M A R K E T O V E R V IE W

ePurchasing Software Market by Andrew Bartels

Making Leaders Successful Every Day

MARKET OVERVIEW

February 20, 2007

MA RK E T O V E R VIE W

Includes Business Technographics® data, Client Choice topic

February 20, 2007

ePurchasing Software Market

eProcurement And eSourcing Mature; CLM, EIPP, And Automated Spend Analysis Grow

This is the first document in the “ePurchasing Market” series. by Andrew Bartels with Sharyn Leaver and Heidi Lo

EXECUT I V E S U M MA RY The market for ePurchasing software, also called spend management or supplier relationship management solutions, will grow at a compound annual growth rate (CAGR) of 10% from 2003 to 2008, with more mature segments of the market like eProcurement and eSourcing growing much more slowly, at 3% and 6%, respectively. Newer segments like contract life-cycle management (CLM), electronic invoice presentment and payment (EIPP), automated spend analysis, and services procurement will grow more rapidly, at CAGRs of 21% or more as newcomers enter the market and consolidation begins. Some categories like EIPP, eSourcing, and spend analysis use software-as-a-service (SaaS) a lot, while others like CLM or eProcurement use it just a little. Larger enterprises are still much more likely to have acquired ePurchasing solutions, but adoption is starting to occur among small and medium-size businesses (SMBs) and is not complete even among the largest firms, with more than 25% of the Global 2000 not using eProcurement or eSourcing.

TABLE O F CO N T E N TS 2 The ePurchasing Market Is Actually Seven Distinct Products 3 Purchases of ePurchasing Solutions Are Growing, But Unevenly 10 Large Enterprises Have Purchased The Most, But Pockets Of Nonusers Remain 13 Vendor Landscape: Consolidating In Mature Categories, Expanding Elsewhere RECOMMENDATIONS

19 A Diversified Market Requires Complex Choices For IT Buyers 19 ePurchasing Vendors Need To Focus On Good Functionality, Not Breadth WHAT IT MEANS

N OT E S & R E S O U R C E S Forrester interviewed 67 vendors and collected data on an additional 14 vendors, including Ariba, b-process, BasWare, Deskom, Emptoris, ePlus, Fieldglass, Global eProcure, Harbor Payments, i2, Iasta, IBX, ICG Commerce, I-Faber, I-many, IQNavigator, Ketera Technologies, MRO Software, Nextance, Oracle, Perfect Commerce, Procuri, Quadrem, SAP, SciQuest, SynerTrade, Tejari, TradeCard, UGS, Upside Software, US Bank (PowerTrack), Xign, and Zycus.

Related Research Documents “The Forrester Wave™: Contract Life-Cycle Management, Q1 2006” March 10, 2006, Tech Choices

20 The ePurchasing Software Market Is Still Growing And Evolving

“The Forrester Wave™: eSourcing Suites, Q4 2005” November 17, 2005, Tech Choices

20 Supplemental Material

“The Forrester Wave™: Accounts Payable EIPP, Q3 2005” August 22, 2005, Tech Choices

© 2007, Forrester Research, Inc. All rights reserved. Forrester, Forrester Wave, RoleView, Technographics, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. Forrester clients may make one attributed copy or slide of each figure contained herein. Additional reproduction is strictly prohibited. For additional reproduction rights and usage information, go to www.forrester.com. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. To purchase reprints of this document, please email [email protected].

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Market Overview | ePurchasing Software Market

TARGET AUDIENCE Business process and applications professional RESEARCH CATALYST Clients selected this topic for Client Choice research. THE ePURCHASING MARKET IS ACTUALLY SEVEN DISTINCT PRODUCTS The market for software solutions that improve the efficiency and effectiveness of buy-side processes goes by various names, including spend management, supplier relationship management, as well as variations of these names. Because each of these names is associated with one vendor or another, we have chosen to use a more neutral term: ePurchasing. Included within this market are five product categories that address a subset of the processes in the cycle of effective purchasing: automated spend analysis, eSourcing, contract life-cycle management (CLM), eProcurement, and electronic invoicing presentment and payment (EIPP) (see Figure 1). Figure 1 The ePurchasing Software Market Supports The Eight-Stage ePurchasing Process 2. Supplier assessment

3. Supplier identification

1. Spend analysis

8. Invoicing, reconciliation, and payment

ePurchasing process

4. Sourcing

7. Order fulfillment

5. Contract management 6. Procurement

40454

February 20, 2007

Source: Forrester Research, Inc.

© 2007, Forrester Research, Inc. Reproduction Prohibited

Market Overview | ePurchasing Software Market

We also include products focused on the procurement of services such as temporary workers, consultants, and outsourced services (services procurement), which include elements of sourcing, contract management, procurement, order fulfillment, and invoicing and still exist as a standalone product offering. In addition, we include supplier network services that connect suppliers and purchasers through electronic order transaction processing and electronic catalog management and updating. There is a nascent market for supplier identification and assessment, but it is too small and fragmented to be measured at this point. We do not include products for direct materials purchasing out of enterprise resource planning (ERP) systems because they are integral parts of manufacturing management systems and are generally not sold separately. PURCHASES OF ePURCHASING SOLUTIONS ARE GROWING, BUT UNEVENLY We estimate that the market for ePurchasing solutions will be more than $2.4 billion in 2006. Purchases of ePurchasing solutions in these seven product categories started to grow at double-digit rates in 2006 after slower growth in 2004 to 2005 and declines in 2001 to 2003. We expect those growth rates to continue in 2007 and 2008 despite a general slowing of growth in the software market in those years (see Figure 2).1 Figure 2 Forecast: Global ePurchasing Market By Type Of Product, 2007 To 2008 The spreadsheet detailing this forecast is available online.

