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.