Earlier this year, CombineNet announced a software-focused product designed to help more advanced sourcing organizations take advantage of the firm's optimization capabilities without relying on expensive professional services and customization. Having taken a close look at what's happened to CombineNet this year -- especially in relation to Europe-based Trade Extensions who is probably their closest (albeit an emerging) competitor on the software front -- it's clear to me that this offering is too late in the market to thwart the entrance of others and allow CombineNet to capitalize on its solution-driven reputation in the stand alone software area. And that's because much of the market is already far down the path of either wanting self-service capabilities or lower cost solution-driven optimization offerings, especially in the transportation arena. Granted, I still have a lot of respect for CombineNet's capabilities. And I have little concern that they will be able to keep building on a business model that clearly delivers excellent customer value. But their chance to become the ten-ton gorilla that remains out in front of the sourcing optimization market is fading. Chances are, they'll be competing more against other direct competitors and substitute offerings in the coming years.
It did not have to happen this way. CombineNet could have -- and should have -- learned much earlier from its downtown neighbor, FreeMarkets (my sourcing alma matter). At FreeMarkets, we absolutely blew a golden opportunity to dominate the sourcing and overall procurement software market. After many stalled attempts, we eventually ended up entering the market with a low-feature, low-cost product relative to the competition. The only reason we succeeded in building marketshare -- in addition to the low price points offered on the software -- was because of our reputation for delivering full-service (Full Source) solution-driven offerings into our "installed" services base.
I personally chalk up the FreeMarkets missed opportunity to management hubris. Even though we kept going down the software-only path for a number of years before releasing the ultimate product, our leadership heart was not in software (remember ES, anyone?). In fact, we dismissed the notion that companies would even want to do e-sourcing themselves for a majority of their spend. CombineNet, like FreeMarkets, displayed a similar arrogance in the early going (the early meetings between the two companies was like bringing a tiger cub and a lion into the same pen). But unfortunately, CombineNet followed in FreeMarkets footsteps by getting fat on rich services-based contracts and taking too long to come up with a viable, stand-alone software offering.
What will the sourcing optimization landscape look like in 2009? Very different. I'm guessing CombineNet services revenue (not taking into account CombineMed revenue) will be flat -- in other words, I do not see them as the dominant stand-alone player anymore. Still, other well-known incumbents are not necessarily thriving either. Emptoris, for example, has progressed little in self-service optimization of late, and I anticipate that recent organizational and financial changes will delay their drive to expose the type of self-service capabilities that they want to in this area. That leaves BravoSolution, which offers largely services driven optimization, and Iasta, which has both self-service and full-service optimization capabilities. Ariba also has some limited capabilities.
But if I were to guess who might begin to really take this space on the software front, it's the little known vendor that I mentioned at the beginning of this post, Trade Extensions, which offers a reasonably priced, stand-alone and highly flexible optimization product, which is used by AT Kearney Procurement Solutions, among other customers. Is Trade Extensions superior from a capabilities standpoint? Not necessarily. But they -- like Ariba, Procuri, Emptoris, Iasta and others who FreeMarkets allowed to get away with capturing self-service market share by delaying its own releases -- get the fact that people want to try to use applications themselves (even if they believe in their hearts that customers will screw it up because of the complexity of product).
Give the sourcing masses want they want. Don't give them what they need. If FreeMarkets and CombineNet had both listened to this mantra earlier on, Pittsburgh would be a very different place, and the FreeMarkets name would have lived on. It's not too late for CombineNet, but the opportunity is largely gone to have any chance at dominating the optimization sourcing software market -- at least without serious competition. Services, maybe, but when you have consulting competition privately labeling software from your only major software competitor, it will always be a more challenging battle to maintain premium price points even if you have the more powerful canon. Do you see any parallels here?
- Jason Busch