Global revenues (US$ millions) $3,039 $2,702

2003 to 2008 CAGR 3% 6% 30% 21% 29% 28% 25% 10%

eProcurement eSourcing Contract management Spend analysis EIPP Supplier network Services procurement Total ePurchasing market

$72 $41 $62 % change from prior year Overall

$1,845 $874

$2,028 $923

$2,132

$2,423 $962

$1,015

$983

$897

$792 $702 $636

$600

$579

$352

$568 $268

$186

$151 $134 $128 $98 $94 $172 $60 $142 $86 $102 $92 $130 2003 2004 2005

$205 $126 $234 $104 $157 2006

$123 $168 2007*

$144 $186 2008*

-13%

14%

11%

12%

10%

5%

$158 $302

$365

(numbers have been rounded) *Forrester forecast Source: Data and estimates from briefings from 80 vendors 40454 © 2007, Forrester Research, Inc. Reproduction Prohibited

Source: Forrester Research, Inc. February 20, 2007

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Market Overview | ePurchasing Software Market

Growth Is Slow For eProcurement And eSourcing, Fast For CLM, EIPP, And Spend Analysis Corporate focus on controlling and reducing costs during the past few years of low inflation and limited ability to raise prices have been the major drivers of demand for ePurchasing solutions. Any slowdown in economic growth will intensify that focus. However, that demand is spread unevenly among the different types of products in this market. In effect, the market has two different parts: 1) the trucks of eProcurement and eSourcing, which are large but slow-growing; and 2) the CLM, automated spend analysis, EIPP, supplier networks, and services procurements sports cars, which are much smaller but speedier.

· eProcurement purchases will grow at 3% CAGR through 2008. eProcurement applications

have been around since the late 1990s, and they generated $962 million vendor revenues in 2006. These products automate the process of employees finding the products that they need to buy, which includes generating the requisition, getting manager approval if needed, creating the purchase order, and delivering that order electronically to the supplier for confirmation and fulfillment. The products are now widely deployed in most large enterprises in North America and Europe, and SMBs are starting to adopt them. However, because adoption is already so widespread, growth is slow.

· eSourcing purchases will grow at 6% CAGR through 2008. eSourcing tools support requests for information (RFIs), requests for proposals (RFPs), requests for quotations (RFQs), reverse auctions, and other supplier-selection techniques. These tools help buyers choose the best supplier based on the bids received from suppliers and manage the activities of individual supplier-selection teams as well as a portfolio of many categories of suppliers. The eSourcing category, which had $636 million in purchases in 2006, includes consulting services to help clients gain expertise in eSourcing techniques or figure out how to source specific categories of goods and services. Revenues from the fully managed sourcing events pioneered by FreeMarkets (and continued by Ariba since its acquisition of FreeMarkets) or other types of business process outsourcing (BPO) services are not included.

· Buy-side contract management purchases will grow at 30% CAGR through 2008. The

contract life-cycle management market includes products that support buy-side contracts, sell-side contracts, or both. We include the proportion of those revenues that we estimate are specifically for buy-side contract management, which equaled $205 million in 2006. Growth has been very strong because companies recognize the value of automating the process for creating and refining the contractual terms and conditions after a deal to buy something has been struck using eSourcing tools, as well as automating the tracking and enforcement of compliance with contract terms through the eProcurement or direct materials purchasing applications.

· Automated spend analysis purchases will grow at 21% CAGR through 2008. These products

take existing information from invoices, purchase orders, and receipts that document what a company has bought and cleanses, normalizes, categorizes, and enriches this data to show how much the company has purchased of given categories of goods and services from which vendors

February 20, 2007

© 2007, Forrester Research, Inc. Reproduction Prohibited

Market Overview | ePurchasing Software Market

and by which units. Buying companies use the resulting classification to identify sourcing opportunities, check for noncompliance with purchasing policies, and improve master data management. These benefits have driven strong growth (albeit from a low base) to a total of $126 million in 2006.

· EIPP purchases will grow at 29% CAGR through 2008. These accounts payable products

provide three functions: 1) the conversion of invoices into electronic data; 2) the validation of invoices through a combination of automated checks against purchase orders, receipts, and contracts and the workflow to route exception items to the right person for review and decision; and 3) value-added functions such as cash forecasting, discount management, and financing integration. They have a very positive return on investment because of the process efficiencies from the first two functions and the financial benefits of the third function. As a result, growth has been strong, with total revenues reaching $234 million in 2006.

· Supplier network revenues will grow at 28% CAGR through 2008. Supplier networks provide

connectivity and data conversion between buyers and sellers, allowing electronic purchase orders, responses, and related documents to flow directly between the buyer’s eProcurement system and the supplier’s order management system. They also help manage the supplier’s catalog, including syndicated catalog updates to the employee-facing catalog used in eProcurement systems. Some supplier networks charge buyers for supporting their suppliers, while others charge both suppliers and buyers when all buyers can connect to any supplier. Total revenues from both buyers and suppliers were $104 million in 2006, up from $41 million in 2003.

· Services procurement purchases grow at 25% CAGR through 2008. Companies purchase

large quantities of services, yet these services have unique characteristics that make them awkward to purchase through traditional eProcurement tools. Selection involves qualitative factors, such as choosing specific individuals or teams with the knowledge, experience, or background needed. Purchasers of services need to track and record when work is done and if it was performed to expectations to avoid validation problems later. Backgrounds of service providers need to be checked, and onboarding to get them credentials to be on site is often required. And, the billing often involves a variety of time-based, deliverables-based, performance-based, or time-and-materials-based pricing. As a result, while eProcurement vendors are extending their products into services, demand persists for solutions that are tuned to the unique requirements of purchasing services. Total purchases of these kinds of solutions were about $157 million in 2006, with the vast majority still going for purchases of contingent workers and consultants.

© 2007, Forrester Research, Inc. Reproduction Prohibited

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Market Overview | ePurchasing Software Market

Licensed Solutions Still Dominate, But Subscriptions-Based Solutions Grow Like other enterprise applications, vendors have historically sold ePurchasing software products as licensed software that clients install onsite, or they have hosted the software for clients at a thirdparty site. Not surprisingly, three-quarters of the revenue in this market comes from license fees, maintenance fees, and services fees for implementation, training, and coaching. But the tides are turning as:

· Subscription revenues take off, growing by 25% CAGR. SaaS is gaining traction in this market

as it is in several others, making subscription revenues the fastest growing type of revenues — much faster than the ePurchasing category as a whole (see Figure 3). Which vendors are cashing in on this growth? Vendors like cc-hubwoo, Fieldglass, Global eProcure, Harbor Payments, IBX, I-Faber, IQNavigator, Ketera Technologies, OB-10, Perfect Commerce, Procuri, Quadrem, Tejari, and Xign. These vendors primarily or exclusively offer SaaS products, though other vendors like Ariba, Emptoris, Oracle, and SAP are also joining in the trend.

