January 4, 2005

Forrester Wave: eProcurement Solutions

by Andrew Bartels

Helping Business Thrive On Technology Change

TECH CHOICES

TECH CHOICES
January 4, 2005

Includes a Forrester Wave and Business Technographics data

Forrester Wave: eProcurement Solutions

by Andrew Bartels with John Ragsdale, Laurie M. Orlov, Natalie Lambert, and G. Oliver Young

Rating The Vendors Of A Mature, But Still Important, Buy-Side Application

EXECUT I V E S U M MA RY
Pity the poor eProcurement application. Once heralded as the app that would revolutionize how companies buy goods and services, it now is often viewed as a mere electronic order-placement tool. Revenues from eProcurement applications have been at or declining since 2001, and that trend will continue through 2008. However, eProcurement applications still have a critical role in successful sustained purchasing management. Potential buyers or upgraders of an eProcurement solution face two categories of solution providers: 1) licensed software vendors like Ariba, Oracle, PeopleSoft, and SAP, and 2) hosted software service providers like ICG Commerce, Ketera Technologies, and Perfect Commerce. We used the Forrester Wave methodology to evaluate seven vendors and their products to help potential buyers nd the appropriate solution based on company needs and requirements. Overall, the licensed software vendors have stronger current oerings, with SAP slightly lagging behind, while hosted service providers oer a lower cost and easier implementation. Since each buyers needs will be dierent, the Forrester Wave tool allows buyers to change the weights assigned to dierent decision criteria to identify the best choices for their situation.

TABLE O F CO N T E N TS
2 eProcurement Is Critical For Successful Spend Management 4 eProcurement Market Shows Flat Growth And Consolidation 9 Evaluating eProcurement Applications 15 The Forrester Wave Results: A Two-Tiered Market
RECOMMENDATIONS

N OT E S & R E S O U R C E S
We used our Forrester Wave product comparison methodology to evaluate products from Ariba, ICG Commerce, Ketera Technologies, Oracle, PeopleSoft, Perfect Commerce, and SAP.

Related Research Documents Trends 2005: eProcurement/eSourcing November 2, 2004, Trends

Market Overview 2004: E-Procurement And ESourcing What Will It Take To Break The Glass Floor In Demand? December 12, 2003, Planning Assumption

17 Look Beyond Scores To Match Requirements Against Capabilities 18 Supplemental Material

2005, Forrester Research, Inc. All rights reserved. Forrester, Forrester Oval Program, Forrester Wave, WholeView 2, Technographics, and TechRankings 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 gure 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 reect judgment at the time and are subject to change. To purchase reprints of this document, please email resourcecenter@forrester.com.

Tech Choices | Forrester Wave: eProcurement Solutions

ePROCUREMENT IS CRITICAL FOR SUCCESSFUL SPEND MANAGEMENT In the family of supplier relationship management or enterprise spend management applications, eProcurement is the middle-aged sibling whose career and professional growth has attened out. It still plays a major role in successful, sustainable spend management as the tool for securing employee compliance with corporate purchasing policies and for driving process eciencies. However, these applications are a long way from the early days when they were seen as the purchasing tool that, by itself, would deliver major cost savings. The Overselling Of eProcurement When Ariba and Commerce One rst introduced eProcurement applications in 1999, the companies played up three major business benets. The primary business benet was savings to be achieved by replacing manual requisition approvals, paper purchase orders, and paper checks with electronic transactions, thus cutting the cost of a purchase from more than $100 to less than $10 per order. The next benet was improving employee compliance with corporate purchasing policies and reducing maverick spending. And the nal benet was the ability to identify savings opportunities by analyzing employee spending through the system. In practice, bottom-line benets from automating the purchasing process have been less than promised. In addition, the analytical gains have been limited, and the obstacles have been much greater than portrayed.

Process savings were overstated. Often cited is the cost of $100 or more per purchase

order using existing manual and paper-based procurement processes. And while this cost may well be a real economic cost, it is, in all likelihood, overstated. Two-thirds to three-fourths of this value represented the time that managers, employees, and purchasing and nancial department sta spent handling each requisition and order. Automating the process with an eProcurement tool may have saved time for employees and managers, but, except for the data-entry clerks in the nance department, these time savings were seldom concentrated enough to deliver real, bottom-line savings. The freed-up time of managers and employees may have improved employee morale and made them more productive, but those time savings could just as well have been frittered away in meetings or on computer games.

