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Peregrine Flies In The Face Of Conventional Wisdom

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

Peregrine Flies In The Face Of Conventional Wisdom
D. Geller - December 1, 2000

Event Summary

Peregrine Systems, Inc. (NASDAQ: PRGN) announced a new pricing model for its Get2Connect.netSM e-commerce products. Get2Connect is the company's e-commerce enabling engine (see Peregrine Polishes the Old In-Out-and-In-between, which it recently integrated with its e-Procurement product Get.Resources (see Infrastructure Management Wunderkind Divides and Integrates). With similar products customers would expect to pay a fixed fee per transaction, or a percentage of the cost of each transaction, to the marketplace operator. In the case of document transfers, an important component of Get2Connect since it is intended to enable lifetime asset tracking, the fee might be based on the size of the document.

Peregrine's announcement offers a new model, in which a customer's fees are based solely on the number of trading relationships it has. This is like a long-distance dialing plan in which you might pay a monthly fee for each individual you call during the month but may then call as often as and speak as long as you want for that one fee.

According to Steve Gardner, Peregrine chairman and CEO. "The flat fee model was designed to accommodate enterprise-level customers as well as e-Market sponsors." These are customers whose transaction volumes tend to fluctuate on a month-by-month basis and who would prefer to have predictable costs.

Market Impact

The easy prediction is that every vendor will eventually offer a similar option (probability 99.99%). We also expect that at least one will call it a "budget plan." There are obviously customers who will prefer this kind of predictability, and in the long run their costs will be nearly the same as they would have been under the old model.

Having said that a customer's costs (and a vendor's revenues} will not change much from a plan like this, we have to introduce one caveat. If charging is by fixed price it will be easier to compare different marketplace providers. That could lead to commoditization and general lowering of price levels sooner than would have happened otherwise.

In the short run, though, we think that Peregrine has an opportunity to get a lot of advantage from its time in the limelight. It's not everyday that a company can show itself to be creatively compliant with customer needs, and the many customers with concern about the effect of variable transaction costs on their budgets will take this announcement much to heart.

User Recommendations

The ability to stabilize monthly costs should become another consideration in your choice of a vendor, although you may or may not assign a high weight to it. We expect that it will not be a deciding criterion because a vendor that is going to lose a sale based on this criterion is almost certain to make an appropriate counter-offer. If Peregrine doesn't meet your overall needs, this announcement can give you negotiating leverage over the other vendors.

Note, though, that adopting this kind of pricing from a vendor is not without its downside. Its natural result is to lead companies to reduce the number of vendors they deal with. Trying a new vendor, or maintaining a low duty-cycle relationship with one, will be hard to justify when you have to pay the same fees as you do to work with your closest partners. This result would be bad for smaller businesses and bad for corporate flexibility. In that it joins other factors, notably tighter integration along the supply and demand chains, that also seem likely to reduce the number of trading relationships a company maintains - a rather strange paradox given the initial promise of B2B exchanges.

In any event, we would not discourage you from thinking of Peregrine as an attractive partner as a result of this announcement. Creative thinking that solves customer problems is always to be valued.

 
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