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Concur Aims To Be Single Point Of (Purchasing) Access

Written By: D. Geller
Published On: March 1 2000

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Vendor Genesis

Concur Technologies, Inc. was incorporated in 1993 as Portable Software, and soon offered as its first product a shrink-wrapped retail application to automate travel and expense (T&E) reporting for individuals. It expanded its product line in 1996 by offering a client-server travel and expense package called Xpense Management Solution (XMS), and again in 1998 by bringing XMS to the Intranet. The Intranet version of XMS - recently renamed Concur Expense - now accounts for the majority of Concur's travel and expense-related revenues, which in turn are the bulk of the company's overall revenues.

Concur has recently been expanding its capabilities through acquisition. The ten-person 7Software was acquired in 1998 - two years after 7Software was incorporated. 7Software had a product called CompanyStore that was to be used to automate the procurement of routine items such as office supplies, furniture, computers and expendables; these are generally referred to as MRO goods (for "Maintenance, Repair and Operations"). It was at this time that Portable Software changed its name to Concur and announced its EmployeeDesktoptm (now called Concur eWorkplace) strategy of moving past the T&E market. The new strategy is to offer a single desktop platform for all in-house functions, including T&E, procurement, Self-Service Human Relations (SSHR), time and attendance, and facilities management.

In June 1999 Concur acquired Seeker Software, a provider of Web-based human resource self-service applications, in order to incorporate The Seeker Workplace (now called Concur Human Resources), Seeker's suite of HR employee and managerial self-service Web-based applications, into EmployeeDesktop (now called Concur eWorkplace, see below).

In October of 1999 the company renamed its product line to Concur eWorkplace. This product promises workplace access to T&E management, travel booking, Web-based purchasing, HR processing, and other functions yet to be named. Its announcement was marred by a simultaneous release of preliminary fourth-quarter financial results significantly below analyst expectations - the difference was approximately $3 million out of an expected $12 million. Chairman/CEO S. Steven Singh, a co-founder with Michael Hilton, attributed the shortfall to unexpected delays in closing business, due in part to a lengthening of the sales cycle brought on by their introduction of three new products during that quarter. Concur has had some concerns about its sales force as the company has transitioned from a single product to a corporate portal positioning, and has addressed these with new hires at all levels.

Concur has attempted to paint itself as the challenger to Ariba, the acknowledged leader in E-procurement applications, although Concur is not the clear number two in that market. However, Concur's wider strategy of being a single solution for all of what it calls the "workplace eCommerce solutions" certainly calls for it to go head-to-head with the E-procurement leader. This is because E-procurement is widely seen as the most significant business-to-business application area. It is the one that most significantly impacts a corporation's profitability.

The MRO procurement area is in the midst of turbulent change as the market morphs faster than the definitions can keep up. Concur's differentiation against Ariba early in its strategy was based on its broader range of products, primarily its T&E product but also its SSHR solution delivered through its integrated front-end portal, and its intent to deliver to smaller companies than were within Ariba's field of vision. Ariba has taken initiatives to reach smaller companies as have other vendors.

Concur's response to the small and mid-size market is more ambitious than those of its larger competitors. In line with its position as a provider of a full range of desktop services, Concur announced its ASP (application service provider) model in which its complete product line is available for companies to use via the Internet. These applications are operated by Concur, using Exodus Communications as a host. They offer the same capabilities as the software a larger firm would purchase and install on its own servers.

Also confusing the issue in E-procurement is that the line between product developer and impresario is becoming very fuzzy. PurchasePro, for example, does not have any "product" at all. Its function is to create public and private marketplaces where suppliers and buyers come together. Ariba and Commerce One do have software products, in both client-server and Internet versions, but also devote considerable effort to building markets and aggregating diverse vendor content into unified catalogs. Concur, which began as a software vendor, has also created a marketplace, Concur Commerce Network™, which serves as a single site for its customers to procure goods from a wide variety of vendors.

Another significant problem for all players in this arena is to integrate with a company's existing back-end processes, which may range from legacy products to integrated ERP solutions. The latter are especially important because the lagging ERP industry, seeing browser-based application deployment as its best market opportunity, will be a competitive player. Concur's approach to these problems is to provide the technology necessary to link to all the major ERP systems.

Concur has partnership agreements with all of these vendors and has so far had no difficulties in obtaining the information needed to build interfaces. However, there are some indications in other parts of the industry that the ERP vendors, who are attempting to remake themselves into E-commerce providers, are becoming reticent about being helpful to companies they now see as competitors. If this becomes a trend then vendors like Concur could be squeezed; however, we doubt that it will pass the annoyance level.

Concur's customer base is comprised of more than 320 companies, representing over 2.4 million employees. Companies ranging from 50 to 200,000 users have selected Concur's products.