· License revenues grow slowly at 2% CAGR. SAP and Oracle, which loom large in the market

for eProcurement products and are growing in eSourcing, primarily sell licensed software products, though both are dipping into SaaS offerings. Ariba, Emptoris, BasWare, and ePlus — the next largest vendors after SAP and Oracle — also are primarily vendors of licensed software products, though Ariba is shifting heavily toward SaaS, and the others have SaaS offerings. This pattern will persist because many enterprises want the control, fixed cost, and customization benefits of licensed software. However, with the large enterprise market already saturated, growth in this category of revenues will remain in the single digits.

· Maintenance revenues continue to rise at 10% CAGR as the base of licensed sales grows.

The large base of licensed product sales and continued slow but steady growth in sales of these products mean that maintenance revenues, which typically are annual payments equal to 18% to 20% of initial license costs, will grow more rapidly than license revenues grow.

· Services revenues, at 8% CAGR, are growing in line with maintenance revenues. Services

revenues are for consulting services for implementing and customizing licensed software applications, for providing training and coaching in how to use applications, or for advice on how to source and purchase specific categories of goods and services. They tend to grow in line with maintenance revenues from sales of products.

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Market Overview | ePurchasing Software Market

Figure 3 Forecast: Global ePurchasing Market By Type Of Revenue, 2007 To 2008 The spreadsheet detailing this forecast is available online.

Global revenues (US$ millions) 2003 to 2008 CAGR

2% 10% 25% 8% 10%

$3,039 $671

$2,702

License revenues Maintenance Subscriptions $1,845 revenues $604 Service revenues Total ePurchasing market

$373 $313

$2,423 $2,023 $603 $18.6

$498

$410 $585

2003

2004

$608 $548

$511 $453

$425

$555

$2,125 $582

$638

$622

$592

$947 $803

$636 $654

$814

$714

2006 2007* 2005 (numbers have been rounded)

2008*

*Forrester forecast Source: Data and estimates from briefings from 80 vendors 40454

Source: Forrester Research, Inc.

SaaS Is Attractive For Some Categories, But Not Others While SaaS is clearly growing faster than licensed software sales, the growth has not been even across all categories. Some products are most attractive as licensed software; others are attractive for delivery as SaaS (see Figure 4).

· CLM and eProcurement are the least attractive categories for SaaS. Only 7% of total

revenues for CLM solutions come in the form of subscriptions, and 12% of total revenues for eProcurement solutions are subscriptions. In the case of CLM, companies are reluctant to put their contracts, which they consider a core strategic asset, on a shared-instance, multitenant server, even with the partitioning and security that vendors provide. Companies prefer to buy licensed eProcurement solutions for another reason: the ease of integrating these hightransaction systems with their financial management and human resource management systems. While SaaS subscription revenues have grown slightly for both applications since 2003, we expect companies to buy them primarily as licensed software products.

© 2007, Forrester Research, Inc. Reproduction Prohibited

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Market Overview | ePurchasing Software Market

Figure 4 SaaS Is Most Attractive For EIPP, Sourcing, And Spend Analysis Subscriptions revenue as a percentage of total revenues, 2006 78%

Supplier network 59%

Services procurement

55%

EIPP 28%

eSourcing 25%

Spend analysis eProcurement CLM

12% 7% (numbers have been rounded)

Source: Data and estimates from briefings from 80 vendors 40454

Source: Forrester Research, Inc.

· eSourcing and spend analysis applications have some appeal for SaaS, but transitionally. One-

fifth to one-quarter of revenues in these categories come from subscription revenues, indicating that SaaS does have some appeal. However, many companies use SaaS to get started, then migrate to licensed software solutions once frequency of sourcing events and spend analysis reaches a critical threshold — approximately one or more sourcing events per day and weekly or monthly analysis of spending. In the case of eSourcing, subscription revenues have stabilized in the 24% to 28% range of total revenues since 2003, with the inflow of new users of eSourcing that start with a SaaS model offset by the outflow of experienced companies to licensed software solutions. In the case of spend analysis, subscription revenues have grown from 4% of total revenues in 2003 to 25% in 2006, and they will probably rise to around 33% before stabilizing.

· EIPP, services procurement, and supplier network services primarily sold on a SaaS model.

For these categories, subscriptions revenues make up three-fifths of total revenues or more. This is partly because these newer categories have come of age when SaaS has become more prevalent. Mostly, though, these products lend themselves to a SaaS model because they exist in the middle ground between buyers and suppliers and are best accessed on a SaaS model. EIPP, for example, involves importing electronic invoices from suppliers (even if they don’t routinely generate them) and the automated matching of invoices against purchase orders, which can be done outside the corporate environment. Supplier network services of supplier-buyer connectivity and catalog management are also best done in the space between suppliers and buyers, as opposed to inside one or the other. And services procurement involves interactions between buyers and suppliers to find the right providers, schedule work, and record work done.

