Basware ‘Redefines’ its Business Strategy, But We Have More Questions Than Answers

Taulia Q4 results Argus/Adobe Stock

Basware is entering another transformation. Spend Matters has noted before that the Finland-based procurement solutions provider doesn’t “enjoy sitting still.” That’s proven true again with the company’s latest announcements to redefine its business strategy for the next two years to focus on expanding its procure-to-pay (P2P) and e-invoicing solutions and its new financing services as well as increase overall revenue growth.

“Basware has reached a tipping point in its transition to a cloud-based company, has a strong offering in P2P, e-invoicing and new financing services and is now ready to tap into the expanded market opportunities,” one of the company’s latest statements said.

Basware provides P2P, e-invoicing, supplier network and trade financing solutions. However, last year, we wondered if those first three solutions were just a “Trojan horse for a new business model built on financing,” as Jason Busch, Spend Matters founder and head of strategy, wrote. But with Basware’s announcement last week, it seems the provider intends to ramp up its cloud and network-based serviced through 2018.

“In 2016, Basware will accelerate its growth-related investments primarily focused on its cloud business, sales and marketing and related supporting activities as well as in the rollout of Basware's Financing Services offering,” the company said in one of the two statements released Feb. 2.

Basware laid out specific goals it plans to hit by 2018, including generating annual net sales in the range of about $240 million to nearly $306 million and increasing the share of recurring revenue to more than 80%. It also hopes to hit 250 million processed transactions by 2018.

To reach these goals, Basware said it would expand its sales and marketing and go-to-market capabilities and make other investments to shorten implementation times of its solutions for new and existing customers. It also plans to add to its direct sales force, form new partnerships and continue to make smart acquisitions to strengthen its stance in the European and U.S. markets.

Basware said it expects demand for procurement technology solutions to continue to grow, especially among small and medium-sized businesses. For 2015, Baseware said it experienced a 16.8% increase in software-as-a-service (SaaS) revenue and more than doubled its Alusta platform-based SaaS agreements compared with 2014, which the company said demonstrates the demand for these services.

Basware also released fourth quarter and overall 2015 performance data, which showed net sales grew 13.1% in Q4 and 12.3% in 2015 overall.

Here at Spend Matters, our analyst team believes there are a number of other questions that the provider (and the market) should probe on as it considers Basware’s broader strategy outside of what it has articulated to customers, partners and the capital markets.

I recently sat down with Jason Busch and he tossed out a few to chew on:

  • Whether or not Basware opts to support the lifecycle of broader trading partner connectivity (including support for direct materials, global trade, etc.) as part of its core supplier network and financing offerings. Relying on an approved invoice as an early payment trigger is a critical place to start, but broader opportunities for next generation EDI, integration platform as a service (iPaaS) and trade financing remain. And Basware may opt to capitalize in these areas in addition to its initial forays into payables and receivables financing, mirroring what GT Nexus, Nipendo and others are already pursuing today.
  • How Basware plans to compete against an increasing set of overlapping solution providers in the market (e.g., Taulia) that offer capabilities that increasingly compete on a direct basis with Basware for e-invoicing, accounts payable automation, supplier connectivity, invoice discounting and trade financing — and also extend to other areas that Basware is not yet targeting (e.g., true supply chain finance -- i.e., reverse factoring including the on-boarding and legal frameworks required) to offer a one-stop trade financing shop set of capabilities such as those that Taulia and PrimeRevenue are building out.
  • How Basware will play with the emerging world of bank and non-bank lenders in the trade financing sector, including existing factoring companies. Does it opt to co-opt, partner or otherwise pursue some Machiavellian means to a financing end with incumbents in this space?
  • Basware’s global expansion strategy outside of Europe and the Nordics, including its plans to support compliant e-invoicing in the highly complicated Latin American markets, which have country-by-country requirements that look very different, in certain cases, than supporting VAT and other regulatory-specific European requirements. Invoiceware International would appear to be a provider to emulate here (if Basware has more aggressive plans for these markets) and would be a logical acquisition target at the right valuation.
  • How Basware plans to target the global public sector, including the U.S. sector and the OMB mandate. It would appear that Basware has a strong foundation to build on here and the right wares (pun intended) to compete but is generally not as well known outside of the European public sector as perhaps it should be, and other providers are taking a more aggressive stance in targeting the North American public sector (and the U.S. in particular) from a sales and marketing perspective.
  • How Basware plans to embrace (or not) an ecosystem-driven model that creates broader communities of capabilities and partners that are pre-integrated into its solution, such as what Tradeshift is building with its platform as a service (PaaS)-centric architecture and model.

Jason added: "Of course we can’t forget the elephant in the Basware P2P room! This transactional pachyderm is, of course, is the overall importance (or not) of e-procurement to Basware going forward as a general offering outside of its Procserve division, an acquisition Basware made serving the U.K. public sector. We would bet with near certainty that Basware could abandon e-procurement as a component of Alusta and its other product lines and still achieve its goals in the trade financing space. Clearly, outside of Procserve, e-procurement has played second fiddle for Basware to date compared with e-invoicing, A/P automation and trade financing. And the results play this out because 17% year-on-year SaaS growth for essentially a new module is not very good considering the size of the installed base it can potentially sell into. Still, one could argue that it’s not that necessary for Basware to blow out the e-procurement market to achieve its articulated broader strategic objectives."

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