The company recently hired a seasoned procurement specialist, Mark Sullivan, as Vice-President and General Manager of Concur Procurement for its Large Market Division. Mr. Sullivan most recently served as chief procurement officer for Imation Corp.

Vendor Strategy and Trajectory

Concur will announce Version 6.0 of its Concur eWorkplace product for Q2 of 2000, and will be putting it into beta in the near future. This is the version of the product that will offer the unified single interface - from a single login to integration at the database level - that is needed to complete its picture for being a provider of a true desktop product suite.

No one can deny that Concur has a compelling case. To buy similar applications from other vendors requires separate integrations and employee training. Once Concur has placed one of its applications inside a company, the version 6.0 promise is that addition of other functions is nearly seamless - and both faster and cheaper than the alternative.

Already selling based on the promises of Version 6.0 as much as on the functionality of the individual modules, Concur's strategy relies on leveraging its leadership position in T&E solutions, its growing position in SSHR, and its more than 2.4 million current users to sell its other applications to its customers. At the same time, new sales prospects for a single application are treated to the vision of workplace integration. That this is a message that appeals to executives is proven by the fact that HR and Procurement executives frequently attend the sales presentations of the T&E product.

For Concur, leveraging that leadership position does not equate to emphasizing repeat sales. Concur believes that the key to winning is to aggregate as many sites and users as possible. Thus, their sales strategy is to emphasize new customers rather than repeat sales. Also, they are taking the move from product vendor to suite vendor very seriously. As an example of how it permeates their thinking, the Concur.net marketplace will extend past MRO or capital assets to include suppliers of travel and HR products. The latter offering could be especially attractive to companies with cafeteria-style benefits plans. Done right it could allow individual employees to manage their benefits offerings without resort to HR staff.

Concur's activities have been devoted to Version 6.0 and to launching its ASP product and its new marketplace. This looks to us to be a well thought-out plan, clearly in line with the overall strategy. We would expect that R&D will continue emphasizing the vision. Look for announcements like these over the next year:

  • New related application areas, including time and attendance and facilities management. Time and attendance is likely (probability 60%) to be developed internally, but we would expect facilities management to be added through acquisition (probability 85%).

  • New features to its keynote T&E, SSHR and purchasing products. The national mess with HMO medical care suggests that a natural extension would be to provide tools for employees to manage their benefits accounts right down to tracking submissions to, and payments from, insurers. This may seem to be merely a feature that would benefit employees, and not the employer directly. But we suspect that a good deal of productive desk time is actually spent on the phone trying to get through HMO bureaucracies. Since Concur's Intranet and Internet products already allow employees to access their benefits information from home, a feature like this could actually impact the bottom line. (It's only half tongue-in-cheek to suggest that corporate portals may eventually offer grocery shopping and other consumer conveniences.)

  • Better integration with emerging XML business standards including Microsoft's BizTalk. Concur has already established itself as having an "open" approach that can work with any other standards, including those used by rivals Ariba and Commerce One. The bulls in the XML standards arena are likely to be kicking up a lot of dust for a while, and Concur will naturally want to track them. Open standards is an especially important story for attracting vendors to its marketplace.

  • New unrelated product areas. With its excellent rules engine for defining workflow, any area of a business that has complex workflow definitions is a natural for Concur to enter. Document management is one possibility: it is still a sleeping application except in niche industries (like publishing) and a few specialized areas (specifically the E-commerce division of the typical company.

The extent to which Concur's strategy affects operations can be seen in its most recent quarter. Figure 1 shows Concur's Sales and R&D expense history. The large increase in spending in the 4Q99 and 1Q00 reflect a decision to accelerate the process of moving their software to support a Web-based ASP model. This was a response to a much more active interest in ASP products than originally projected. The interest also extended to larger companies - Concur has had expressions of interest from companies with as many as a thousand employees. The payoff has been that of 47 new license customers in the first quarter, 35 were from ASP licenses. (Overall, Concur's spending on R&D and Sales has been about average for the industry - see Figure 2, which shows the most recently reported numbers from Concur and its competitors - a 10K is from an annual report, a 10Q is from a quarterly report.)

For customers buying licenses, Concur's current prices for one licensed product range from about $250,000 to $450,000 for a company with 3000 users. Companies are charged a fee per user, where the fee decreases from a high of about $12 to a low of about $2.50 as the number of users increases.

The ASP products are very new and the company is still gathering experience, but the present expectation is that the average ASP customer will pay a monthly fee of $1500. Clearly, ASP will be a very different sales model for Concur. Concur recognizes that it will take time for ASP revenues to build to be the equivalent of a pure license model, but the assumption is that ASP will attract many more customers than a pure licensing model. Given that the license model generates a large fee on signing, together with annual maintenance fees, it would be a serious loss to the company to sign as an ASP vendor anyone who might be sold as a license customer. In general we estimate that it takes about eight ASP customers to generate the revenue equivalent to one license customer over a three-year period.

