Two days ago, SciQuest announced it was acquiring AECSoft, a vendor focused on a range of supplier management and supplier data enrichment areas. Yet AECSoft made an early name for itself as a purveyor of supplier diversity content and tools, competing in typically small -- often low five and even the occasional four figure deals -- in a single, highly targeted area. In recent years, AECSoft has been able to expand its relationships with many existing clients into broader supplier management programs. But they also continue to attract smaller content and broader spend enrichment-type customer programs as well. The two models clearly worked well for the ambitious and highly profitable diversity vendor that could. But will they work within a larger organization without a long-time track record in peddling high-end solutions that cross the software and vendor content line (aside from catalog content, which is an entirely different game)?
I think that for a number of reasons, the fundamental content/software wall can be difficult to cross for organizations of a certain size that focus on stamping out consistent and large solutions to complicated problems across a client base. While these hurdles are not specific to SciQuest, consider the following challenges that could come from combining software and proprietary content inside a larger vendor:
- Content in procurement is a scale and transactional game, where order taking is the norm. Software (including cloud/SaaS) often relies on a sales model that combines hunters and gatherers, resulting in lucrative multi-year relationships that can span into the millions of dollars. Managing the two types of sales organizations can double commercial complexity and cause customer and potentially channel headaches
- The perception of lesser or poor content -- it seems that nearly every supplier diversity, general enrichment and supply risk content provider has a number of serious former/current customer detractors for one reason or another -- may cause an implied bias customer against a software/SaaS package where it is not warranted, potentially harming often more lucrative software sales
- "Owning" content in one area may make it hard to resell content in another. For example, a company like D&B or Equifax is less likely to sell content to a software vendor, which also has a proprietary content business in other areas where it competes against the bigger name provider (e.g., risk data)
- Content validity and legality; the grey area of supplier content is quite large indeed. At least some providers resell, aggregate, combine -- perhaps "mash-up" is a better term -- different information, making licensing monitoring difficult. In addition, within the vendor enrichment space, at least one vendor I am aware of was accused of seeding its initial database with proprietary content from another organization. These challenges combine to present potential risk and brand reputation factors for larger providers who aren't used to all the due diligence that goes into bringing to market content/enrichment offerings.
Clearly, in its acquisition of AECSoft, SciQuest is gaining more than just supplier diversity and enrichment content. But the choice to expand as a player in the content origination game as a core component of a broader P2P and supplier management is not as cut and dry as it might seem at first. There are arguments worth making that suggest that SciQuest may be better off quietly keeping the asset as-is -- rather than ramping up the diversity/content enrichment business -- or spinning it off to another content provider that could get into the business (e.g., LexisNexis) or one looking to expand on its existing business (e.g., Equifax, D&B, CVM Solutions, etc.). Then, as one option, it could focus on building out a more broadly integrated supplier management suite -- with partnerships with a number of enabling content enrichment partners -- that already has its sea legs today in a market that is just starting to get salty.
Regardless, making this decision is a good problem to have and there are no clear rules yet written into the playbook of how to build (or not) both software and content businesses at the same time, with the same parent, at least in the procurement market. Moreover, SaaS/cloud business models may ultimately contribute to blurring the software/content line entirely.
I'd be curious to get a perspective on the topic from Spend Matters readers. If you have a chance to chime in as this short week winds down, I'd welcome any opinions on the subject.