Trading Partners: There's Life in Them There Reverse Auction Hills

A couple of weeks ago, I stopped by Trading Partners US headquarters in downtown Chicago to watch a pre-recorded bidding event and have lunch with Marc Halpin, Trading Partner's CEO, and Lindsay Tjepkema, Director of Marketing. The meeting brought me back to my early days at FreeMarkets, given that Trading Partners' entire business model has been modeled on creating a faster and cheaper version of FreeMarkets -- especially one targeted at larger middle market and smaller Fortune 500 firms. The office struck me as just about the opposite of a tech start-up or even most consulting firms in the sector.

I was the most under-dressed of the group that day, having skipped out on wearing a sport coat (just about everyone was in a suit). But that was about the largest difference in feel from FreeMarkets. They had copied the model down to even having event viewing rooms which had the appearance of those at FreeMarkets. In fact, Trading Partners is so focused on just performing "Full-Source"-like events, they will pass on more complicated, services projects which involve make/buy analysis or other non-core focus areas. All they do, in fact, is e-sourcing services, and they're proud of it.

The Trading Partners sourcing process reads like just about any strategic sourcing 5 or 7 step plan you might see out there. But what's unique is that they have created their own bidding software -- which is not for sale separate from use in bidding events -- with a significant number of formats, many of which Alan Buxton writes about on his blog Where Next. For example, they have, like many other providers, rank and transformational bidding, as well as more exotic types of auction formats such as Japanese, which create additional opportunities for procurement organizations in split of business situations (where a single supplier or low-cost award option is not always practical, but where you want to maximize competition among the most suppliers to create options). In addition to going deep on auction formats, Trading Partners offers a handful of services on the back-half of events such as implementation kick-starts which include additional supplier qualification reports and evaluations, although they stop short of first article testing.

Trading Partners currently has 92 employees globally with just over 40 residing in North America. Considering that their entire business model is predicated on reverse auctions, their growth is testament to the fact that there is significant opportunity for companies to continue to achieve savings -- or achieve savings for the first time -- in the current market climate which often favors suppliers over buyers. Even though they are somewhat quiet about their revenue model, it would appear they offer the gamut of fee options from 100% fixed fee to entirely variable/savings based (and everything in between). For their larger clients, who run 25-30 events per year -- a number representing around 25-35% of their spend -- the variable model provides a lower cost for what would be a six of seven figure fixed cost in a time when cash is king.

What's next for Trading Partners? I'd reckon more of the same. Marc's strategy is like a bullet spiraling out of a rifled barrel of a gun, heading directly at a target. Their razor focus is refreshing in a time when many services-driven firms want to be all things to all people -- at least within the procurement and sourcing world. Still, there will no doubt be a point when the reverse auction market is saturated, but I suspect by then, Trading Partners will have figured out the next FreeMarkets-like model to copy, refine and improve on.

- Jason Busch

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