Peregrine Flies In The Face Of Conventional Wisdom
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.
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.
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.
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.
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.
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.
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.
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.
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.