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Market Overview | ePurchasing Software Market

Product Revenues Per Client Decline As Demand Shifts To Smaller Buyers eProcurement applications have the widest deployment, with an estimated 8,000 enterprises having purchased these products, based on the client counts reported to us by vendors (see Figure 5). About 3,600 enterprises have purchased eSourcing products, and about 3,000 have subscribed to supplier network services. Almost 2,500 have purchased EIPP solutions, and about 1,800 have purchased CLM products. Adoption of spend analysis and services procurement products is much more limited, with about 500 clients for spend analysis and fewer than 400 for services procurement. Using these client numbers and our estimates for total annual revenues, we have calculated average annual revenues per client for each of these products (see Figure 6). As one might expect given the adoption trends in the market, the average revenues per client in most cases have been declining since 2006. This is mostly because adoption has been shifting from the largest Global 2000 enterprises down to smaller enterprises. Because most vendors base the price of their products on the number of employees, total spend, or total revenues, smaller companies spend less for a solution than larger ones do. However, commoditization and competition in products like eSourcing and EIPP are also eroding prices, driving down prices more rapidly than in other categories. Newer products like spend analysis and services procurement, which have mostly been adopted by the largest enterprises, still have average price points in excess of $400,000 per year, with the limited number of capable spend analysis vendors allowing them to sustain price levels. The exception to falling prices per client is supplier network services, where revenues per buyer client have steadily been rising, though from low levels. Companies recognize the need for and value of having good electronic connectivity with their suppliers or buyers as well as electronic catalog management. Figure 5 Number of ePurchasing Clients By Type Of Product Global client count (thousands) 2003 to 2006 CAGR

9 8

eProcurement

11%

7

eSourcing

23%

Contract management

30%

EIPP

50%

Spend analysis

29%

2

Supplier network

14%

1

Services procurement

48%

6 5 4 3

0

2003

2004

2005

2006

(numbers have been rounded) Source: Data and estimates from briefings from 80 vendors 40454

© 2007, Forrester Research, Inc. Reproduction Prohibited

Source: Forrester Research, Inc.

February 20, 2007

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Market Overview | ePurchasing Software Market

Figure 6 Average Annual Revenues Per Client By Product Are Falling Revenues per client (US$ thousands)

eProcurement eSourcing Contract management EIPP Spend analysis Supplier network Services procurement

2003

2004

2005

2006

2003 to 2006 CAGR

$150

$136

$127

$120

-7%

$318

$247

$205

$181

-17%

$117

$120

$100

$116

0%

$99

$79

$71

$56

-17%

$438

$415

$407

$474

3%

$21

$26

$34

$35

20%

$565

$459

$430

$435

-8%

(numbers have been rounded) Source: Data and estimates from briefings from 80 vendors 40454

Source: Forrester Research, Inc.

LARGE ENTERPRISES HAVE PURCHASED THE MOST, BUT POCKETS OF NONUSERS REMAIN In past research, we have argued that the ePurchasing market has a glass floor in demand in which the largest enterprises buy these products, but demand thins out below companies with 1,000 employees or $500 million in revenues.2 Recent evidence from Forrester’s Business Technographics® surveys of North American and European enterprises and SMBs on software plans shows that the glass floor still persists, though holes are starting to emerge. It also shows that adoption among the largest enterprises is not as pervasive as it seemed. A Third Of The Largest North American Enterprises Have Not Bought ePurchasing Products The 2006 survey of 471 North American enterprises and 553 SMBs did show that SMBs were much less likely than enterprises to have already purchased at least some eProcurement and eSourcing products — 61% of small companies and 58% of medium-small companies did not use any procurement or sourcing products, compared with only 23% of the large and 29% of the very large enterprises. Still, a surprisingly large 36% of the Global 2000 enterprises with more than 20,000 employees were not using procurement or sourcing tools (see Figure 7-1).

· Global 2000 North American enterprises will be the most active buyers in 2007. While only 5% of the largest enterprises will be buying eProcurement or eSourcing software in 2007, 34% will be making minor upgrades, and 11% will be making major upgrades.

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Market Overview | ePurchasing Software Market

· Large and very large North American enterprises will be almost as active. Twenty-five

percent of the very large enterprises, with 5,000 to 19,999 employees, will be making minor upgrades, 9% major upgrades, and 5% will be buying for the first time. Large enterprises, those with 1,000 to 4,999 employees, have the highest rate of adoption, with only about one-quarter not using procurement and sourcing products. They will also be active in 2007, with 38% buying or upgrading.

· Adoption is starting to hit the high end of SMBs, i.e., firms with 500 to 999 employees.

While 48% of medium-large businesses are not using procurement or sourcing products, a third will be buying or upgrading in 2007.

· Small and medium North American companies still lag in adoption and planned purchases. Only 16% of small companies are planning to make first-time purchases, minor upgrades, or major upgrades of procurement and sourcing software in 2007; in addition to the 61% that are not using these products at all, another 21% already have a product but will not make any new purchases in 2007. Planned purchases are only slightly better among the medium-size companies, with 25% planning to buy or upgrade these products in 2007.

European Companies Seem To Have Higher Levels Of Adoption Surprisingly, European companies seem to have higher levels of adoption of ePurchasing products than North American companies. More than half of the European SMBs have or are buying procurement or sourcing products, and two-fifths of European enterprises are doing the same. We say that European companies “seem” to have higher adoption levels because the sample sizes are smaller for Europe than for North America and only include respondents from the UK, France, and Germany. Thus, it is possible that our sample includes a higher proportion of ePurchasing tool adopters than is true in general for Europe. With this caveat, the pattern of European adoption of ePurchasing products by size of company is generally similar to that in North America, with the highest adoption among large enterprises and lower rates of adoption both among the Global 2000 enterprises and among small businesses (see Figure 7-2). The Public Sector And Financial Services Have The Highest Levels Of Enterprise Adoption Looking at the adoption of ePurchasing technologies by different industries reveals fairly similar 2007 purchase plans regardless of industry. In most industries, at least 40% of enterprises plan to make first-time purchases or major or minor upgrades in 2007, with minor upgrades being the dominant plan (see Figure 8). The exceptions are the retail and wholesale industries and the public sector industries of government, healthcare, and education, where 36% of enterprises plan to buy or upgrade in 2007. On the other hand, the public sector along with finance and insurance have the highest current levels of adoption, with more than three-quarters of enterprises in these industries already using or planning to buy a procurement or sourcing product.

