The telecom expense management (TEM) arena has seen a lot of wagon-hitching in the past year or so. As the popularity of such services grows, customers are lining up at the chuck wagon — and they want a full meal, not just a taste. With this in mind, TEM suppliers are partnering with each other to create more complete service offerings.
Industry standards and best practices organization AOTMP, Gartner Inc., and other research and analysis firms count anywhere from 120 to 200 players in the TEM market. Low barriers to entry — you don’t need much money to concoct a spreadsheet and call yourself a TEM supplier — are responsible for the numbers. The differing counts might have something to do with the flux in the marketplace. Along with a stream of market entrants, M&A activity in 2007 proves that many TEM suppliers are sidling up to others in order to grow their offerings, expand their audience base and shore up their financial positions.
AOTMP's Joe Basili
TnT Expense Management CEO Mike Bodetti says the M&A activity in the TEM space "is because almost none of the companies in this industry are profitable," adding outside pressures from investment companies or last-ditch efforts from governing execs are driving these entities to marry or die. Other TEM executives agree that financial pressures are a key driver for TEM mergers. Joe Basili, vice president of research for AOTMP,explains that mergers might help ease financial strain by adding more capabilities and also reducing the cost structure by enabling a company to amortize their costs over a larger base of business.
Basili says there are several TEM suppliers that are struggling financially, but there are also profitable ones. Unfortunately, most of these suppliers are privately held and do not reveal their financial condition. Basili says there are also several TEM suppliers that would be profitable, but they might have assumed debt that might need to be repaid from VC funding. "In some cases, the VC funding went towards investments that will show the benefits in the future," he explains. "In other cases, cash was taken out of the business."
TnT's Mike Bodetti
Amid the market shakeout, choosing a TEM provider remains difficult for enterprises and channel partners alike. "Channel partners and customers should consider financial stability and look to do business with TEM suppliers that will be around for the future," says Basili, mentioning that, unfortunately, in previous surveys AOTMP has done about selecting a TEM supplier, financial health was ranked 11th with only 12 percent considering it a factor in their selection.
Market M&A activity is driven by providers seeking to fill gaps in their own offers.Basili says as TEM services become more complex and as suppliers continue to produce varying platforms (see sidebar, TEM Roundup, below), a company without a particular technology or capabilities might begin to ask itself if an acquisition is in order.
In March 2007, wireline TEM provider Tangoe Inc., for example, teamed up with wireless TEM provider TRAQ Wireless. A report issued from Gartner the same month says the merger was not unexpected in the maturing TEM marketplace. "A number of older, established players have been growing their wireline business, but have not yet developed the capability to capture the faster-growing wireless business," explains analyst Phillip Redman in the Gartner report. "Because comprehensive wireless lifecycle management has unique requirements, it makes sense for TEM providers to look at the plethora of good platforms already available from these wireless companies rather than trying to develop their own capabilities."
Another example of this trend is Invoice Insight’s March 2007 acquisition of Oreon Inc., which also had a focus on wireless asset lifecycle management. "We had identified this opportunity and were able to accelerate our entry [into the wireless TEM market] through acquisition rather than internal development." says Invoice Insight LLC CEO David Spofford about the acquisition.
Late 2007 saw yet another large merger in the TEM space with Rivermine Inc. hooking up with BBR Wireless Management Inc. — a deal that closed in October. John Shea, chief marketing officer at Rivermine, says both Rivermine and BBR were strategically drawn to each other to answer a market demand for unified wireless and wireline TEM solutions.
In each of these cases, company executives said acquiring another company’s complementary wireless offerings was a driving force in the transactions.
As the number of mobile employees grows, so does the variety of wireless devices, service plans, software offerings and security issues.
A summer 2007 study by Aberdeen Group Inc. found that 73 percent of enterprises surveyed had or were implementing programs for wireless expense management. Additionally, 90 percent of those respondents said they expected an increase of smart device usage in their organizations.
Statistics show why wireless TEM providers are being sought by those on the wireline side of the business for teaming arrangements or mergers. In his analysis of the Tangoe/TRAQ merger, Gartner’s Redman says "enterprises should welcome this marketplace consolidation of wireline and wireless solution providers. Rather than having to deal with two separate providers to manage their telecom expenses, companies can now obtain a fully integrated solution, offering a holistic view of their enterprise telecom expenses from a single provider."
At the Hitching Post
Invoice Insight’s Spofford says consolidation is a good thing for the TEM industry if it’s done wisely. "The industry has too many average solutions and customers have a difficult time telling them apart," he says. "The technology investment the industry is making would be better spent by fewer companies that serve more customers."
Not everyone thinks merging solutions and organizations has proved beneficial. "When you start merging some of these companies together, it becomes very challenging to figure out how to blend things together and whose idea is going to be used," says TnT’s Bodetti.
Bodetti says TnT does not feel the need to merge because it offers a full range of services in both wireless and wireline expense management. However, it does benefit from partnerships with other TEM providers that produce referrals or expand its reach. He says the partnership route isn’t perfect. "The issue with the partnership thing is that you never fully feel like you have everybody’s total commitment in the relationship because really each individual commitment is to their own bottom line and to their own advancement," he explains.
He says the key to a good partnership is getting as close to mutual exclusivity in offerings as possible. TnT’s referral agreement with Asentinel, for example, is fairly close to mutual exclusivity. Asentinel’s 5.0 software offers companies the ability to manage their telecom expenses internally while TnT serves customers as a managed services vendor. "The only reason that partnership works is that we’re not really stepping on each other’s toes at all," Bodetti says.