Analytical gains were exaggerated. The leading eProcurement vendors developed

attractive reports and graphics for tracking which employees were buying what products from which vendors. However, these analytical reports were only as comprehensive as the percentage of spend reported through the eProcurement system (and related applications), and these percentages remained low for the rst

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couple of years of adoption and stayed well below 100% of spending even in the best implementations. Moreover, unless a company had done the pain-staking work of categorizing the purchased items against relevant product classication schemes when the employee-facing catalogs were created, it found that the analytical reports did not have sucient detail to be valuable; they could tell how many personal computers were bought but not how many of them were lightweight laptops suitable for frequent travelers versus heavier laptops for regular desktop use.

User and supplier adoption challenges were understated. At the same time,

eProcurement applications failed to attract users, generally requiring signicant amounts of employee training and motivation. They also required major eorts to get suppliers to participate; they had to build electronic interfaces to receive and respond to electronic purchase orders and create and customize electronic catalogs for employees to buy from.

The primary bottom-line benet of eProcurement systems, it turned out, was in generating employee compliance with corporate purchasing policies and thereby realizing the savings that had already been negotiated with suppliers. But even this benet required spend analysis tools to identify where the savings opportunities were, sourcing tools to turn these opportunities into better deals from suppliers, and contract management tools to convert sourcing deals into action-oriented agreements between buyers and suppliers. As a result, standalone eProcurement applications have proven to have less value than ones that are part of a broader purchasing initiative. However, eProcurement Applications Are Still Important Some early adopters of eProcurement products have started to doubt their value altogether. Of the 878 enterprises that Forrester surveyed in early 2004, 35% said that procurement or sourcing software for the procurement of direct or indirect materials had failed to meet expected benets.1 One executive at a Fortune 100 company that has deployed an eProcurement product to more than 10,000 employees told Forrester, Whats the point of having an eProcurement application if all it does is automate the placement of employee orders with suppliers? Such frustration is extreme, however. While it is understandable that adoptive companies should now be focused on gains from eSourcing, spend analysis, and contract management, the continued value of an eProcurement product should not be ignored.

Improved employee compliance with purchasing policies. Competitive sourcing

and automated contract creation and negotiation tools can lead to deals on purchased goods and services that can save an enterprise millions of dollar a year on paper. Corporate purchasing policies that require employees to buy from selected vendors can ensure that some portion of those savings are realized in practice and automated spend analysis tools can identify those units and employees who are not complying.

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Tech Choices | Forrester Wave: eProcurement Solutions

But these tools are sticks, and sticks alone rarely work to achieve full compliance. In contrast, eProcurement applications are carrots. They gain willing employee compliance by putting all preferred supplier catalogs at a single corporate site that is accessible by browser and readily searchable by providing easy-to-use tools like wizards to guide buyers through the requisitioning process and also by automating the approval process for which purchases can be made directly by an employee and which require approval by managers and category experts. As such, a well-designed eProcurement system can push employee compliance with purchasing policies well above 90%, ensuring that 90% or more of the negotiated savings are actually realized on the bottom line.

Employee requisition and process order automation does lead to cost savings. Even

if companies dont see the $80 or $90 savings per purchase order that vendors had promised, they can still realize real bottom-line savings of $10 to $20 per purchase order through the elimination of clerical jobs that involve keying information on paper requisitions into purchase order systems and through reduced purchasing errors and rework also by eliminating the costs of mailing paper purchase orders from remote oces to headquarters.

Extension of eProcurement tools into new spend categories like services. While rstgeneration eProcurement tools focused on the purchasing of indirect materials and human-purchased capital goods and direct materials, the current generation of eProcurement tools are starting to cover the purchasing of services, such as temporary workers, consultants, facilities management providers, advertising and marketing services, legal services, accounting services, IT outsourcing services, and other service categories. Moreover, the eProcurement tools that have been adapted for services and adaptation is required can provide critical, additional benets of allowing the employees or managers who buy these services to track and record the performance of the service provider as work is completed. Recording that the temporary worker did work the hours expected and provided the quality of service expected or verifying that the deliverables of the outside consultant hit the specied milestones and met requirements is a critical element in the purchasing of services, but the value of a service can only be determined at the completion of the task.

ePROCUREMENT MARKET SHOWS FLAT GROWTH AND CONSOLIDATION Between the pulls of disappointed expectations and pushes of potential value, the market for eProcurement applications has been essentially at. Forrester estimates that the worldwide market for eProcurement applications in 2004 will be approximately $0.3 billion in license revenues, plus $79 million in subscription revenues from hosted eProcurement applications, with total revenues of about $0.9 billion approximately the same as in 2003.