© 2007, Forrester Research, Inc. Reproduction Prohibited

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Figure 7 Which Companies Are Buying eProcurement And eSourcing Software In 2007 7-1 North American 2007 demand is strongest at Global 2000, though adoption lags “Will your company purchase any procurement or sourcing software in 2007?” Major upgrade 3% Minor upgrade 4% First-time purchase Using but not purchasing in 2007 Not using Don’t know

9% 21%

4%

16%

7% 22%

5% 16%

61%

4% 20%

10%

9%

11%

22%

25%

34%

6%

5% 38%

58%

26%

5% 12%

48%

36%

29%

23% 2% 1% 7% 3% Small Medium-small Medium-large Large Very large Global 2000 (5 to 99 (100 to 499 (500 to 999 (1,000 to 4,999 (5,000 to 19,999(20,000 or more employees) employees) employees) employees) employees) employees)

2%

Number of responses 204

206

143

240

130

101

Base: 553 and 471 decision-makers at North American SMBs and enterprises, respectively Source: Business Technographics® September 2006 North American And European Enterprise Software Survey and Business Technographics® September 2006 North American And European SMB Software Survey 7-2 European demand is strongest at medium-large and large companies “Will your company purchase any procurement or sourcing software in 2007?”

Major upgrade Minor upgrade First-time purchase 7% Using but not purchasing in 2007 Not using Don’t know

12%

10%

11%

10%

9%

15%

18%

19%

23%

21%

6% 19% 48%

25%

19% 22%

5%

7% 28%

7% 21% 7%

35%

41%

23% 33%

30%

26%

26%

5% 4% 9% Small Medium-small Medium-large Large Very large Global 2000 (5 to 99 (100 to 499 (500 to 999 (1,000 to 4,999 (5,000 to 19,999(20,000 or more employees) employees) employees) employees) employees) employees) Number of responses

75

80

64

96

57

43

Base: 219 and 196 decision-makers at North American SMBs and enterprises, respectively Source: Business Technographics® September 2006 North American And European Enterprise Software Survey and Business Technographics® September 2006 North American And European SMB Software Survey 40454

February 20, 2007

Source: Forrester Research, Inc.

© 2007, Forrester Research, Inc. Reproduction Prohibited

Market Overview | ePurchasing Software Market

Figure 8 Public Sector And Financial Services Have The Highest Levels Of Enterprise Adoption “Will your company purchase any procurement or sourcing software in 2007?” Major upgrade 12% Minor upgrade 25% First-time purchase Using but not 5% purchasing 23% in 2007 Not using Don’t know 32%

9%

5%

21% 6% 28%

6% 29%

6%

35%

8% 31%

12%

28%

17% 5%

7% 17%

14%

28%

21% 7%

28%

6%

40%

35%

29% 23%

31%

23%

21%

14% 2% 4% 1% 6% 2% Manufacturing Retail & Business Media & Public Utilities & Finance & insurance wholesale services entertainment telecom sector Number of responses 198

80

118

36

42

82

111

Base: 667 software decision-makers at North American and European enterprises Source: Business Technographics® September 2006 North American And European Enterprise Software Survey 40454

Source: Forrester Research, Inc.

VENDOR LANDSCAPE: CONSOLIDATING IN MATURE CATEGORIES, EXPANDING ELSEWHERE The vendor landscape of ePurchasing solution providers is a complex one, reflecting the different maturities and degrees of adoption of different ePurchasing products and different levels of demand from companies of different sizes. In the more mature segments like eProcurement and eSourcing, the number of vendors has been steadily declining as SAP and Oracle expand their presence. In the newer product categories of automated analysis, CLM, EIPP, supplier network services, and services procurement, the number of vendors is increasing or staying the same, and SAP and Oracle have very limited presences. The eProcurement And eSourcing Market Is Consolidating; SAP And Oracle Hold Steady The markets for eProcurement and eSourcing products are the most mature ones of all the products, with the slowest growth in purchases and revenues. Naturally, these markets are also the ones that have experienced the greatest degree of consolidation, with smaller vendors merging or being acquired by larger ones. Our count of vendors in these categories, which is consistent over time though certainly not exhaustive, shows that the number of vendors offering these products in 2001, 58, has shrunk to 38 in 2006. The mergers included PeopleSoft’s acquisition of JD Edwards; Oracle’s acquisition of PeopleSoft; Ariba’s purchase of FreeMarkets; Perfect Commerce’s mergers with eScout and Pantellos; the mergers of Hubwoo, cc-chemplorer, and Trade Ranger into cc-hubwoo; the merger of Trade2B and SynerDeal into SynerTrade; IBX’s acquisition of Trimondo and Portum; and SAP’s acquisition of Frictionless (see Figure 9).3

© 2007, Forrester Research, Inc. Reproduction Prohibited

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Market Overview | ePurchasing Software Market

Figure 9 The eProcurement/eSourcing Market Is Consolidating Number of vendors 60 40 20 0 Share of SAP and Oracle (with PeopleSoft) 58%

56% 23%

1999

21%

2000

47% 27%

2001

31%

Share of other top 10 vendors

40% 38% 40% 33%

2002

2003

28%

2004

39%

30%

2005

41% 29%

2006

Source: Forrester Research, based on interviews with and data from more than 80 vendors in the market 40454

Source: Forrester Research, Inc.

One consequence of consolidation has been the increased share that SAP and Oracle have gained in these markets. These two vendors now have about 41% of the combined revenues for eProcurement and eSourcing solutions. However, their market share has actually been relatively stable at this level since 2003. Other leading eProcurement and eSourcing vendors like Ariba, cc-hubwoo, Emptoris, ePlus, IBX, Ketera Technologies, Perfect Commerce, Procuri, Quadrem, SynerTrade, Tejari, and UGS have been able to hold or even expand their share of the market, despite the presence of SAP and Oracle. The EIPP/CLM Market Is Expanding And Fragmenting; SAP And Oracle Are Mostly Absent By contrast, the EIPP and CLM markets are each expanding with new entrants increasing the total number of vendors or offsetting mergers and acquisitions among existing vendors. For simplicity, we have combined the vendors and revenues of these two markets to show their similar market dynamics, even though only one or two vendors are currently active in both (see Figure 10).

