Introduction
In 1998 researchers at the Haas School of Business of the University of California at Berkeley published an important study called "Procurement in the Internet Age - Current Practices and Emerging Trends." Essentially a survey of 80 technology-oriented companies, the paper proved to be a good guide to subsequent developments in E-procurement. It is a measure of how far we have come in less than two years that in their summary of "interesting findings" the very first one listed is:
* The attitude towards the Internet is overall positive
This was interesting at the beginning of 1998. It would not have been impossible that a majority of purchasing organizations were highly skeptical of the Internet. After all, purchasing agents depend heavily on personal interaction with suppliers. Furthermore, the Internet was far from omnipresent: many of the companies surveyed had no Internet access, or had only a single connection, and so were unable to complete the survey except by paper and pencil. But despite these and other potential roadblocks there was a strong realization that E-procurement had the potential to reduce costs and time, the two most important measures of success in procurement of goods and services. (Customer satisfaction was third and quality of goods was fourth).
So it is hardly surprising that, just two years later, E-procurement is taken for granted in almost every industry and sector, and that business-to-business E-commerce has overtaken consumer commerce as the focus of attention, especially on the part of the stock market and venture capitalists.
What does E-procurement look like today? Roughly speaking there are seven kinds of players, of which four are software and service vendors and three are marketplace operators. The four vendor groups include:
Enterprise Procurement: These are the vendors whose early successes and high market capitalization created E-procurement. They specialize in E-procurement and their products carry large price tags. Players in this segment include Ariba and Commerce One.
ERP Vendors: ERP vendors have been suffering from their own success. Having conquered the corporate IT world, they have been struggling to show the impressive growth curves of their heyday. As they watched the enterprise procurement vendors sell to their own biggest customers they saw a natural fit and a new niche into which they could expand. Players in this segment include Oracle, PeopleSoft, Oracle, and Baan.
Corporate Portal: These are companies that already have other products but have seen the potentials of E-procurement and have launched products in this space. They are building from their existing strength, and repackaging their existing products with procurement to offer integrated product suites with common user interfaces, common backend systems, and common administrative tools. Players in this segment include Peregrine, Concur, Remedy, and Intelisys.
Application Service Providers: The ASP market in E-procurement is developing at a time when Internet technologies make outsourcing convenient for both client and provider. Players in this segment include almost all of the above. Most of the companies that offer corporate licenses are also looking for ASP arrangements. Some are becoming their own ASP's, some are licensing their software to ASP's or even to ISP's who then resell the license to their own ASP customers, and some are doing both.
As Figure 1 suggests, larger corporations tend to be sought after by the ERP and Enterprise Procurement vendors, while midrange and smaller companies are targets for the corporate portal vendors and the ASP's.
There are other companies that don't fit any of these molds. For example, Clarus Corporation recently unloaded its portfolio of applications (ERP, financials, and human resources), thereby forgoing the strategy of other Corporate Portal types, to create a new E-procurement business from scratch.
The types of marketplaces include:
Singletons: These are companies that create their own marketplaces, which they host themselves. Companies like Staples and Dell fall in this class.
Verticals: Vertical marketplaces concentrate on a specific industry or type of product. Examples include: CHEMDEX.com in the life sciences, E-hospitality.com in the hotel industry, GM TradeXchange in the automotive industry, and buzzsaw.com in construction.
Aggregators: These marketplaces bring together a number of suppliers. The marketplace will provide catalog creation and hosting for the suppliers and some form of unified searching for the buyers. Examples include Concur Commerce Network, the Ariba Network, and Commerce One's Global Trading Web.
At this point in the evolution of the market, software vendors are creating their own marketplaces, although some also sell marketplace-creating tools to others. The larger aggregators may have a number of marketplaces - a combination of verticals and regional markets - that are tied together as a network.
One significant indicator of the direction of the marketplace market is Commerce One's strong push to create a truly global marketplace. Commerce One is partnering with significant corporations in many regions to create regional marketplaces that will also serve as portals to a global marketplace consisting of the collection of all of them.
Another indication is the recent announcement of Concur's Business Advantage, a program offering leveraged buying advantages to small and mid-sized companies. What is especially novel about this is Concur's teaming with insurance and investment giant SAFECO, which will likely result in Concur's products and services being sold - or at least promoted -- by SAFECO's independent agents.
A company looking to bring this technology in-house has to predict not just which vendors will be able to do the job - meeting both immediate and future needs - but which new business models will spin off from emerging technologies.
The growth of business-to-business electronic auctions, for example, is not an evolutionary step from pervasive non-digital auctions, although such were of course not unknown. Rather, it comes from the availability of technology to support such auctions cheaply, meeting a need that was not high on very many lists because there was no expectation that the need could be met. What other needs might be someplace down on the wish list just waiting for the right technology to propel them into the "must have now!" column?
