Companies are spending big bucks on electronic procurement because they're wasting bigger sums on inefficient, paper-based systems to buy supplies.
"On average, the cost for a company to implement this technology has been anywhere from $650,000 to $2 million," said Carl Lehmann, e-commerce analyst at Meta Group. "Ariba, at the high end, is getting $5 million to $10 million."
"If you can save a company $20 million, why not charge $5 million to do it?" Lehmann added.
Electronic procurement puts catalogs online and automates purchases and approvals. Beyond saving paper costs, the goal is to stop renegade spending and channel purchasing to selected vendors at pre-negotiated prices.
Microsoft, at least for now, isn't pushing its own business purchasing software. Instead, it's working with favored firms that sell into the procurement market, such as initiative with Mastercard and Clarus, which runs on Windows NT.
"There's pent-up demand for electronic procurement," said Microsoft's Michael Kim, who calls the Clarus deal a "co-marketing alliance." For its part, Mastercard will push try to get businesses to use a corporate purchasing card.
In December 1997, Microsoft hooked up with another player, Commerce One, to boost its online purchasing service, which runs on Microsoft's core technologies--Windows NT, SQL Server database, and software tools.
"They've got some very good partners there," Aberdeen Group's David Alschuler said of Microsoft. "They get essentially the full suite of Microsoft products dragged along with those partners every time they sell. The question is: Do they want to compete with them? They could and some day probably will, but not now."
Ariba, which competes head-on with Clarus at the high end of the market, two days ago joined giant Hewlett-Packard to launch a buying service to complement its software. The Ariba.com Network marks Ariba's first foray into services.
Trilogy, which next week will ship version 2.0 of its Buying Chain software, is leaving the multimillion-dollar sales to others. It's concentrating on procurement software for smaller companies.
"This takes Buying Chain to the middle tier and smaller companies," said Trilogy vice president Rob Lilleness. "It becomes a purchasing portal that sits on the corporate intranet."
Earlier this week Trilogy announced that connections to Sabre Group, the giant airline reservation system, is being built into Buying Chain software, as are links for online bookstore Computer Literacy and Online Office Supply.
"Trilogy saw a lot of players at the high end of the market and said, 'Let's go at the low end,'" said Meta Group's Lehmann. "They've sold a lot of licenses, as they should" with software that typically runs under $10,000, far less than competitors charge.
"I like Trilogy's idea because this is not rocket science. It's not even brain surgery," he added. "They're charging really reasonable prices for the capability."