Bravo and Verticalnet – what the markets think

BravoSolution announced last week that it is buying Verticalnet. Or, as the relevant headline on finance.yahoo.com puts it: Italcementi unit agrees to acquire Verticalnet in deal worth 15.2 mln usd.

Quite big news in the eSourcing technology space. Bravo is a credible player particularly in mainland Europe, backed by €2.8bn Italcementi, but has no US presence. Verticalnet apparently has some good software and has some US customers but has no real idea of how to sell its software. So on one level the tie-up kind of makes sense. I admit it I was of this opinion when I first read the news.

But look at the stock prices of the two companies:

Bravo (Italcementi)
Italcementi.png

Verticalnet
Verticalnet.png

Irrespective of what pundits and marketers might think, the markets are not amused.

The announcement was made public around the 26th October. Just around the time that Verticalnet’s stock tanked. And it certainly didn’t make a positive impact on Italcementi’s share price.

Assuming people were buying Verticalnet stock on the strength of rumours of the company selling out – these people were mightily disappointed when they learned it was Bravo who was doing the buying. And they stampeded.

Meanwhile in Milan no-one even noticed.

Are the markets trying to tell us something? Like:  Software wants to be free. So why should an organisation get involved in costly, complex (and ultimately disappointing) deployments? Especially if they are only going to use a tiny fraction of the system they bought? This e-sourcing software space is so over.

Alibaba – procurement’s killer app?

I’ve blogged recently about the missing killer app for procurement.

And here is news of Alibaba’s IPO on the Hong Kong Stock Exchange, raising $1.5bn (apparently the 2nd biggest internet IPO after Google).

Is this it? Or will it be?

Browing Alibaba’s message boards today, the hot topics are pretty basic ones: “how do I know this is a legitimate supplier?”, “how do I know this is a serious buyer?”. Given that the basic point of the site is to put buyers in touch with (Chinese) suppliers, the fact that these questions are such hot topics seems to somewhat undermine the whole point of the site. And having worked with people who have used Alibaba the word is that you get a lot of quantity there, but the quality is more debatable.

Still, with an extra $1.5bn sloshing around, who can say what will happen next.

Very worth watching.

(p.s. following on from my last post, Alibaba.com’s Alexa ranking is 164 which rains all over even Salesforce.com’s parade)

Is Procurement Doomed to Perpetual Un-sexiness?

I was commenting on an old blog entry from JP Massin’s blog earlier which got me thinking. He looks at Alexa rankings for various e-sourcing providers to see which are the most popular of the sites. Even the top player (Ariba, no surprises there) languishes at about the 200,000 mark.

I like to keep things simple. And in its simplest terms, a business is about buying something at a low price and selling it a higher price. OK, in reality there’s a bit more to it than that – you usually have to do some magic to your inputs to be able to turn them into something profitable.

Buying + Magic + Selling = A viable business

Now, everyone knows (or thinks they know) about what sales people do. They make people like them, they earn lots of money and immediately piss it up a very high wall. (Check out Boiler Room if you don’t believe me).

Then the workers of the magic are equally more or less understood, or at least respected. The guys who develop the products, who deliver the service, whatever.

But the purchasing guys … they’re just treated as an afterthought.

Have a look at these Alexa rankings:

Salesforce.com, SAP, Ariba

You can argue about how meaningful/gameable Alexa rankings are anyway, and you can argue about comparing a completely On Demand player with a traditional software provider. But this doesn’t detract from the fact that the broad picture is pretty clear. Lots more people go to Salesforce.com than to the other two companies I’ve picked. The real point is that Ariba – which we tend to consider the 800lb gorilla of procurement software – barely even registers in the grand scheme of things.

A few possible interpretations:

  1. Procurement is a backwater and always will be
  2. No-one has yet come up with procurement’s killer app
  3. Procurement and technology really don’t mix

I’m betting on option 2. Any other ideas?

CFO (Magazine)’s view of Procurement

I’m going to quote from the current issue of CFO Magazine Australia (apparently the article is not available online but it’s called When the price is right if you can get hold of it).

The opening paragraphs go as follows:

It might be thought that buying is the easiest part of a chief financial officer’s job.  After all, deciding what to buy and signing a cheque sounds a lot easier than issuing a complex instrument like hybrid notes.

But actually, buying, or procurement, has been elevated to a high art and those who can master it stand to cut [sic] millions from the bottom line.

For many organisations, procurement is a low priority and buying decisisnos and power are spread around the company.

The article then goes on at length to describe how significant gains can be made by consolidating spend across business units, by rationalising specifications and by taking a more co-operative approach that “let’s suppliers shine”.

None of this would come as particularly revelatory to buyers of course but this is a magazine aimed at CFOs. It’s great to see purchasing getting some coverage in the rest of the business. But also, if spend aggregation really is still such a key topic, then it goes to show how much more the profession still has to do.

Coupa Geek Out Moment

Since my last post on Coupa I’ve checked the open source version of their software and am mightily impressed.

On the functionality side of things it seems to do 80% of what Ariba used to do when I was familiar with that application (admittedly, some years ago now). And the 80% it does is the important 80%.

And on the technology side of things I am blown away now by Ruby on Rails and Amazon EC2. Both are tremendous technologies to use – I can’t remember the last time I found a programming language (Ruby)/system environment (EC2) so exciting.

Time for a sit down I think before I get too carried away. I suspect Coupa will crop up in a few more upcoming postings here.

Software wants to be free

Over time the value of software trends towards zero.

In operating systems we’ve already seen mass supplanting of Unix with Microsoft and now with Linux.

In the procurement space SAP to Ariba to Coupa marks a clear trend. OK, so Coupa isn’t completely free but if they really are providing people to support your setup on their system in the quoted prices – then the software element of the deal is pretty close to free. (With thanks to the doctor for the Coupa story).

Then in the sourcing space, Whyabe is already offering software for free.

Of course things are never as simple as they seem:

  • Free versions of software tend to have less bells and whistles than the chargeable versions.
  • There are always lots of revenue opportunities for software companies outside of selling just the software itself.

But overall the direction of software pricing is only going to go one way.

The Perils of Bad Metrics

Before I leave off HBR’s September edition here are two entertaining/instructive anecdotes on how the wrong metrics can dramatically affect your company’s performance. In both these cases there was an apparent seasonality in the company’s sales performance that turned out to be down to the management of the sales force.

End Of Quarter Discounts and Baby Pee

A manufacturer of diapers was experiencing a monthly demand cycle of low, low, high, which would be repeated each quarter. All this despite the fact that babies tend to pee at a roughly constant rate. It turns out that the CEO was driving his workforce hard to hit quarterly sales targets. Retailers soon realised that if the manufacturer was falling short of its quarterly numbers, it would offer deep discounts. So retailers ended up waiting till the quarter end and buying 3 months’ supply of diapers. The following quarter they wouldn’t need to buy anything until month 3 by which time the manufacturer’s sales were struggling and discounts became available again.

Great at Forecasting, but Lousy at Growth

This company was facing a high, high, low cycle in demand.

A CEO wanted to promote “rigour” in his sales force – so their commission was based on forecasting accuracy as well as sales. If a salesperson hit her forecast she would get an extra bonus on top of commission. If she went over her forecast, any subsequent commission would be halved.

The salespeople therefore worked hard to avoid going over their forecasts – in effect holding sales over their forecast into the next quarter. Not only did company growth suffer, but so did customer satisfaction – customers would find it very hard to get hold of product in the 3rd month of the quarter.