Concur's strategy will be based around claims for differentiation in three areas.

First, Concur positions itself as offering an integrated suite of products. The products share a common user interface and a common database. It is part of their branding that they bring disparate business processes together, and they quote a Forbes Digital Tool review that stated "Think of [Concur's] Employee Desktop as the Microsoft Office of back-office applications."

Second, Concur claims that among all competitors it has the most experience deploying to all employees, as opposed to professionals such as buyers and accounting personnel. Concur argues that its product deploys faster, can be offered to employees who do not understand the corporate accounts structure, and offers maximum ROI.

Third, Concur has a sophisticated rules engine. The rules engine is the tool that a company uses to encapsulate all of its procedures. With its start in the particularly complex T&E arena Concur has a proven and capable rules engine.

Vendor Strengths

Concur's most significant strength may be its vision, as expressed in its intent to create strong applications within a unified portal. We also believe that Concur has a significant strength in its rules engine - the technology that allows a customer to specify its business rules, and restricts the software to behave in accordance with them. The company gives every indication of having a well thought-out strategy and being able to execute it forcefully and patiently.

Its existing Travel and Expense product is still the mainstay of the business. To hold leadership as well as they have speaks to management's abilities to maintain focus.

Vendor Challenges

As Concur's great strength is its vision, its greatest weakness may be its visibility in the growing E-procurement arena. Ariba and Commerce One, which have been essentially pure-play procurement specialists, are the firms that one thinks of. A recent search in AltaVista showed 861 matches to "Concur Technologies", as opposed to 6404 for "Ariba" and 6287 for "Commerce One." While this is far from being a scientific study it should be a serious concern to Concur.

We noted above that the Concur sales force has lacked the strength to transition from being a one-product vendor to a portal and suite vendor. This is especially important to the company since its strategy can be duplicated. Concur has a good head start, and an installed base of T&E software that should lead to repeat sales, but it needs to grab market share now. The first quarter of 2000 was encouraging along these lines, and if the company can do better in the second and third quarters - a total of thirty or more in-house licenses and a hundred or more ASP signings would be an excellent sign of renewed vigor.

Other vendors are latching on to the portal notion, with procurement a keystone in the strategy. Remedy, whose strength has been in Help Desk applications, is one. Remedy has one advantage in that its help desk software is well known to IT managers, who have influence over any enterprise software purchase. Peregrine Systems is another competitor. Peregrine's strategy is to corner those companies that need its sophisticated asset management capabilities, and then swoop down on vendors with less specialized offerings. Walker Interactive Systems, which provides a financial systems portal, has also added purchasing recently.

The Walker case is interesting because their customers can choose Ariba or Commerce One software. This is hardly the same as the kind of integration that Concur offers - yet. But it is only technological, and whether the bigger fish partner with companies like Walker or build up their own portals (as Ariba's recent partnership with Siebel suggests might be in the works) Concur's advantage will not last forever.

Another concern that Concur should have with respect to the implications of the Walker software announcement is that is shows that it is not very difficult to link up to systems with proprietary data standards. Concur touts its openness in this regard frequently, but the common use of XML is quickly making the claim less important. Easy interoperability is the purpose of XML, after all. Openness sounds good in marketing and sales presentations, but if the advantage is disappearing Concur should be careful about using it in presentations to technical people. Contrariwise, if Concur's openness does have a real and practical advantage they should be more precise about what it is than they are being at present.

The move to having a significant portion of revenues come from ASP licenses has advantages and disadvantages. It may reduce the length of the sales cycle, which had been 6-9 months for single product sales but has risen to be in the 9-12 month range, at least partially due to the fact that suite sales involve more parts of the company. ASP, with a much smaller up-front investment, may be an easier sell. On the other hand, ASP revenues are quite different from license sales. Whereas a license sale comes in as a chunk of revenue when the product is shipped, and some additional revenues from installation and support, ASP revenues are monthly. With this in mind, consider Figure 3.

Revenues on 4Q99 were significantly below analyst expectations. The company attributed the shortfall to some customers taking longer to close than expected. In 1Q00 the revenues were flat and accelerated spending, as discussed above, created a larger net loss. This time neither the company nor the analysts were taken by surprise. Concur attributes the lack of revenue growth to two factors: the lengthened sales cycle and the conversion of up-front license fees to stretched out ASP fees. Concur buys itself some time by modifying its business model, but has to be concerned about continuing to close new business opportunities.

We also have concerns about Concur's small indirect channels. It has a partnering agreement with KPMG, which does installations and may refer prospects, but does no direct sales. On the ASP side Concur hosts its own ASP services (using Exodus Communications as an ISP) and has only one partnership in this area, allowing Nortel to sell licenses to its own ISP clients who want to break into becoming application service providers. There are also some long-standing referral arrangements with ADP and Amex. We think that indirect channels represent a lost opportunity for Concur and must be strengthened considerably over the next six months.