In a similar vein, Vercuity Solutions and Quickcomm Software announced in June 2007 an agreement to jointly market and provide TEM solutions to Global 2000 companies. The partnership allows Vercuity to license Quickcomm’s application to address its software integration issues. "The partnership comes after two separate initiatives to integrate the five software applications from Vercuity’s legacy companies (Digital Reliance, MSS*Group, TSL, Telwares and Quantum Shift) failed to produce an integrated platform," explains a market alert from Aberdeen Group issued in June. The same report called the partnership an "industry milestone," stating that "suppliers must provide full lifecycle management capabilities to meet customer needs or they will fall behind."
In an effort to deliver truly seamless solutions across the entire telecom spend-management lifecycle, Vercuity and its professional services division, Telwares, relaunched as Telwares in November.
Indirect channel partners should see more merger activity and more technological advancements as a result of that activity. "As the rate of change in an active M&A market accelerates, the result is often a quantum jump in the technologies and offerings made available to the market," says Tangoe’s president and CEO, Al Subbloie. TEM companies coming together could provide more value to the customer and agent, providing one point of contact for services.
However, partners also could suffer if the transition isn’t seamless. Combining offers, as well as back-office systems and customer service protocols, could prove difficult if not planned and monitored adequately. Furthermore, partners might want to ask providers how continued or potential M&A in the TEM marketplace might affect their contracts and revenue streams.
Within six months of its merger with TRAQ, Tangoe released a group of TEM managed service offerings called CommCare Managed Services, which Tangoe says has been very well received. "The company sales volume of these services continues to grow dramatically and the organization has, since the merger, made a very successful shift to a recurring revenue model based on its extremely successful managed services offerings," says Subbloie.
In the case of the Rivermine/BBR pairing, the products and services from the two companies already were integrated as part of a partnership announced in early 2007.
The company reported at the time of the merger that its global channel partners will be able to deliver Rivermine’s unified solutions to their massive domestic and international customer bases. "There has been a major increase in our sales pipeline due to high demand for wireless and the combination of managing wireless and wireline expenses together," says Shea.
Invoice Insight’s Spofford also says agents are doing fine in the months after its acquisition. "I don’t think consolidation has been the challenge [for agents]," he says. "If anything, new entrants to the market have created some confusion in the agent community since the newer TEM vendors offer aggressive commission rates to attract attention. The downside is that commission percentages only pay on business you win and keep, so in the end, it makes more sense for agents to work with the more established TEM vendors."
Nancy Ridge, vice president at Telcombrokers, says that all the activity in the market can only be a good thing. In fact, rampant growth in the TEM space and advancements in technology prompted the master agent to enter the field in May 2007 by offering Comstructure LLC’s product. "We strongly support this strategy and product as a tool for our agents to go to the next level in providing excellent consulting service and support to end users," says Ridge. Telcombrokers is offering its agents a $300 spiff for setting up demos to help get them started.
Another new entrant is Spectrum Inc. The master agency is not allying with a vendor but has developed its own patent-pending software, TruVue, which launched in April with wireless asset and expense management capabilities. Like other TEM vendors, Spectrum is seeking a holistic offer. So, in January, the company launched its local wireline module and in March plans to round out its wireline offer to include data and long-distance services.
"We have telecom experts writing the code, so that the right information is available when it’s relevant," says Spectrum President Trent McCracken, an MIS expert and TruVue’s architect.
Looking for More?
Want to hear more about successfully combining TEM platforms and professional services for a complete managed offering? Join us for the “TEM Take Two” session at the Spring 2008 Channel Partners Conference & Expo on Tuesday, March 11, 11:30 a.m. For more information, visit www.channelpartnersconference.com.
TrueVue is available in three tiers — basic, which includes order/inventory modules; enhanced, which adds the invoice analysis module; and premium, which adds a custom feed to a client’s general ledger.
Because the company’s software is so different than others on the market, McCracken says Spectrum has had requests from other master agencies to rebrand it. So far the company has completed one such licensing agreement and is working on more. It will promote private-labeling TruVue as well as complementary managed services at the upcoming Channel Partners Conference & Expo, March 10 - 12 in Las Vegas. Agents that just want to sell the TEM solutions through Spectrum also can become a subagent for the company.
Whether it’s invoice management, software solutions or business process outsourcing, TEM platforms come in all shapes and sizes. An AOTMP survey of 294 enterprise respondents last fall found the top challenge of enterprises evaluating TEM suppliers was comparing their varied offerings (see chart, Top Challenges of Enterprises Evaluating TEM Suppliers below).
So, just what types of offerings are out there? Joe Basili, vice president of research for AOTMP, says the association has identified four core TEM offerings.
- Sourcing — identifying and evaluating suppliers
- Service ordering — placing orders, MACDs
- Invoice processing — acquiring paper/electronic bills to auditing to payment
- Reporting and analysis — looking at spend information in aggregate
At the center of all those offerings is inventory validation and change control, which includes normalizing data from various carriers and mapping it properly.
Basili says TEM offerings also vary by service type — wireline, wireless and international. "I draw a distinction between these three different areas because … you’re dealing with different telecom service providers for these three different areas," Basili explains. "As a consequence, the tariffs, the billing platforms they use, the rules and regulations they are governed by, in fact, even the business model and how the telecom service providers make money differs from one area to the next."
Finally, Basili classifies TEM offerings into three delivery options: licensed software, hosted solutions and business process outsourcing. He says each of these was popular in its own right at one time, but now customers desire a combination offering that allows them to do some of the functions themselves and outsource others to a third party. "The big trend is moving toward a hosted or hybrid solution where the enterprise performs some functions and the supplier performs other functions or provides the technology that the enterprise uses," he explains.
Aberdeen Group Inc.www.aberdeen.com