Ketera — Will Their New Vision Bloom or Implode? (Part 1)

A couple of weeks back, I had one of the more interesting briefing calls I can remember in recent memory. And that's because in today's environment, most companies are conservative when it comes to reporting on customer success, product innovation and overall traction in the market. But on occasion, you get involved in a humdinger of a discussion because a company has truly gone out on a limb with a new philosophy and strategy -- in a way that will bring it either extreme success or cause a flame out of significant proportions. Ketera, at its current juncture, is just such an organization. And it was Ketera -- who Spend Matters readers might remember as the original On-Demand eProcurement vendor -- that was on the other end of the briefing call.

When Steve Savignano took over as CEO from Burton Goldfield, Ketera made a radical detour in strategy -- which was to originally become the On Demand vendor of choice in the source-to-pay market. With increased competition on all fronts, this original strategy was bringing with it new execution risks. The alternative however, charting a new course, was not without its own set of issues. Still, Steve decided to take Ketera in a new direction. But this new frontier is, in fact, not really new at all. Rather, it's an updated take on the original public marketplace concept that aims, in Ketera's words, to "provide the world's leading online business community that fully supports the spend management requirements of buyers and offers greater revenue opportunity for suppliers".

One of the major differences in how Ketera is going about building a new type of public marketplace is that the offerings are built around specific solutions versus simply a "build it and they will come" transaction mentality. In other words, you'll still find sourcing, P2P and related capabilities available in this new environment (more on the buy-side solution components in a minute). But you'll also see a highly consumer driven user-interface that would not be out of place if you were shopping on the web for a personal item. This should come as no surprise for those close to the new offering as the capacity for buyer and supplier self-service -- without any training -- was a requisite part of the new offering.

This new marketplace approach is built on four fundamental pillars as Ketera describes them. First, "supplier marketing", is the capability to let suppliers market to buy-side customers on the network, managing their own profiles, developing online storefronts, advertising to prospective buyers and featuring contextually in buy-side search queries. The procurement corollary to this is the second pillar, "supplier discovery", which lets buying organizations search a categorized directory, find suppliers, locate recommended suppliers and observe category trends.

The third pillar or component of Ketera's marketplace is what they're terming "community" -- private forums, discussion boards, ratings (buyer/supplier), reviews and document exchange. Last is the "Spend Management" suite of components previously discussed, which include almost everything you'd expect -- sourcing, contract management procurement, invoicing and spend analysis. Application coverage and competitive application parity is not 100% across all of these areas as Ketera continues to build out its new suite, but should prove sufficient for some companies, especially those focused on price. On the subject of cost, look for applications costing in the double or triple digits/figures per month -- you read that correctly. Supplier fees are also cheap relative to joining other marketplaces -- think hundreds of dollars per year as a rule, not thousands.

How does Ketera sum up this strategy? In their words, it's about coupling "an enterprise-class Spend Management platform with a dynamic business community" and a "public network that contains both public and private trading circles". Moreover, Ketera has predicated their strategy on developing an "easy-to-use, consumer-like environment" that provides "access to real-time business insights based on transaction costs".

I'm sure the big question on everyone's mind is whether this mash-up of business models can work, especially a model that relies on both buyer and supplier revenue streams (and the ability to turn suppliers into buyers and vice versa). At the end of the day, will an online "Yahoo" of B2B commerce combined with a formerly aspiring Ariba/SAP/Oracle procurement competitor -- not to mention a supplier-driven revenue company like an or Alibaba -- work in practice? And can it scale to the levels it will need to in order to gain critical marketplace mass? Stay tuned for my analysis later this week where I'll go into details on some of the pros, cons, opportunities and challenges of the business model and how Ketera is succeeding (or not succeeding) with it so far.

Spoiler alert: stop reading here if you want to be surprised in the follow-up columns to this post later this week.

My initial gut reaction is that it will be difficult for Ketera's new model to scale in practice given the massive underpinnings involved in building such an effort and the undercapitalization of the provider relative to other companies with even smaller yet vast marketplace ambitions (if I were doing it, I'd not consider such an effort without at least 5x or 10x behind me in contrast to what Ketera currently has available in investment and operating capital).

Moreover, there are simply no examples where such public B2B marketplaces have worked in the past outside of highly targeted industry plays -- and certainly not where enterprise software is also involved. I am open to being convinced however -- or at least presenting a positive argument in addition to a skeptical one -- because it's about time that someone breathed some new life into the Spend Management enterprise applications sector. Ketera may be going out on a dangerous limb, but if the tree holds, they could become one of the tallest trees in the buy-side -- and sell-side -- forest.

Jason Busch

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