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Tech Choices | Forrester Wave: eProcurement Solutions

Dynamics Shaping The eProcurement Market The market is subject to the following dynamics:

Stalled demand. Forresters Business Technographics November 2004 North

American And European Study shows that only 17% of the enterprises surveyed plan to make either new purchases or upgrades of procurement and sourcing software in 2004 (see Figure 1-1). This is well below the 35% planning to invest in business intelligence software, the 31% planning to invest in nancial management software, the 30% planning to invest in customer service software, or the 26% planning to invest in human resources management software. Moreover, demand is concentrated in the manufacturing, utilities and telecommunications, and public sectors (see Figure 1-2).

Market growth overall is at to declining. Most large (i.e., more than $1 billion

in revenues) manufacturers, distributors, and utilities and telecommunications companies have already invested in eProcurement software, and they are only buying to upgrade or replace existing systems. When surveyed in early 2004, 50% of manufacturers, retailers, and wholesalers and 60% of utilities and telcos had implemented or were rolling out eProcurement and eSourcing solutions, while only 20% of nancial service and 28% of business services companies were at similar stages of adoption (see Figure 2). Vendors have tried to compensate by moving to licensing models based on volume of spending (Ariba) or the number of line items purchased (Oracle), but this has not stemmed a trend toward lower prices. New demand is coming from large enterprises in sectors like government and in geographies like Asia and Latin America that have yet to adopt these applications and also from a scattering of medium-size companies. However, there is still not a widespread adoption of eProcurement applications in nancial services or business services industries, by most medium-size companies, or by any small enterprises.

Reduced numbers of eProcurement vendors. Of the six vendors that Forrester

evaluated in 2002, only one Ariba is still in the market. Clarus, Commerce One, i2s RightWorks, iPlanet, and MRO Software have either failed or withdrawn from the market.2 While second-tier ERP vendors like Geac, Lawson, MAPICS, SSA Global, and others have added eProcurement products to their suite, their market presence is tiny. Instead, the market for licensed software eProcurement products has consolidated down to four vendors: Ariba, Oracle, PeopleSoft, and SAP. As a group, their license revenues from eProcurement products are essentially at, with SAP and PeopleSoft growing a bit at the expense of Ariba (and second-tier vendors).

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Tech Choices | Forrester Wave: eProcurement Solutions

Figure 1 Purchase Plans For Procurement And Sourcing Applications

1-1 Limited plans for 2005 investment in procurement and sourcing software
During 2005, will your company purchase any of the following applications, including rst-time deployments as well as upgrades?

Business intelligence software Finance application software Customer service software Human resources management software Sales force automation software Supply chain planning and execution software Procurement or sourcing software Marketing automation software Product life-cycle management software

35%
31%
30%
26%
23%
22%
17%
13%
10%

1-2 Manufacturing, public sector, and utilities are most likely to buy procurement and sourcing apps
During 2005, will your company purchase procurement and sourcing applications, including rst-time deployments as well as upgrades?

Manufacturing Public sector Utilities & telecommunications Business services Retail & wholesale trade Media, entertainment, & leisure Finance & insurance

23%
20%
19%
16%
14%
12%
10%

Overall 17% Base: 339 decision-makers at North American enterprises Source: Forresters Business Technographics November 2004 North American And European Benchmark Study
Source: Forrester Research, Inc.

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Figure 2 Adoption Plans For Procurement And Sourcing Applications

2-1 Financial services and the public sector lag in adopting procurement and sourcing software
At what stage is your company in the adoption of procurement or sourcing software for the procurement of direct or indirect materials?
In production or upgrade underway
Rollout underway
Piloting
Considering
No plans
Dont know

Utilities & telecommunications Manufacturing Retail & wholesale trade Media, entertainment, & leisure Business services Public sector Finance & insurance Overall