· The number of vendors is still growing in both EIPP and CLM. Fast-growing markets like

EIPP and CLM attract new vendors like honey attracts bears. In the combined markets, the number of vendors with more than $2 million in revenues has grown from eight in 2000 to 25 in 2006. In EIPP, vendors like Bottomline Technologies and 170 Systems have moved into the market in the last couple of years, as have supplier network providers like Ariba, cchubwoo, and Perfect. Other supplier networks like IBX and Quadrem are likely to offer EIPP solutions. Similarly, Emptoris, Procuri, and Selectica have come into the CLM market through acquisitions, Ariba has built out a full CLM offering, Oracle has expanded from its older services contract product into sales and purchasing contracts, and SAP has just launched its

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Market Overview | ePurchasing Software Market

own product. Meanwhile, enterprise content management vendors like Hummingbird, which was recently acquired by Open Text, have introduced their own CLM offering, and others like EMC Documentum, Interwoven, or Vignette are starting to creep into the market as well.

· Oracle and SAP are marginal participants in these markets. Oracle is a significant player in

the CLM market, but SAP has only recently offered what we would consider to be a competitive product. Neither Oracle nor SAP is yet a participant in the EIPP market as we define it.4

Figure 10 The EIPP And CLM Markets Are Still Expanding Number of vendors 30 20 10 0 Share of SAP and Oracle (with PeopleSoft)

60%

17% 1999

62%

57%

18% 2000

11% 2001

Share of other top 10 vendors

62%

7% 2002

61%

56%

7% 2003

7% 2004

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59%

7% 2005

54%

7% 2006

Source: Forrester Research, Inc.

No Single Vendor Or Group Of Vendors Dominate The Market Unlike other application products like customer relationship management (CRM), financial management systems (FMS), or human resource management systems (HRMS) where there are a handful of dominant vendors, the ePurchasing market remains fragmented. There is no one vendor that shows up among the top four vendors in all product categories, though Ariba does come close. Instead, in most categories, a different set of vendors has the most revenues and most clients in one category than in another. Moreover, the largest vendors were generally not the most capable vendors in terms of our rankings of vendors in Forrester Wave™ reports for eProcurement, eSourcing, contract life-cycle management, and accounts payable EIPP (see Figure 11-1 and see Figure 11-2).5

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Figure 11 Top Vendors In Each ePurchasing Category 11-1 Eleven largest vendors by category (in descending order based on revenues and clients) Overall ePurchasing SAP Oracle Ariba Emptoris BasWare Procuri IQNavigator cc-hubwoo ePlus Quadrem Accruent* Spend analysis

eProcurement SAP Oracle Ariba ePlus Quadrem cc-hubwoo BasWare IBX SciQuest Ketera Technologies Perfect

eSourcing SAP Oracle Ariba Emptoris Procuri BravoSolution UGS i-Faber SynerTrade Tejari Agentrics

Accounts payable - EIPP Services procurement

CLM Oracle Accruent* Upside Emptoris I-many Ariba Nextance Procuri OpenText Selectica Ecteon Supplier network

Emptoris BasWare Ariba IQNavigator Ariba US Bank (PowerTrack) Fieldglass IBX Harbor Payments Ariba Zycus cc-hubwoo Ketera Technologies Quadrem TradeCard Rearden Commerce Ariba Beeline VerticalNet Perfect OB10 Peopleclick Procuri Agentrics Global eProcure Xign Click Commerce ePlus CGI-Silver Oak Oracle Ketera Technologies Bottomline Analytics b-process SAP SciQuest SynerTrade Deskom Oracle Perfect Commerce SAS CHIMES 170 Systems *Real estate contracts only Source: Forrester Research, based on interviews with and data from more than 80 vendors 11-2 Top-rated vendors in current offering in Forrester Wave™ reports (in descending order of scores) eProcurement (as of Q1 2005) Ariba Oracle SAP Perfect Ketera Technologies

eSourcing (as of Q3 2005) Emptoris Ariba VerticalNet SAP (Frictionless) Oracle Global eProcure SynerTrade SAP (mySAP SRM) Perfect Procuri lasta

CLM (as of Q1 2006) Emptoris Ariba Nextance Upside Software I-many Oracle Selectica OpenText Procuri

AP-EIPP (as of Q3 2005) Xign BasWare TradeCard Ariba US Bank (PowerTrack) Deskom burns e-commerce solutions b-process

Source: January 4, 2005, Tech Choices “The Forrester Wave™: eProcurement Solutions;” November 17, 2005, Tech Choices “The Forrester Wave™: eSourcing Suites, Q4 2005;” March 10, 2006, Tech Choices “The Forrester Wave™: Contract Life-Cycle Management, Q1 2006;” and August 22, 2005, Tech Choices “The Forrester Wave™: Accounts Payable EIPP, Q3 2005” 40454

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Market Overview | ePurchasing Software Market

· SAP and Oracle have the most revenues and clients among all the vendors. We estimate

that SAP had more than $500 million in revenues from its SRM products in 2006, and Oracle had more than $350 million. However, SAP and Oracle are concentrated on the eProcurement and eSourcing market and have limited presence elsewhere, with the exception of CLM, where Oracle has a leading presence. Oracle had good scores in current offering in the Forrester Wave on eProcurement and middle-of-the-pack scores in the Forrester Wave reports on eSourcing and CLM. SAP scored below Oracle in both the eProcurement and eSourcing Waves, though its acquisition of Frictionless would give it a higher score for that particular product.

· Ariba has a broad presence and is the third largest vendor by revenues. We estimate that

Ariba had $255 million in revenues from its spend management products in 2006 out of total calendar year 2006 revenues of $301 million (excluding our estimates of its revenues from its eProcurement BPO offerings). It is No. 3 in terms of revenues in eProcurement, eSourcing, and services procurement, No. 1 in supplier network services in terms of buyer clients and suppliers (though not in revenues), and No. 2 in spend analysis. It is No. 5 in CLM and EIPP. It has also scored well in Forrester Wave reports for eProcurement, eSourcing, CLM, and EIPP.

· Emptoris is the fourth largest vendor, with strength in sourcing, spend analysis, and CLM.

