Should you Cheap Out?

In the past few years, there's been tremendous price erosion on the low end of the Spend Management applications market. Basic eRFX and reverse auction tools that used to cost hundreds of thousands of dollars per year can now be had in the thousands per month on a rental or on-demand basis. Now granted, often these tools are not as sophisticated as the more expensive solutions which are out there, but they often cover a good percentage of the capabilities that organizations are looking for -- especially when they’re just getting started with Spend Management.

But now, there's even inexpensive spend analysis and visibility tools which are available -- that can cost 1/10th the amount of other solutions. I've personally had a chance to use one of these tools and while it's not near the same level as Ariba, Emptoris, or others, it's not bad for the money, and many would consider it an excellent value (the vendor in question quoted one large global organization only $100K for the product per year). Knowing the market for this type of solution, that pricing is incredibly cheap. But at 10% of the price, is it the 80% solution? Probably not, but it's definitely not 10% either.

What's my honest opinion? I'd argue that the real value of Spend Management -- at least for Fortune 500 size organizations -- comes from integrated processes and technology across the purchasing and business lifecycle -- which implies integrated, best-of-breed capabilities are essential. Cheap solutions, while effective for targeted areas, are really only a distraction for large organizations. But $100K for spend analysis is more than enough to get my attention, even if I’m comparing apples to an entirely different food group. At the least, a comparison between tools like this versus integrated solutions and platforms can help justify the investment in more sophisticated capabilities (or not). And at the very least, for the mid-market, these dirt-cheap tools could be ideal.

Jason Busch

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