Aspen Technology Evolves Into Digital Marketplace Provider

  • Written By: Steve McVey
  • Published On: November 27 2000



Aspen Technology Evolves Into Digital Marketplace Provider
S. McVey - November 27, 2000

Vendor Summary

Founded in 1981, Aspen has evolved over the years into a vendor of a broad array of applications for supply chain management, process design and control, and e-business. Aspen Technology takes its name from ASPEN (Advanced System for Process Engineering), a synthetic fuels research project begun by the Department of Energy in the mid 1970s. CEO Lawrence Evans, then a chemical engineering professor at MIT, was made the principal investigator for the project and later enlisted chemical engineers Joseph Boston and Herbert Britt. In 1981, the trio formed Aspen Technology to develop and market computer-aided chemical engineering software to process manufacturers.

Aspen's first applications supported simulation and design for the process manufacturing industry. In contrast to discrete manufacturing, process manufacturing involves a combination of complex chemical reactions and material transport operations that requires precisely designed production equipment.

The company used proceeds from its IPO in 1994 to embark on a series of acquisitions to expand its suite to cover other areas of process manufacturing. Acquisitions of Industrial Systems (1995) and Setpoint (1996) extended Aspen's suite with software for controlling and monitoring the daily operations of chemical processing plants. In 1998, Aspen acquired Chesapeake Decision Sciences, a maker of supply chain planning software and soon after reorganized its product offerings around the fast-growing area of supply chain management (SCM). In all, Aspen has made twenty material acquisitions of software and integration firms during the last decade.

In 1999, with revenues suffering under a downturn in its target markets and Y2K spending delays, Aspen implemented a restructuring program intended to reduce its operating costs and improve productivity. In connection with this restructuring, Aspen reduced its staff by approximately 200 employees, about 12 percent of the global workforce, closed offices, and streamlined operations. Following a brief respite, the company launched a focused hiring program to build staff in its supply chain management product areas, indicating a new emphasis on supply chain and digital marketplace applications.

The breadth and diversity of its applications has given Aspen a dominant presence in the chemical, petroleum and pharmaceutical industries with some penetration into semiconductors. The company reported total revenues of $268.1 million in fiscal 2000, compared with $226.5 million in the previous year. Revenue mix of products and services was almost 50:50 for fiscal 2000, and represents a shift toward licenses since last year (42:58) that indicates a revival of new license growth. For the quarter ended September 30, 2000, software license revenues were $32.6 million, while services revenues totaled $36.9 million. Net profit for the second fiscal quarter fell negative at $3.7 million compared with a net loss of $3.1 million for the same period in fiscal 1999.

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Vendor Strategy and Trajectory

Demand for Aspen's SCM offerings has increased steadily since its acquisition of Chesapeake Decision Sciences' MIMI product suite, although the company continues to receive substantial revenues from sales of its process design and control software. Aspen estimated that revenues from supply chain applications made up 30% of total revenues for FY 2000 and projected the percentage would increase in subsequent quarters.

Aspen's long-term strategy is to continue integrating its higher-level supply chain management and Internet collaboration solutions to lower-level process plant control and operations monitoring applications. This commitment to process control will strengthen its already firm hold on the process industries (PI) but will make it difficult to extend its reach into other industry verticals. Because of the generally lower penetration of SCM technology into CPI, this strategy should represent no barrier to growth over the next 3-5 years.

Digital marketplaces are Aspen's latest product addition and the company is quickly establishing itself as an enabler of web-based buying and selling in its core process industry verticals. PetroVantage, a digital marketplace for the petroleum industry formed with technology partner IBM, will enable faster and more profitable trading and logistics decisions for crude oil and refined products. e-Catalysts.com, an on-line, collaborative marketplace for the $10 billion catalysts industry, will leverage Aspen's supply chain, collaboration and netmarket solutions to help companies make faster, more efficient decisions in the purchase and sale of catalysts and related products and services. ChemCross, the largest Asian chemicals exchange initiative, recently selected components of Aspen's Marketplace Solution. While digital marketplace related offerings comprised just 5% of Aspen's total revenues for FY 2000, the company expects this to double in FY 2001.

ANALYSIS

Vendor Strengths

  • Flexibility: Aspen eSupply Chain Suite is highly flexible and can be tailored to fulfill virtually any business requirement a process manufacturer may have. eSupply Chain is based largely on Chesapeake's MIMI application and its feature-rich modeling language that enables users to address a large variety of industrial problems.