We estimate that Emptoris had about $95 million in revenues in 2006. It had the most revenues of any vendor in spend analysis and ranks fourth in revenues in eSourcing and CLM. It has scored very well in the Forrester Wave reports for eSourcing suites and CLM.

· BasWare ranks fifth, with the largest share of EIPP and a growing share in eProcurement.

Finland-based BasWare, had $75 million in revenues in 2006. It has been a leader in EIPP, where we estimate that it ranks first in revenues, and a growing factor in eProcurement, where it ranks seventh in size. It scored very well in the Forrester Wave on EIPP, and we will evaluate it in a forthcoming update to the eProcurement Forrester Wave report.

· Procuri is the sixth largest vendor by revenues. We estimate that Procuri will have revenues

in the $45 million to $50 million range in 2006. It ranks fifth in size in the eSourcing market, eighth in CLM, and sixth in spend analysis thanks to its acquisition of TrueSource. Its scores on current offering in the Forrester Wave reports on eSourcing and CLM have been in the bottom half of the pack.

· Eight vendors have revenues in the $30 million to $40 million range. Below these six vendors,

the market gets crowded with eight vendors that have revenues in the $30 million to $40 million range. These vendors include Accruent in real estate contract management; cc-hubwoo in supplier network services and eProcurement in Europe; ePlus in eProcurement in the US; IBX in eProcurement, eSourcing, and supplier network services in Europe; IQNavigator in services procurement; and Quadrem in supplier network services and eProcurement in emerging markets.

© 2007, Forrester Research, Inc. Reproduction Prohibited

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Expect More Consolidation And New Entrants The forces that have shaped the ePurchasing market — consolidation in the eProcurement and eSourcing markets and the new entrants in CLM and EIPP — will continue to operate in 2007 and 2008. For vendors, this means that:

· SAP and Oracle mostly sit on the sidelines in terms of acquisitions. While SAP did acquire

Frictionless in 2006 to fill a hole in its product portfolio, this was an exception to its general practice of growing organically. Oracle has been a more aggressive acquirer, but its acquisition strategy has been either to add vertical industry capability (e.g., Retek, SPL, and Siebel in part) or buy market share (PeopleSoft and Siebel).6 We don’t see either motivation as factors in this market, so we think that Oracle will not be an active buyer.

· Supplier network service providers merge with each other. Supplier networks have clear scale economies that make larger providers more profitable. However, merging supplier networks involves rationalizing separate platforms, as cc-hubwoo and Perfect Commerce have learned through their acquisitions of Trade Ranger and Pantellos, respectively. Moreover, the remaining industry-owned eMarkets like Agentrics (the result of the merger of retailer-owned WorldWide Retail Exchange and GNX) or Rubber Network present a double-edged sword to acquirers: Several have attractive transaction volume and client bases today, but there is no certainty that either will persist beyond current contracts once the industry owners have sold their stakes to new buyers. These forces will slow the pace of mergers and acquisitions among supplier networks, but the fundamental advantages of scale will ultimately prevail and drive mergers.

· Second-tier eSourcing and eProcurement vendors also merge or get acquired. Among

the likely mergers are Ketera Technologies and Iasta (Ketera Technologies already resells Iasta’s eSourcing solution) and perhaps Procuri with Perfect Commerce (both are purely SaaS providers, and Perfect’s eProcurement and supplier network services complement Procuri’s eSourcing, CLM, and spend analysis offerings). Among other second-tier vendors, VerticalNet is already widely said to be on the acquisition table. Global eProcure, SynerTrade, and CombineNet could also be attractive to the right buyer.

· New entrants jump into CLM and EIPP. SAP has launched its own CLM offering in December 2006, and both SAP and Oracle are likely to move into EIPP because they already provide some core functionality in their existing products. We have already noted the likely entrance into the CLM market of EMC Documentum, Vignette, and Interwoven, following the path of Hummingbird (acquired by Open Text). In addition, we think that both Microsoft and IBM — each have enterprise content management solutions — could enter the market, quite possibly through the acquisition of Upside Software and Nextance, respectively. With American Express moving into EIPP through its acquisition of Harbor Payments, don’t be surprised if some other financial institutions join US Bank and American Express as providers of their own solutions. However, most banks will still prefer to resell the EIPP products of specialist vendors.

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Market Overview | ePurchasing Software Market

R E C O M M E N D AT I O N S

A DIVERSIFIED MARKET REQUIRES COMPLEX CHOICES FOR IT BUYERS For CIOs, purchasing professionals, and application selection teams in enterprises, the diversified market means that there isn’t a single vendor that can provide all the elements of a full ePurchasing solution. Ariba is the closest to a being a one-stop solution provider, with best-inclass capabilities in most products, and Ketera Technologies, Oracle, Perfect Commerce, and SAP all have pretensions of a comprehensive suite. Still, we think that most companies would be best served by taking a more piecemeal approach. Specifically, they should:

· Pursue one solution for eProcurement. We think that clients of the ERP suites of Oracle and SAP should look to those vendors for their eProcurement products unless they have special requirements. Clients that are using other ERP suites should probably consider Ariba, BasWare, ePlus, or one of the SaaS vendors like cc-hubwoo, IBX, Ketera Technologies, Perfect, or Quadrem because of their superior functionality and supplier networks that they can leverage.

· Look for bundled solutions for spend analysis and eSourcing. For companies that do sourcing events less frequently than once or twice per day, there is little need for tight integration of eSourcing with other products. Instead, superior functionality matters most. Companies that are just getting started or don’t expect to do high-frequency sourcing activity should focus on SaaS offerings from the many vendors that offer these services. Those companies that are more mature and do sourcing events once or twice a day should consider a licensed software solution from the leading vendors like Ariba and Emptoris, or from specialists like Zycus in spend analysis, CombineNet in sourcing optimization, or UGS in integrated sourcing and PLM.

