2005 SR&ED Related Report on eProcurement Software Industry Tells An Interesting Story 5 Years Later

Posted on January 6, 2011


The major ERP companies are starting to move “down market,” approaching firms as small as $50 million in revenues.  These slimmed down versions are of necessity horizontal products that either require significant customization or that the client changes their business processes to meet the application’s needs.

While much of the larger market has been approached by the large ERP companies, there appears to be no dominant player in the pure “procurement” sector with 23 firms showing up in the above analysis.  None of them exceeded $50 million in revenue in 2004 suggesting that the market is still fragmented and full of opportunity for new players.

from Strategic Market Assessment Sept. 2005

As those of you who have been following this blog since it was launched in May 2007 already know, a good part of my career in procurement was spent heading up a team that I had assembled to research the viability of new, Internet based applications for the procurement industry.

As part of that process, in which my company received significant funding under the Government’s Scientific Research & Experimental Development “SR&ED” Program, we hired an independent firm to do an analysis of the market in 2005 focusing on the then current software vendors, preferential client industry segments, and what is known as a SWOT for the soon to emerge Software-as-a-Service “SaaS” vendors.

At the time of its completion, the 105 page document provided a very interesting perspective on a market that was in the very early stages of transition, the effects of which we are seeing today in the form of the emergence on non-consultancy models and the eschewing of long-term, costly ERP-type initiatives.

Over the next few weeks, I will share with you the findings of this exhaustive study focusing on the differences between the expert predictions from 2005, and the present day realities.

Suffice to say the contrasts and similarities of expectations will prove to be most interesting, including how in hindsight statements such as “These slimmed down versions are of necessity horizontal products that either require significant customization or that the client changes their business processes to meet the application’s needs” foretold of the demise of the traditional ERP model.

In the meantime, and in a “where are they now” stroll down memory lane, here are the vendors in 2005 that were considered to be the main players in the procurement or should I say e-procurement space.  What is worth noting again is that each of these companies in 2004 had less than $50 million in revenue.  With the exception of I-many, Commerce One and i2 Technologies, who registered declining revenue streams between 2002 and 2004, the other 20 players had experienced a growth in revenue during the same period.  The biggest revenue gains were made by Verticalnet, Frictionless Commerce, Global eProcure, Procuri and Perfect Commerce.

1. VerticalNet Inc. (Nasdaq:VERT) was a “provider of On-Demand Supply Management solutions to companies ranging in size from mid-market to the Global 2000″ and host of business-to-business (B2B) procurement portals (“B2B hubs”). Founded in 1995 and headquartered in Malvern, PA, Verticalnet became famous during the Dotcom bubble for its US$12 Billion valuation in early 2000[1], at a time when the company had few tangible assets and a revenue stream of only US$112.5 million. At the peak of its valuation, VerticalNet operated few B2B portals, plus more than 50 Internet business-to-business trading communities as well as professional communities.

In 1999, the company lost US$53.5 million on revenues of 18.4 million. In 2000, revenues increased to sixfold to $112.5 million, but losses multiplied equally, resulting in $311.3 million negative net income that year. Despite claims by Verticalnet CEO Mark Walsh that the company would become profitable by Q2 2001[2], profitability was never achieved[3]. In 2007, VerticalNet was sold to Italian cement manufacturer Italcementi for USD 15.2 million.

Interesting Side Note: VerticalNet merged/acquired B2eMarkets in July 2004

2. B2eMarkets (see VerticalNet)

3. Manugistics Group, Inc. was a company that developed and marketed software applications, principally for resource planning and supply chain management, with clients around the world. It was acquired by JDA Software Group on July 5, 2006.

4. Intentia was a software company founded in 1984 and served over 3,000 customer sites in some 40 countries around the world. It provided applications such as customer relationship management, supply chain management and asset management. Intentia was a public company traded on the Stockholm Stock Exchange (XSSE) under the symbol INT B.

Interesting Side Note: In April 2006, Lawson Software and Intentia merged to form the new LAWSON.

5. Frictionless Commerce now SAP Sourcing (originally called E-Sourcing) was the product of Frictionless Commerce, a Cambridge startup founded in 1998. In July 2006, SAP acquired Frictionless, which at the time employed 70 people.

6. Global eProcure is a procurement services company offering consulting, technology, and procurement outsourcing. It was founded in 1999 by Dr. Suhbash Makhija with a few others and is headquartered in Clark, New Jersey.[1]

Recently Global eProcure’s executives named to Supply & Demand Chain Executive Magazine’s list of Provider Pros to Know.[2] It is ranked 5th in the Black Book of Outsourcing.

Besides the New Jersey Headquarters, Global eProcure has offices in Los Angeles, Washington DC, London, Prague, Costa Rica, Shanghai, Mumbai and Hyderabad.