Vendor Predictions

Concur has a good chance of becoming one of the top players in E-procurement. Without dismissing the value of Concur's other offerings, the bottom line savings from automating purchasing is generally agreed to dwarf the advantages of almost any other application around. While Concur is now leveraging its T&E customers to sell SSHR and Procurement, it needs to move into a position where people come to it first for E-procurement. We think there's a chance, possibly about 30%, that Concur can be one of the companies that is put on everyone's short list when they think about E-procurement. It should be a leader in the corporate portal space, but may have to do a lot more concept selling for customers to think "corporate portal" at the same time they think about specific applications. Concur has to show that it is not living on borrowed time. Wall Street won't be satisfied for long with flat revenues and high losses.

Vendor Recommendations

Besides maintaining its development activities and generally good strategy and execution, Concur needs to increase investment in and improve its sales and marketing capabilities. Concur has not yet become a name recognition peer with Commerce One and Ariba, which must happen as Concur expands its offerings past the kind of managers who know them best. As Concur educates users about the concept of an integrated portal, there will be a significant shortening of the sales cycle.

Concur has also recently converted its outbound telephone sales unit into an inbound sales unit. That is a great sign of the company's popularity among those who know about it, but it may also signal some unrealistic self-confidence in expecting that the world will come beating a path to its door. The company's employees demonstrate an excitement and drive to success that calls for a more aggressive effort to grab customers now. We wonder how well defined Concur's sales strategy is.

Staying in line with the overall strategy of having a presence on as many desktops as possible calls for a strategy of selling to new customers rather than seeking to expand investment of existing customers.

On the other hand it is important to recognize the existing customer base is a rich resource that should not be ignored. We appreciate that it may not be as easy or as lucrative to sell to that base, given that the add-on will involve other parts of the company that have no familiarity with Concur. Still, there are many intangible reasons for selling to this group, not least of which is avoiding a situation where a competitor steals an existing customer away. It might make sense to organize separate sales groups for existing and new customers.

As noted above, we believe that it is urgent that Concur come in with some revenue and earnings successes. Best would be showing a steady increase that demonstrates that ASP customers are being signed in sufficient volume to eventually offset the loss of up-front fees. Squeezing more license sales out of the pipeline will also be a confidence builder. The first quarter gives some good indications. We already noted the 47 new customers, of which 35 were ASP. Of the other twelve, 50 percent of the revenues generated were from companies that bought the E-purchasing application or companies that signed up for more than one of the three applications. This suggests both that the company is credible in E-procurement and that the suite model can generate multiple sales.

We think that Concur should aggressively recruit third-party application service providers to take on its products. Having choices will make the products more attractive to customers, and these vendors will become additional indirect sales channels.

Finally, as Concur looks uphill toward Ariba and Commerce One it also needs to watch out for the players who are charging up after it. Both Peregrine Systems and Remedy will offer life-cycle asset management for capital purchases made with their E-procurement systems. Since every corporation buys desktop computers and laptops, we think that this makes a very attractive piece of the package, and that Concur should immediately look for ways, probably an acquisition of some sort, to add this functionality to its offerings. But even if not this application, certainly there needs to be a regular flow of announcements of additions to the eWorkplace suite.

User Recommendations

Concur is a feisty company with a well-developed strategy and a good track record. Of a number of vendors with a menu of Internet-enabled employee self-service applications, Concur is at or near the head of the pack in translating its vision into reality. Peregrine is also doing well, but is concentrating on a slightly different segment of the market.

If you are interested in implementing SSHR or procurement solutions, keep Concur on your long list. But be careful to evaluate your requirements - current and future - against their offerings. Once you buy into a vendor like Concur with an integrated suite of offerings, you become locked into their long-term strategy. Don't forget to check out the company's marketplace, Concur.net, to see if it has the kinds of offerings and prices that you need.

Finally, smaller companies (up to about a thousand users) should take a hard look at the ASP model, and then look carefully at Concur's success at running it. Question existing ASP customers carefully about ease of setup and integration, and the ongoing responsiveness and reliability of the product. If Concur can maintain these, then the ASP option will be an excellent choice for many companies. However, this is a new business for Concur and the first few months will be critical in establishing their reputation. The particular danger for a customer is that without a choice of alternate third party ASP vendors you are especially vulnerable if Concur should drop the service in the future. A good negotiating point here would be to ask for substantial reductions on the licensed versions in case the ASP products are dropped.

If you decide to include Concur in your product evaluation efforts, keep a very close eye on Concur's financial viability. Within the world of Internet businesses profit may not be important, but revenues are, and without a turnaround Concur will be an attractive takeover target.

 
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