Dissention in the P2P ranks – and why aren’t procurement tech firms bigger?

Perhaps not surprisingly, given their potential to be a pretty strong market entrant, our generally positive review of the Coupa P2P platform drew an interesting mix of comments. Things even got a little heated, with one of our commentators and Alex Kleiner, Coupa's top man in Europe,  going head to ehad. And in response to some of the comments,  I do intend to take a look at some of the alternative vendors who we haven’t featured on Spend Matters much as yet.

And “Spend Management Man” did raise one very interesting point.

 But I'll tell you what I would be interested in your perspective on... why are most of the P2P vendors active in the UK market (Coupa, Wax, Proactis, Compleat, etc.) still absolutely tiny (sub $10m turnover) - why is there still only Ariba and Basware who have broken through into serious businesses?  I even understand that SAP and Oracle licence revenue attributed to procurement modules is insignificant - most is given away with wider ERP solutions or to secure more lucrative services agreements. It just seems to be an area that software companies struggle to "make stick"?

Now, I suspect Coupa would argue that they’ve only been going for 5 years, so their growth has been pretty impressive in % terms. And they have only just started targeting the UK, so I don’t think we can as yet draw any conclusions to how successful they are – or will be – in that market.

But our commentator is right in that firms that appear to have good products aren’t as big as you might think.  That also struck me from the recently shortly.  Although firms’ annual revenue aren’t disclosed in most cases, you can get a pretty good idea from the number of staff. And it is interesting how many of them are in the 30 – 100 headcount range.  Not to  be sneezed at, but not exactly Oracle, Google or Salesforce.com size either.

So why haven’t we seen more growth in the market, and why does it seem to remain stubbornly fragmented, with so many medium sized players, but few giants?

Any thoughts?

Voices (6)

  1. James Hull:

    Some interesting points being made, I’d like to know why catalogue management doesn’t get much priority nor ease of finding the right product.

    The point made by Dan about spend analysis is related – if you don’t have good product info to start with how can you analyse what you’ve spent your money on?

  2. Spend Management Man:

    I agree with most of the above comments, and have some thoughts to add of my own too…

    1) Lack of true innovation… Basware drive real innovation in terms of AP automation and really made that space their own over the first decade of the 2000’s. Ariba did the same in the procurement space over the same period. Today if you look at both of these companies they continue to drive innovation in these areas (WCM, Networks, eInvoicing, Sourcing Discovery, etc.), whilst the plethora of mid-market P2P companies play catch-up and copycat on the basic original models. Coupa, Proactis, Wax Digital, Elcom, Compleat all really focus on providing glorified Purchase Order Processing and Invoice Matching systems, but the two frontrunners have moved way beyond this now and are innovating in new ways. Your mention Google, Oracle and Salesforce.com… all these companies are innovators not followers. I have had sales pitches recently from Coupa and Proactis and both focused on talking about what was wrong with Ariba and why they were better, without actually demonstrating what they could do differently… you only have to look at the numbers to realise how “aspirational” their claims are and how little substance there is to claims to be the next big thing. IMHO niche companies with new and interesting business models and innovations are more likely to be those who break through rather than these copycats, Tradeshift and Invapay are great examples.

    2) I also think many of these companies set their ambition levels too low. Few of the smaller vendors have been successful at penetrating complex spend categories with P2P, such as CWS or legal for example. This is reflected in the %age of spend under management in their clients…. I have yet to find a customer of one of the aforementioned companies with more than ~30% of their spend under management in P2P (nb: rough estimate rather than science, but I’m convinced this is about right). Sure, they might have more invoices flowing through the invoice matching engine, but few purchases are being rigorously controlled by a P2P system in terms of driving preferred supplier usage, contract pricing compliance, etc. With such low ambition levels how can such systems ever be deemed strategic and how can they ever demonstrated a clear ROI for their customers…. and therefore how can they ever break through the revenue ceiling. (People talk about Ariba costing so much more than its competitors, but presumably their customers are not stupid – they are prepared to pay more for a reason? Perhaps that’s because they are more confident in the results?)