7. Sterling Commerce, an IBM company, provides business-to-business (B2B) commerce solutions that enable the sharing of information among people, business systems, and enterprise systems. The company offers integration products and services through its Business Integration Suite,[1] that address the business problems corporations face when seeking to integrate business processes internally and externally with their customers, partners, and suppliers. Sterling Commerce also provides supply chain execution solutions through its Selling and Fulfillment Suite,[1] that streamline the commerce lifecycle. In support of its solutions, the company also supplies education, consulting, implementation, customer support services, and complete outsourcing of B2B commerce solutions. Clients include companies and organizations in retail, healthcare, banking, distribution, financial services, logistics, manufacturing, local and federal governments, and communications and media sectors. Headquartered in the American city of Dublin, Ohio, Sterling Commerce has offices throughout North America, Europe, and Asia. On August 28, 2010, IBM closes $1.4B acquisition of Sterling from AT&T On May 24, 2010, IBM agreed to acquire Sterling Commerce from AT&T for $1.4 Billion USD.

8. Procuri was taken over by Ariba in late 2007, enhancing the larger company’s client base and on-demand abilities.

9. GXS is an award-winning Managed Services Company providing Business-to-Business e-Commerce and data integration services around-the-world. GXS provides an integration cloud, services, and expertise for a variety of vertical markets including retail/consumer packaged goods, high tech/manufacturing, automotive, and finance/banking.

GXS is reported to be the largest provider of integration services and as having a strong leadership position[2].

10. IBS Procurement Management Software IBS software helps you obtain the best goods at the best prices while building and keeping strong supplier relationships. Adapt dynamically to market changes with instant access to inventory and supplier details.

11. IFS develops and supplies component-based business applications for medium and large enterprises.

IFS Applications, which is based on web and portal technology, offers 60+ enterprise application components used in manufacturing, supply chain management, customer relationship management, financials, engineering, maintenance and human resource administration.

IFS provides customers step-by-step evolution to the extended enterprise with e-business solutions that offer partner, customer, and supplier collaboration.

A leading global business applications supplier, IFS has more than 3,200 employees, with sales in 43 countries.

The company is listed on the Stockholm Stock Exchange (XSSE:IFS).

12. Perfect Commerce, a provider of On-Demand Supplier Relationship Management (SRM) Solutions and The Open Supplier Network acquired Commerce One, LLC on February 7th, 2006 making the company a wholly owned subsidiary of Perfect Commerce, LLC, a Virginia Limited Liability Company headquartered in Newport News, VA with an office in Paris, France.

13. ePlus is a leading provider of Enterprise Cost Management, ePlus provides a comprehensive solution to reduce the costs of purchasing, owning, and financing goods and services. ePlus Enterprise Cost Management (eECM) packages business process outsourcing, eProcurement, asset management, supplier enablement, strategic sourcing, and financial services into a single integrated solution, all based on ePlus’ leading business application software. Profitable since inception in 1990, the company is headquartered in Herndon, VA and has more than 30 locations in the U.S.

14. QRS Corporation, an Internet software company, acquired the privately held RockPort Trade Systems Inc. for about $100 million in stock in March 2000. At the time, RockPort made software that allowed companies to compare, over the Internet, the cost of various supplies. QRS, based in Richmond, Calif., paid about 1.1 million shares for RockPort, based in Gloucester, Mass. QRS’s shares, which were traded on the Nasdaq exchange, went down $2.78125, to $94.375 immediately following the announcement.

QRS Corporation. The Group’s principal activity is to provide collaborative commerce solutions to the retail trading community. Its three solutions groups are Software applications, Trading community management and Global services. Software applications automate and optimize business processes between companies through product information management and collaborative product planning, design, production and shipment. Trading community management solutions allow retailers, vendors and their trading partners to exchange electronic business documents over a value-added network. Global Services include the collection, analysis and delivery of pricing, promotion and distribution information. Products include QRS Catalogue (TM), QRS Exchange (TM) and QRS Retail Intelligence Services (SM). Customers include retailers, vendors, suppliers and brand manufacturers from various retail segments. The Group’s products and services are marketed in the United States, Canada and Europe. Provides collaborative commerce solutions to the retail trading community.

Interesting Side Note: It would now appear that QRS is part of the Gardner Group.

15. Silver Oak Solutions or Silver Oak Solutions, Inc., also known as Silver Oak Partners, Inc., provides spend management solutions for the government sector. Its solutions are used to identify, create, and sustain savings in procurement spending. The company was founded in 1999 and is headquartered in Boston, Massachusetts. As of September 2, 2005, Silver Oak Solutions, Inc. is a subsidiary of CGI-AMS, Inc.

16. i2 Technologies is a supply chain management software and services company, founded in 1988 by Sanjiv Sidhu and Ken Sharma in Dallas, Texas (USA). The company was initially known as Intellection prior to being renamed i2 Technologies, Inc.. Today it has more than 1500 customers in a wide variety of industries. i2 is headquartered in Farmers Branch, Texas,[1][2] and has major offices in India, Japan, Korea, Belgium (Europe), and Australia. It primarily sells through a direct sales force, but also has a reseller channel that includes global organizations such as IBM and Tata Consultancy Services. On November 6, 2008 i2 shareholders approved a merger with JDA Software, but later called off. But JDA Software Inc. came back again for a merger and acquired i2 Technologies on 28 January 2010.