Trend
Independent vertical marketplaces will sprout like mushrooms, but some will dry up and others will become part of higher-order colonies.
Trend Overview: It is clear that vertical marketplaces are a hot item. As they come down the runway, one after another, each is greeted with delight, at least from its own particular industry. The star of the show has been Chemdex, a company that recently renamed itself to Ventro and redefined itself from a builder of vertical markets to an incubator for vertical markets. Vertical markets will proliferate because the more general MRO marketplaces cannot afford to build strength in specialty industries, and will find it easier to offer connections to existing verticals.
Trend Impact: Some of the larger E-procurement companies, such as Ariba, Commerce One, Oracle and SAP are involved in building verticals in high profile areas such as the energy and automotive sectors, but industry specialists will build most verticals. This does not leave the major vendors out of the picture: they will provide the platforms for building the vertical marketplaces that are managed by others.
In the longer run, apparently independent verticals will merge to take advantage of common buyers or suppliers or simply economies of scale. This will be driven by those large industries that first become heavy users of a number of verticals, because of the inefficiencies of working with large numbers of marketplaces.
Trend
Standards will accelerate the drive toward market commoditization; market commoditization will accelerate the drive toward standards
Trend Overview: There's no better indicator of this than a recent announcement that General Motors, Ford and Daimler Chrysler will cooperate to create a single marketplace for the automotive industry. This announcement came only a few months after Ford signed with Oracle and GM signed with Commerce One for independent marketplaces. Many commentators were surprised that Daimler Chrysler did not have its own announcement at that time; some looked to Ariba to make its mark in that arena, while others noted SAP executives becoming frequent fliers to Detroit's Metro Airport.
Announcements of the new global marketplace stressed the difficulty that separate marketplaces would have for suppliers doing business with more than one automaker, but there were two subtexts, both involving standards.
First, it is not at all clear why a supplier working in two or more marketplaces should have any integration trouble at all. Both Oracle and Commerce One stress open standards and XML, which means that entering a second marketplace should be almost trivial for a supplier.
Second, the absence of both Ariba and SAP from this partnership may be news in itself. While the big three automakers might reasonably have decided that two vendors were enough, both Ariba and SAP stand a bit further from standardization than the others. Ariba's proprietary dialect of XML is not blessed by any of the major standards initiatives; while it is theoretically true than XML makes it easy to translate between dialects, the practice is still complex. SAP's E-procurement solutions play only with SAP's own ERP systems, and in fact require a complicated and costly upgrade to version 4. We think it likely that interoperability and standards had a role in the way this giant trading exchange got shaped.
At press time there were rumors circulating that Chrysler-Daimler may be going after its own vendor after all, probably SAP, and that the degree to which this marketplace will be unified will not meet early expectations. This would be a minor setback to the cause of interoperability. It may represent a concern about sharing corporate data or an objective look at the realities of standardization today. However, so long as the marketplace and suppliers can interoperate with each company the basic nature of the venture will not change.
Trend Impact: One lesson is that standards work has to accelerate, and that a viable standard or collection of standards must evolve soon for E-procurement to reach its potential.
Another is that with standards, there is little benefit to having multiple competing marketplaces. If the technical work of entering marketplaces was nearly nil after the first, then both buyers and suppliers would have easy entry and exit. And, as Adam Smith taught, that leads to increased efficiencies and to low margins. In some cases, as with the automotive industry, the best move will be for independent marketplaces to merge. In others the result will more likely be that marketplaces will compete aggressively on transaction fees and amenities. We think that the technical sophistication of the suppliers in an industry will drive the direction that the industry's verticals take.
A year from now we think it will be very clear that key players in E-procurement will have to have open, public XML access. Ideally a standard would develop as a large vocabulary of tag and schemas that apply across industries, with each industry able to produce its own specialized dialects. This is one of the goals that Microsoft was shooting for in its BizTalk initiative, with the exception that Microsoft was looking for market forces to develop standards based on use.
We think that things will move in the general direction we've outlined, but that it will take closer to three years for something approaching a cross-industry standard to be both defined and generally accepted. And, even then we believe that there will be somewhat less progress at the level of individual industries.
We expect that within three months Ariba will start giving out signals that they are moving away from their proprietary dialect toward a more widely accepted standard. This may come in the nature of increased support for one of the evolving standards that is accepted by their competition, or as the kind of marketing statement that says "we've always been interoperable, but now we'll be even more so." Similarly, SAP will tell us that integration with other ERP vendors was always in their plans, although it will probably be effected through third party tools and integrators rather than as a core feature of the SAP product.