  • Large, loyal customer base in the chemical process industries (CPI): Aspen's customers include 46 of the 50 largest chemical companies, 23 of the 25 largest petroleum refiners, and 18 of the 20 largest pharmaceutical companies. In fiscal 2000, 75% of its total revenues were derived from existing customers indicating a high level of satisfaction with Aspen products and support services.

  • Experienced implementation and customer support personnel: Chesapeake has received high praise from consultants and clients for their staff of bright, experienced process engineers and modelers.

Vendor Challenges

  • Making up for late start in e-business: Aspen announced it would develop applications for conducting business over the Internet in late 1999, placing it months behind other enterprise application vendors like SAP, J.D. Edwards, Manugistics, and i2. In recent months, the company has managed to take initial positions in e-business with PetroVantage, e-Catalysts.com, and the win at ChemCross. However, Aspen still needs to work hard to convince customers that its late entry into the e-business arena does not imply a lack of vision.

  • Balancing packaged functionality and flexibility: Prospective clients are lured to Aspen by the flexibility of its solutions but often are disappointed upon discovering the amount of work required to customize a viable solution from the toolset. A shortage of experienced modelers adds to the concerns of users who fear becoming embroiled in what is essentially a joint development project. Although some templates and pre-configured modules exist, Aspen eSupply Chain is largely a toolkit that requires extensive training when experienced modelers cannot be found.

  • A broad footprint that invites competition on multiple fronts: The Plantelligence, Engineering and eSupply Chain suites are almost ungainly in their variety of applications. Judicious pruning of all but the most profitable applications is needed to better focus corporate resources.

Vendor Predictions

  • Moderate revenue growth (15-20% total revenue) during FY2001 fueled by market acceptance of Aspen's new digital marketplace offering, Aspen Market Solution, and its supply chain management applications. (70% probability)

  • Aspen will review potential partnerships with an application service provider (ASP) to deploy its solutions via the web independently from its digital marketplace initiatives. Given its near stranglehold on the process industries and its conservative nature, the company will wait until the middle of calendar 2001 before actively pursuing an ASP model. (60% probability)

  • ProcessCity.com, the information portal that marked Aspen's debut on the Internet, will slowly evolve into a portal offering collaborative planning capabilities and services for process industry participants in addition to news, forums, and job search features. (70% probability)

Vendor Recommendations

  • Continue focusing marketing and R&D efforts on integrating core supply chain functionality to its digital marketplace solutions. Aspen should also revise its template solutions for SCM such as Chesapeake's Semiconductor Global Planner announced in June 1999 with recent implementation experience.

  • Increase investment in sales and marketing to boost revenues and push its digital marketplace offerings: Aspen's sales and marketing investment as a percentage of total revenue fell 4% in fiscal 2000, in spite of plans to increase its staff by 20% annually.

  • Leverage its position in the process industry to increase demand for Aspen Marketplace Solution: Aspen needs to market its digital marketplace capabilities to petroleum, chemical, and other process manufacturers who have purchased its SCM modules.

  • Following its successful launch of PetroVantage, Aspen should consider partnering with one of its larger chemicals clients, such as E. I. Dupont de Nemours or Dow Chemical, and Extricity to build additional vertical Internet marketplaces for the chemicals and pharmaceuticals industries.

User Recommendations

Aspen Technology should occupy a prominent role in enterprise software selections for process manufacturers, especially those who produce chemicals, pharmaceuticals, and refined oil products.

For supply chain management, Aspen is the only vendor that can offer deep functionality for the process industries with the added capability to deliver process simulation and control functionality and integrate them. The main caveat is that most of Aspen's SCM applications are essentially toolkits in which desired features can be developed, not packaged solutions that can merely be configured. Exceptions are applications from Petrolsoft, Broner, PIMS and Aspen's polymer supply chain suite, all of which are pre-configured.

Given the customization effort required for many of the applications, experienced resources are a must for implementations. That being said, Aspen is attempting to reformulate some of its more popular functionality as packaged modules and templates to speed implementations. Users should also bear in mind that Aspen's digital marketplaces, such as PetroVantage and e-Catalysts.com, have strong potential but are largely experimental at this stage.

Aspen offers a unique value proposition for process manufacturers that have already implemented SCADA (Supervisory Control And Data Acquisition) systems or DCS (Distributed Control Systems). Unlike more generic enterprise application providers like SAP, Oracle and others, Aspen focuses on integrating its supply chain functionality to lower-level plant control and monitoring systems like SCADA and DCS, rather than attempting to create a link to higher level financial and accounting applications.

Companies in complex manufacturing industries (high tech, automotive), or those seeking a transportation planning solution, should pass over eSupply Chain unless complex business processes require custom modeling.

 
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