· Choose an enterprisewide CLM solution, not a buy-side-only product. While CLM clearly plays a major role in the ePurchasing cycle, companies do not have only buy-side contracts to manage. We think it makes more sense to buy a CLM solution that can handle all forms of contracts and integrate that into the eSourcing product set rather than just to buy CLM for buy-side contracts.

ePURCHASING VENDORS NEED TO FOCUS ON GOOD FUNCTIONALITY, NOT BREADTH It has been tempting for ePurchasing vendors to try to build a broad suite of products that support all the processes involved in ePurchasing. However, because most companies don’t get much benefit from having a single suite and often have to give up important functionality, in practice, suite vendors have not done as well as specialists that provide just one product or a cluster of related products. The most important requirement is to build top functionality in specific products, then provide closely related products (e.g., sourcing and spend analysis or eProcurement and EIPP) that could be cross-sold into existing clients.

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W H AT I T M E A N S

THE ePURCHASING SOFTWARE MARKET IS STILL GROWING AND EVOLVING Unlike other application markets like CRM, FMS, and HRMS, the ePurchasing market is not only growing at above average rates, it is continuing to evolve through the addition of new product areas. CLM, automated spend analysis, and EIPP have emerged as significant new product categories in the past two years or so. And new product categories are likely to emerge in the future, such as supplier assessment. With limited adoption of ePurchasing products beyond the core eProcurement and eSourcing products, this market still has significant growth and innovation potential.

SUPPLEMENTAL MATERIAL Online Resource The underlying spreadsheet detailing the forecasts in Figure 2 and Figure 3 is available online. Methodology To size and forecast the ePurchasing market, we first collected 2003 to 2006 revenues for more than 80 vendors. Using publicly available data for publicly traded ePurchasing specialist vendors, allocations of ePurchasing revenues from large enterprise application vendors like SAP and Oracle, and estimates based on briefings by private ePurchasing specialist vendors, we estimated total revenues from ePurchasing solutions of various kinds for more than 80 vendors for 2003 to 2005 and for 2006 using full-year extrapolations of partial-year financial data. We then divided each vendor’s annual revenues into license revenues, maintenance revenues, subscriptions revenues, and services revenues. Using publicly available data from publicly traded vendors and information collected through vendor briefings for private vendors, we divided each vendor’s revenues into these four revenue categories for 2003 to 2006. Next, we divided each vendor’s revenues into different ePurchasing product categories. Using information collected through vendor briefings about their number of clients for different products, we divided each vendor’s annual revenues into six different ePurchasing product categories. We aggregated all vendor data, with estimates for unidentified additional vendors. We summed up the individual vendor revenue by type of revenue and product category for each year; added estimates for smaller, unknown vendors that exist in the market; and generated historic data for 2003 to 2006 for total ePurchasing and for specific product categories by type of revenues. Lastly, we made projections forward for 2007 and 2008. We made 2007 to 2008 forecasts for each product category, using the 2003 to 2006 growth rates adjusted for 1) an expected slowdown in software purchases in 2007 and 2) levels of saturation in demand.

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Market Overview | ePurchasing Software Market

Companies Interviewed For This Document 170 Systems

Global eProcure

Accruent

Harbor Payments

Ariba

Healy Hudson

B2eMarkets

Hummingbird

BasWare

i2

Bottomline Technologies

Iasta

b-process

IBX

BravoSolution

ICG Commerce

burns e-commerce solutions

i-Faber

CascadeWorks

i-many

cc-hubwoo

Intesource

CGI-Silver Oak

IQNavigator

Chimes

J.D. Edwards

Clarus

Ketera Technologies

CommerceOne

MRO Software

Contract Management Solutions Inc (CMSI)

Nextance

Deskom

OB10

Determine

Oracle

diCarta

PeopleClick

eLance

PeopleSoft

Elcom

Perfect Commerce

Emptoris

Proactis Group

ePlus

Procuri

Fieldglass

PurchasePro

FreeMarkets

Quadrem

Frictionless Sourcing

Rearden Commerce

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Market Overview | ePurchasing Software Market

RightWorks

TrueSource

SAP

UGS eBreviate

ScanMarket

Upside Software

SciQuest

US Bank (PowerTrack)

Softface

VerticalNet

SynerTrade

Xign

Tejari

Zeborg

Trade2B

Zycus

TradeCard ENDNOTES 1

Forrester expects growth in the global software market will slow from 10% growth in 2006 to 7% in 2007, mainly due to the effects of slowing US economic growth in 2007. See the November 21, 2006, Market Overview “Global IT Spending And Investment Forecast, 2006 To 2007.”

2

We first described this phenomenon as the glass floor effect in 2003, playing off of the metaphor of the glass ceiling that kept women from rising to top executive positions to show how demand for eProcurement and eSourcing products did not penetrate below the larger enterprises. See the December 12, 2003, Planning Assumption “Market Overview 2004: E-Procurement and E-Sourcing — What Will It Take to Break the Glass Floor in Demand?”

3

We considered SAP’s acquisition of Frictionless to be a significant event from a competitive position but not a precursor to more acquisitions. See the May 19, 2006, Quick Take “SAP Acquires Frictionless To Bolster Sourcing App.”

4

While both Oracle and SAP do support the automated matching of invoices to purchase orders and receipts, they lack the tools for converting invoices into electronic invoices, workflow for handling exception items, and the advanced features of discount management, cash forecasting, and support for financing options that the accounts payable EIPP vendors provide.

5

6

We have published several Forrester Wave reports on products in this ePurchasing market. See the January 4, 2005, Tech Choices “The Forrester Wave™: eProcurement Solutions;” see the November 17, 2005, Tech Choices “The Forrester Wave™: eSourcing Suites, Q4 2005;” see the March 10, 2006, Tech Choices “The Forrester Wave™: Contract Life-Cycle Management, Q1 2006;” and see the August 22, 2005, Tech Choices “The Forrester Wave™: Accounts Payable EIPP, Q3 2005.” We view Oracle’s acquisition of SPL as an indicator of how serious Oracle is in building vertical industryfocused offerings. See the November 7, 2006, Quick Take “Oracle’s Acquisition Of SPL Should Make Vertical Industry Vendors Wary.”

February 20, 2007

© 2007, Forrester Research, Inc. Reproduction Prohibited

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