips across England in their open-top sports car, an MGB GT V8, barely meeting another car during their travels. A decade later they would be completely astounded when my father could answer his car-phone, installed at great expense, whilst blistering along a motorway.

Today I take my mass-produced hatchback across the country just to have a short meeting with someone, allowing an extra 30 minutes for traffic, whilst chatting away on my hands-free to a business partner who could be anywhere in the world. I pay little for the technology and I would never expect to have to pay any more than I already do. I take it all for granted, provoked by the commoditisation of technology.

In the mid 90's, FreeMarkets was founded by Glen Meakem and began to find huge traction from large enterprises such as BP, Heinz and United Technologies (amongst others). FreeMarkets were able to command prices as high as $250,000 for their innovative 'reverse auction' services, a price that mattered little to such large organisations given the money that they could save from the process.

If we fast-forward to the "noughties," reverse auctions began to shift into commoditised territory. The solution was presented as an à la carte menu, competition was rife and the cost of the service had been driven to a tenth of FreeMarkets offering. As the service became commoditised, it was increasingly difficult to base the fees on the value that the service created but instead to base it on a cost plus model, as you see with every commoditised piece of technology. Despite this, the savings from reverse auctions and the standard of the service were certainly on par to those achieved back in the 90's, only at a fraction of the cost.

This meant that large consultancies were struggling to compete and instead had to diversify into newer offerings such as category management and cost reduction programmes to incorporate a broader range of services. Niche providers sprung up in abundance, innovating their fee mechanism but doing little innovation of the service or software itself.

Historically there has been a strong bond between e-Sourcing software and e-Sourcing services. For example, there are only a handful of providers that offer software without also advertising their own provision of services. Granted the profit margin on services tends to be greater, unless you truly are offering highly specialised software, but in our view there is another key reason. The software that has been designed to accompany the services relied on the services to make it perform. The software was wrapped around a specific process -- a consultative process -- where it played the supporting role. Therefore, since the service element had become commoditised, it was assumed that the software had even less of a chance.

However what we are seeing today is e-Sourcing software breaking free of those chains. It is a new breed of software that guides a novice user through the process -- it educates them and advances as they advance. This has meant that the software has its own lease of life that can continue to add value to any organisation. It has become truly self-service.

Compare it to "gamification" if you like, whereby computer games, with their vast depth of complexity and sophistication, are able to gradually take their users on a journey. They start with the basics of walking before running, building up to aiming and shooting and so on until before you know it you are abseiling out of moving helicopter, commando-rolling onto a roof, dropping a grenade down a chute, hijacking a car and making your getaway!

There are many examples of this in other software markets. I'm sure you remember the annoying talking paper-clip that used to appear in earlier versions of Microsoft Office, appearing when you least needed it and suggesting something suitably opaque. There is the classic saying that no one taught you to use Amazon. Or iTunes, or the iPhone, or Facebook or even other software offerings like MailChimp, Zoho and Skype.

As we move increasingly into the realm of Software as a Service, there are a few key attributes that such SaaS companies share, or at least should share if they want the best chance of success. First, they are very clearly presented. Within a few seconds you can understand what they do and why you might use it. Second, they are very clear on costs, as ultimately if you think you might want to use it, your next question will be on cost. Third, they are very well designed, so that someone who casually makes the purchase via the web is able to use it successfully without any complicated interruptions from sales, marketing, accounts, help desk and so on. That is unless you would like such an interruption, as many of these companies do offer that assistance. The final attribute is that they are capable. The stated function or feature that they promise has been aptly delivered.

To us, this is what we mean by commoditised software. Is the market ready? Only time will tell!

Tuesday, 13 December 2011

A UK Start-Up’s Viewpoint on the Paradigm Shift in e-Sourcing

We were recently asked to contribute our on-the-ground thoughts of the e-Sourcing market, as we witnessed it.  The original posting can be found here, although for ease we have included it below:

As a new entrant into the already crowded space of e-sourcing during a major economic downturn, it certainly makes for interesting times. After persevering though our first year, we can see many factors actually in our favour (and of course many against, but let's focus on the positives).

First, procurement continues to gain visibility within organisations, as we know that an efficient procurement strategy can mean the difference between profitability and receivership. Having been both an engineer and a buyer, it is pleasing to see these professions gaining more traction at a board room level, although still maybe not as much as we'd have liked.

Secondly, there is a strong focus on reducing costs. Perhaps that is stating the obvious; however with sales ever tougher under increasing global competition, procurement is the area where you can really recover that lost profit. To quote a figure commonly bandied about during my time at Rolls-Royce, "a one percent saving could increase profits by as much as ten percent."

Lastly, we perceive a paradigm shift in the e-sourcing market, which is why we chose to develop a SaaS (Software as a Service) application. As an aside, in our opinion, SaaS is just a re-branding of the type of companies formed during dotcom boom, except this time the internet infrastructure can cope with the delivery of their benefits.

The last fifteen years have definitely seen procurement technology come on leaps and bounds. It has evolved from pipe dreams to disparate applications to fully integrated ERP systems. These have been traditionally maintained by the local IT team and supported by a host of consultants with each required change to the interface or operating system costing the better part of an arm and a leg.

The shift that we thought we were predicting was the shift of this technology to online hosting, coupled with the rapid application of these e-Sourcing solutions to the SME and mid-tier market. In many ways we believed we were looking at the commoditisation (or "consumerization" as we learned to call it in the US) of the technology, embedded with more intelligence yet easy to use, professional and openly priced. We had thought that the larger companies were sewn up with the ERP behemoths who, even as we speak, are slowly moving to online hosting by development and acquisition. Parallels could also be drawn to the dotcom boom here, where large multi-nationals swept up the few successful e-providers who survived the bust bubble to give them that dynamic edge.

However, we seem to have got it wrong. We were too early -- although we have found that being ahead of the curve is not such a bad thing. What we have hit upon is a lot of interest from large tier one companies desiring a simple, online, and accessible solution which can be used in parallel with or sitting on top of their existing ERP solutions, even if those systems already contain e-Sourcing modules. This is most certainly due to the slower reaction speed and migration period to true SaaS solutions exhibited by the larger providers.

What is the reason for this? Our view would be the need for accessibility and easy adoption. Niche SaaS providers offer uncomplicated, pay-as-you-go products that are easily accessible and have been designed with the end user in mind to deliver very focused solutions. In our case, it is to provide in-house sourcing professional tools for e-RFQs and e-Auctions which can be switched on and off with no implementation costs and very little training. Obviously the large providers are adapting, trying to catch up with different pricing models to counter the competition from the smaller, more nimble SaaS providers. Ariba has demonstrated this most recently with their "free" license option. However, the change in the way software is being delivered, combined with the customers desire for an uncomplicated product, at least lets us put our foot firmly in the door and, in the end, we still have the small and medium tier to approach. All in all, interesting times.

About: Market Dojo provides accessible e-sourcing software. Find out more at www.marketdojo.com