Interesting Side Note: In 2004, i2 paid a $10 million penalty to the Securities and Exchange Commission, and agreed to a cease-and-desist order, to settle charges that it had misstated $1 billion in software licensing revenues.

17. Lawson Software (NASDAQLWSN) is an international software company with 4,000 customers in manufacturing, distribution, maintenance and services industries, such as healthcare, financial services, retail and public sector in 33 countries.

Interesting Side Note: In April 2006, Lawson Software and Intentia merged to form the new LAWSON.

18. Commerce One (see Perfect Commerce)

19. ICG Commerce or Internet Capital Group (NASDAQICGE), (ICG) is a publicly-traded venture capital firm founded in 1996 by Ken Fox and Walter Buckley.[1] ICG raised $178.8 million in an initial public offering on the Nasdaq in August 1999.[2]

By December 1999 ICG had a market capitalization of nearly $60 billion, larger than not only Internet stocks like both AOL and Yahoo!, but also other large cap stocks like GM or Gilette,[3] and by 2000, ICG had invested nearly $1.4 billion into business-to-business e-commerce start-up companies.[4]

However, by September 2001, the company had become a poster child for the dot-com bust of 2000-2001 as its stock priced crashed to less than $1 from its high of $212 in December 1999.

Today ICG Commerce refers to itself as “the procurement outsourcing specialist,” boasting that it provides next generation approach to managing and controlling your non-core spend; such as Marketing, IT, Corporate Services, or MRO purchases, that are not core to your company’s end products or services. Procurement Outsourcing is the process whereby a company engages a third party to manage all of their non-core expenditures; enabling you to refine your focus on your core business strategy and activities.

20. Emptoris is an interesting company that has gone through major changes in the past few years including at the executive suite level and a bold expansion into new service offerings through its acquisition of Click C0mmerce.  However, not all of the notable events in the company’s recent history have been positive.

In December 2008, Ariba announced that the U.S. District Court for the Eastern District of Texas had issued an injunction against Emptoris, which prohibits the company from infringing on two of Ariba’s patents related to overtime and bid ceilings in reverse auctions.[10] On 16 December 2008, the court ordered Emptoris to pay an enhanced damages award of $1.4 million for willful infringement in connection with Emptoris’ infringement of the two reverse auction-patents held by Ariba. This was in addition to the 29 October 2008 jury award of $5 million in damages to Ariba, bringing the total fine to approximately $6.4 million, a significant penalty for Emptoris which earned approximately $50 million in revenue for 2008. In an Emptoris press release, that company noted that it had released a new software “patch” that eliminates any infringement. The U.S. District Court, in February 2009, issued an order noting that the “patch” is colorably different, effectively concluding the case.

21. A.T. Kearney is a global management consulting firm, focusing on strategic and operational CEO-agenda concerns. It was founded in 1926, and its head office is in Chicago, Illinois. The firm was ranked number 11 “best place to work for” in Consulting Magazine’s 2009 rankings.[1]

The firm operated within the United States since its founding in 1926, until 1964 when it opened its first international office in Düsseldorf. A.T. Kearney now has 52 offices in 35 countries.

A.T. Kearney’s industry specialties include automotive, communications, consumer and retail, financial institutions, government, high technology, electronics, pharmaceuticals, health care, energy and Utilities. Major competency teams include supply chain management, growth strategies, mergers, innovation and complexity, IT strategies, transformation, procurement and sustainability.

According to the company’s web site, A.T. Kearney Procurement & Analytic Solutions provides comprehensive strategic services and solutions to clients seeking to improve procurement and supply chain performance, develop in-depth, analytical solutions and understand how emerging collaboration and Web 2.0 solutions can improve business performance.

Interesting Side Note: I wonder what clients such as the Government of Canada and the State of Georgia would have to say about the firms capabilities in the procurement arena?

22. I-many, Inc. develops and provides contract management software and services to enterprises. Its software and services facilitate contract compliance management for the verification of compliance and accuracy of orders, shipments, invoices, rebates, and payments; contract creation, repository, actionable terms tracking, date and event monitoring, and reporting; cash collection, deductions management, and dispute resolution; and evaluation of the effectiveness of contracts and business operations.

23. Dun & Bradstreet (NYSEDNB) is a public company headquartered in Short Hills, New Jersey, USA that provides information on businesses and corporations for use in credit decisions, B2B marketing and supply chain management. Often referred to as D&B, the company maintains information about more than 200 million companies worldwide.

According to the company web site, D&B Procurement is a critical partner in any purchasing program.

Trusted by some of the world’s largest purchasers, including the United States Government, D&B is uniquely placed to ensure you have a comprehensive understanding of your supplier market.

(A Special note of thanks to Wikipedia for providing many of the current day information on the companies listed above.)

About The SR&ED Program:

In our next installment in this series, I will examine closely the more dominant players from the class of 2005, and determine why they are where they are today, and what the future may hold for both their clients and the companies themselves.

Future posts will delve into specific end-user market segments, including how those sectors identified as being the prime markets to pursue in 2005 panned out in 2011.