SOURCE:
http://www.technologyevaluation.com/research/articles/e-procurement-from-brilliant-innovation-to-common-clich-15635/
In 1998 researchers at the Haas School of Business of the University of California at Berkeley published an important study called "Procurement in the Internet Age - Current Practices and Emerging Trends." Essentially a survey of 80 technology-oriented companies, the paper proved to be a good guide to subsequent developments in E-procurement. It is a measure of how far we have come in less than two years that in their summary of "interesting findings" the very first one listed is:
* The attitude towards the Internet is overall positive
This was interesting at the beginning of 1998. It would not have been impossible that a majority of purchasing organizations were highly skeptical of the Internet. After all, purchasing agents depend heavily on personal interaction with suppliers. Furthermore, the Internet was far from omnipresent: many of the companies surveyed had no Internet access, or had only a single connection, and so were unable to complete the survey except by paper and pencil. But despite these and other potential roadblocks there was a strong realization that E-procurement had the potential to reduce costs and time, the two most important measures of success in procurement of goods and services. (Customer satisfaction was third and quality of goods was fourth).
So it is hardly surprising that, just two years later, E-procurement is taken for granted in almost every industry and sector, and that business-to-business E-commerce has overtaken consumer commerce as the focus of attention, especially on the part of the stock market and venture capitalists.
What does E-procurement look like today? Roughly speaking there are seven kinds of players, of which four are software and service vendors and three are marketplace operators. The four vendor groups include:
Enterprise Procurement: These are the vendors whose early successes and high market capitalization created E-procurement. They specialize in E-procurement and their products carry large price tags. Players in this segment include Ariba and Commerce One.
ERP Vendors: ERP vendors have been suffering from their own success. Having conquered the corporate IT world, they have been struggling to show the impressive growth curves of their heyday. As they watched the enterprise procurement vendors sell to their own biggest customers they saw a natural fit and a new niche into which they could expand. Players in this segment include Oracle, PeopleSoft, Oracle, and Baan.
Corporate Portal: These are companies that already have other products but have seen the potentials of E-procurement and have launched products in this space. They are building from their existing strength, and repackaging their existing products with procurement to offer integrated product suites with common user interfaces, common backend systems, and common administrative tools. Players in this segment include Peregrine, Concur, Remedy, and Intelisys.
Application Service Providers: The ASP market in E-procurement is developing at a time when Internet technologies make outsourcing convenient for both client and provider. Players in this segment include almost all of the above. Most of the companies that offer corporate licenses are also looking for ASP arrangements. Some are becoming their own ASP's, some are licensing their software to ASP's or even to ISP's who then resell the license to their own ASP customers, and some are doing both.
As Figure 1 suggests, larger corporations tend to be sought after by the ERP and Enterprise Procurement vendors, while midrange and smaller companies are targets for the corporate portal vendors and the ASP's.
There are other companies that don't fit any of these molds. For example, Clarus Corporation recently unloaded its portfolio of applications (ERP, financials, and human resources), thereby forgoing the strategy of other Corporate Portal types, to create a new E-procurement business from scratch.
The types of marketplaces include:
Singletons: These are companies that create their own marketplaces, which they host themselves. Companies like Staples and Dell fall in this class.
Verticals: Vertical marketplaces concentrate on a specific industry or type of product. Examples include: CHEMDEX.com in the life sciences, E-hospitality.com in the hotel industry, GM TradeXchange in the automotive industry, and buzzsaw.com in construction.
Aggregators: These marketplaces bring together a number of suppliers. The marketplace will provide catalog creation and hosting for the suppliers and some form of unified searching for the buyers. Examples include Concur Commerce Network, the Ariba Network, and Commerce One's Global Trading Web.
At this point in the evolution of the market, software vendors are creating their own marketplaces, although some also sell marketplace-creating tools to others. The larger aggregators may have a number of marketplaces - a combination of verticals and regional markets - that are tied together as a network.
One significant indicator of the direction of the marketplace market is Commerce One's strong push to create a truly global marketplace. Commerce One is partnering with significant corporations in many regions to create regional marketplaces that will also serve as portals to a global marketplace consisting of the collection of all of them.
Another indication is the recent announcement of Concur's Business Advantage, a program offering leveraged buying advantages to small and mid-sized companies. What is especially novel about this is Concur's teaming with insurance and investment giant SAFECO, which will likely result in Concur's products and services being sold - or at least promoted -- by SAFECO's independent agents.
A company looking to bring this technology in-house has to predict not just which vendors will be able to do the job - meeting both immediate and future needs - but which new business models will spin off from emerging technologies.
The growth of business-to-business electronic auctions, for example, is not an evolutionary step from pervasive non-digital auctions, although such were of course not unknown. Rather, it comes from the availability of technology to support such auctions cheaply, meeting a need that was not high on very many lists because there was no expectation that the need could be met. What other needs might be someplace down on the wish list just waiting for the right technology to propel them into the "must have now!" column?