    3) Lack of funding… Sadly it remains a fact that creating a big software company requires big funding to establish market presence and seize customer share. Opportunities for companies to raise the required funds today are few and far between. Coupa is well funded but its cash reserves are nothing compared to what would have been available had they started out 11 + years ago, and its entry into the UK for example has been cautious and careful as opposed to the big splash we might have seen from a Salesforce.com or suchlike in the last 10-15 years… Proactis sits on its smaller cash reserve protectively and seems to be pairing back its sales and marketing resources more than investing… Wax’s position is unknown to me but they do not appear to be investing much either. Companies just don’t have the funds and investors just don’t seem to have the appetite to create another gorilla in this space. It’s a shame, because as Neil Robertson’s comment above highlights, there is still a massively untapped market in the mid-market especially.

    4) Woodbine’s view above is spot on, in my experience, in the mid-market. FTSE100 and the likes seem to have cracked this problem now… procurement is taken very seriously, but there is still clearly a big educational job for procurement to do in the mid-market.

    Just some thoughts to throw into the mix.

    SMM

  3. Dan:

    I suspect its partly to do with the number of legacy systems that organisations are burdened with, and how well they integrate with the procurement technologies.

    I know ours is ******* useless for getting any spend analysis from or integrating with other systems.

  4. Neil Robertson:

    It is an interesting question – why is growth so stifled in a market where the vast majority of businesses in the £10m – £250 turnover range (197,000 in the UK) still use a predominately manual purchasing process. In a recent discussion with Debbie Wilson from Gartner, we estimated that the main UK P2P vendors still have less than 1,000 sites.

    For many organisations, the problem is that “spend” is not one person’s responsibility. The finance department “count the beans”, the procurement people focus on the larger / strategic areas, but the vast majority of spend is still managed by multiple budget holders, each acting independently.

    The good news (driven by tough times) is that we are seeing more finance directors recognising that controlling spend is becoming a strategic requirement and taking up the reigns, usually working in concert with the procurement management. The market is getting active.

    My view is that volume adoption will only happen when the cost and complexity historically associated with a P2P implementation is removed. Whilst the pitch is always about productivity gains and reducing costs (what pitch isn’t?), there remains a high level of scepticism on whether the benefits will be realised. The ROI metric improves as the cost of the solution and speed of deployment reduces. The credibility of the ROI improves when demonstrable savings can be identified and warranted pre-sales.

    The market is waking up to the benefits of automating purchasing and controlling spend. Offering a low cost, fast to deploy, very easy to use, functionally rich P2P application, tightly integrated into the finance systems and available in a SaaS or “perpetual” model is one of the answers.

    Adding a buyers group to deliver the resources, domain expertise and buying power (plus warranted savings) also helps, as it makes the ROI credible and achievable.

  5. Woodbine:

    I have a sneaking suspicion that some in the finance community see procurement’s involvement in the P2P process as a threat not a benefit, it doesn’t help that purchasing managers are always trashing Finance Manager’s data.

    Answer? Finance managers and IT insist on end-to-end SAP / Oracle / Agresso and subsequently P2P becomes an afterthought for the business.

  6. RJ:

    As an immediate reaction perhaps this is because procurement systems tend to be bought and implemented by buyers!

    In the same way that procurement consultancy remains a niche area despite the obvious benefits of saving money (especially in a recession), both the systems and the advisory sector remain, in my opinion, mired in their inability to reach out beyond their in-house constituency. Buyers themselves are reluctant to spend money, especially where the business case for such investment is difficult to justify (did the savings we’ve acheived come from the system or the people negotiating deals? how does a system really contribute to our ability to aggregate spend, manage supplier performance and relationships and control demand?).

    Of course, some CFOs do get the principles of improved control, fraud/malpractice mitigation, better visibility etc, but historically the expenditure required to deliver this has tended to outweight the directly-attributable cost contribution.

    I suspect that until procurement really and consistently moves out of its price/cost control box we will continue to see both the systems and advisory sectors to be seen as niche by the vast majority of the C-suite.

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