Deborah R WilsonI’ve had a string of inquiries over the past few weeks from smaller organizations that are keen to invest in procurement technologies – to improve their sourcing processes, to support requisitioning, and to connect online with suppliers. For me, these calls are often a source of deep frustration. (Remember I am and forever will be a procurement professional at heart!) This is because I see that low-end tools do lack important, useful features that higher-end tools have, but those higher-end tools are often still out of reach from a pricing perspective.
For example, a client cited to me today that their low-end e-procurement tool doesn’t allow for multiple accounts to be charged on a single purchase order. Not a fatal flaw, but one of many shortcomings. And so what do these smaller organizations do? They often solicit proposals from the same enterprise-class vendors that their larger brethren work with, because they want access to the same sophisticated capabilities that they their colleagues using. And who can blame them?
More often than not, the higher end tools are priced way above what makes sense for a smaller company. For example, I’ve seen large multinationals get less than $1000 per seat per year for a top-notch strategic sourcing tool – and I’ve seen a $1 billion organizations quoted $15,000 per seat per year for the exact same solution. And I guarantee you that the larger company will generate a lot more savings per seat because their size will create rationalization opportunities and economies of scale that the smaller organization will never have.
While I fully realize that enterprise vendors need a certain minimum deal size to make a new customer worth the effort – I also see a major disconnect in the market. There is some progress forward towards bridging this gap – but IMHO, a lot more progress needs to be made.
Category: Cost Cutting Procurement Market Research The Business of Software Tags:
1 response so far ↓
1 Jason Hekl July 14, 2009 at 1:19 pm
There’s always room for progress, but I’ll argue that your smaller organization clients should be encouraged by what they see in the market today. The “higher-end tools” from large enterprise software companies have been developed over decades. In just a few short years, though, software upstarts like Coupa have developed 80%+ of the same functionality, at a fraction of the cost. So we’re not talking thousands per seat – we’re talking hundreds. In Coupa’s case, even less. And you can charge each line in the PO to a different account. And you can connect online with your suppliers, via punchout, or via a supplier network that does not charge a fee for supplier participation. And solutions like Coupa introduce new functionality every 2-3 months, including a steady stream of innovations you just won’t see in the higher-end tools – like market benchmarking based on transactional data through the e-procurement platform, or a requisitioning tool that makes it easy for employees to requisition items from virtually any website, or even something as simple as being able to tweet your RFQs to suppliers that subscribe to that Twitter stream.
The lower-end tools may not match the higher-end tools feature-for-feature, but I’m betting that they deliver much more value than alternatives that costs hundreds of thousands to license and millions more to implement, maintain and support. And for risk-averse and cost-conscious companies who are reluctant to go with a relatively unknown SaaS solution, these upstart companies, Coupa included, offer free trial programs so companies can try before they buy. In Coupa’s case, that means having the option to select between a pre-populated demo instance, or a completely clean instance that you can configure and use as an actual purchasing system for 30 days without obligation.
And one final thought. An increasing number of multi-billion dollar companies are eschewing the “higher-end tools” in a flight to value. The 80/20 rules apply even to the largest companies. Check out the Customers pages on the upstarts’ websites for ample evidence of this trend.