Trend
Independent vertical marketplaces will sprout like mushrooms, but some will dry up and others will become part of higher-order colonies.
Trend Overview: It is clear that vertical marketplaces are a hot item. As they come down the runway, one after another, each is greeted with delight, at least from its own particular industry. The star of the show has been Chemdex, a company that recently renamed itself to Ventro and redefined itself from a builder of vertical markets to an incubator for vertical markets. Vertical markets will proliferate because the more general MRO marketplaces cannot afford to build strength in specialty industries, and will find it easier to offer connections to existing verticals.
Trend Impact: Some of the larger E-procurement companies, such as Ariba, Commerce One, Oracle and SAP are involved in building verticals in high profile areas such as the energy and automotive sectors, but industry specialists will build most verticals. This does not leave the major vendors out of the picture: they will provide the platforms for building the vertical marketplaces that are managed by others.
In the longer run, apparently independent verticals will merge to take advantage of common buyers or suppliers or simply economies of scale. This will be driven by those large industries that first become heavy users of a number of verticals, because of the inefficiencies of working with large numbers of marketplaces.
Trend
Standards will accelerate the drive toward market commoditization; market commoditization will accelerate the drive toward standards
Trend Overview: There's no better indicator of this than a recent announcement that General Motors, Ford and Daimler Chrysler will cooperate to create a single marketplace for the automotive industry. This announcement came only a few months after Ford signed with Oracle and GM signed with Commerce One for independent marketplaces. Many commentators were surprised that Daimler Chrysler did not have its own announcement at that time; some looked to Ariba to make its mark in that arena, while others noted SAP executives becoming frequent fliers to Detroit's Metro Airport.
Announcements of the new global marketplace stressed the difficulty that separate marketplaces would have for suppliers doing business with more than one automaker, but there were two subtexts, both involving standards.
First, it is not at all clear why a supplier working in two or more marketplaces should have any integration trouble at all. Both Oracle and Commerce One stress open standards and XML, which means that entering a second marketplace should be almost trivial for a supplier.
Second, the absence of both Ariba and SAP from this partnership may be news in itself. While the big three automakers might reasonably have decided that two vendors were enough, both Ariba and SAP stand a bit further from standardization than the others. Ariba's proprietary dialect of XML is not blessed by any of the major standards initiatives; while it is theoretically true than XML makes it easy to translate between dialects, the practice is still complex. SAP's E-procurement solutions play only with SAP's own ERP systems, and in fact require a complicated and costly upgrade to version 4. We think it likely that interoperability and standards had a role in the way this giant trading exchange got shaped.
At press time there were rumors circulating that Chrysler-Daimler may be going after its own vendor after all, probably SAP, and that the degree to which this marketplace will be unified will not meet early expectations. This would be a minor setback to the cause of interoperability. It may represent a concern about sharing corporate data or an objective look at the realities of standardization today. However, so long as the marketplace and suppliers can interoperate with each company the basic nature of the venture will not change.
Trend Impact: One lesson is that standards work has to accelerate, and that a viable standard or collection of standards must evolve soon for E-procurement to reach its potential.
Another is that with standards, there is little benefit to having multiple competing marketplaces. If the technical work of entering marketplaces was nearly nil after the first, then both buyers and suppliers would have easy entry and exit. And, as Adam Smith taught, that leads to increased efficiencies and to low margins. In some cases, as with the automotive industry, the best move will be for independent marketplaces to merge. In others the result will more likely be that marketplaces will compete aggressively on transaction fees and amenities. We think that the technical sophistication of the suppliers in an industry will drive the direction that the industry's verticals take.
A year from now we think it will be very clear that key players in E-procurement will have to have open, public XML access. Ideally a standard would develop as a large vocabulary of tag and schemas that apply across industries, with each industry able to produce its own specialized dialects. This is one of the goals that Microsoft was shooting for in its BizTalk initiative, with the exception that Microsoft was looking for market forces to develop standards based on use.
We think that things will move in the general direction we've outlined, but that it will take closer to three years for something approaching a cross-industry standard to be both defined and generally accepted. And, even then we believe that there will be somewhat less progress at the level of individual industries.
We expect that within three months Ariba will start giving out signals that they are moving away from their proprietary dialect toward a more widely accepted standard. This may come in the nature of increased support for one of the evolving standards that is accepted by their competition, or as the kind of marketing statement that says "we've always been interoperable, but now we'll be even more so." Similarly, SAP will tell us that integration with other ERP vendors was always in their plans, although it will probably be effected through third party tools and integrators rather than as a core feature of the SAP product.
SOURCE:
http://www.technologyevaluation.com/research/articles/e-procurement-from-brilliant-innovation-to-common-clich-15635/
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