10% 3% 12% 45% 5%

50%
38%

15%

25%
30%
33%
47%

4%
4%

12% 4%

9%

28% 6% 9% 2% 12% 26% 3% 3% 9% 24% 2% 2% 18% 4% 3% 10% 34% 5%

9%
4%
3%

56%
58%
64%

10%

43% 5%

2-2 Procurement and sourcing software is underperforming against expectations

To what extent has procurement or sourcing software for the procurement of direct or indirect materials met your expectations for anticipated benets?
Well above
Slightly above
As expected
Below
Somewhat below
Well below

Utilities & telecommunications Business services

10%
8%

30%
23%
21%
28%
36%
33%

50%
38%
43%
31%
20%

10%
31%
29%

Public sector 7% Manufacturing 6% Retail & wholesale trade 4% Finance & insurance Media, entertainment, & leisure Overall 6%

30% 5%
36%
44%

4%

11%
38%

11%
13%
30% 4% 1%

13%
28%

38%
31%

Base: 878 decision-makers at North American enterprises (percentages may not total 100 because of rounding) Source: Forresters Business Technographics April 2004 North American Benchmark Study
Source: Forrester Research, Inc.

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Tech Choices | Forrester Wave: eProcurement Solutions

Hosted eProcurement solutions are growing but from a low base. The adoption of

hosted eProcurement applications is increasing as an entry point for large enterprises and as a primary platform for medium-size businesses. Three of the vendors featured in this report ICG Commerce, Ketera Technologies, and Perfect Commerce use this as their primary delivery model. These vendors and eMarkets, such as cc-hubwoo in France and Germany, IBX in Scandinavia, and Pantellos Group (merging with Perfect) in the utilities industry, provide eProcurement on a rental basis with a multitenant architecture supporting multiple customers on the same instance of the software. As an alternative to their primary model of licensed eProcurement software sales, Ariba, Oracle, and SAP are also oering hosted shared-instance eProcurement on their own or through partners. However, we see more companies shifting from hosted to licensed software than moving in the other direction.

Forecast: Small Growth In Market Size Through 2008 Forresters model for sizing and forecasting the market for eProcurement products shows limited growth of 1% to 3% per year between 2004 and 2008, with increased demand in hosted solutions compensating essentially no growth in license revenues for software products (see Figure 3).
Figure 3 Forecast: eProcurement Market, 2004 To 2008
Forrester Forrester Forrester Forrester Forrester forecast forecast forecast forecast forecast 2004 2005 2006 2007 2008 $326 $266 $241 $79 $911 $311 $285 $231 $94 $921 $306 $268 $224 $125 $922 $314 $266 $219 $154 $953 $322 $265 $213 $161 $962

2001 New license revenue Maintenance and support revenue Services revenue Subscriptions revenue Total (US$ millions) $518 $244 $288 $35 $1,085

2002 $366 $212 $294 $54 $927

2003 $351 $241 $248 $65 $905

2001 New license revenue Maintenance and support revenue Services revenue Subscriptions revenue Total (percentage change) -11% 86% 34% 252% 16%

2002 -29% -13% 2% 55% -15%

2003 -4% 14% -16% 20% -2%

Forrester Forrester Forrester Forrester Forrester forecast forecast forecast forecast forecast 2004 2005 2006 2007 2008 -7% 10% -3% 21% 1% -5% 7% -4% 19% 1% -2% -6% -3% 33% 0% 3% -1% -2% 24% 3% 3% 0% -3% 4% 1%

(numbers have been rounded)

Source: Forrester Research, Inc.

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Tech Choices | Forrester Wave: eProcurement Solutions

EVALUATING ePROCUREMENT APPLICATIONS We evaluate eProcurement applications on the basis of the strength of the vendors current oering, strategy, and market presence. The following sections describe the evaluation criteria that we have developed to help potential buyers of an eProcurement product make the right choice. Rating Vendors Current Oering We believe that the most important product factors in choosing an eProcurement solution are capabilities for supporting employee purchases of goods and services, handling of settlement and invoicing, reporting capabilities, conguring the product to a companys unique processes, managing catalogs and the supplier network, and easily integrating with other applications. Two other factors that may loom large for some but not all enterprises are the strength of hosted options for companies that prefer a hosted solution to a licensed software product to be run internally and globalization capabilities for multinationals. Two factors that we found were not dierentiators were scalability and architecture. All four of the licensed software vendors were equal on these criteria, while all four of the hosted vendors have or use third-party hosting providers that met it.

Goods purchasing. We rated the eProcurement products on requisitioning capabilities

for purchasing of goods, P.O. processing (i.e., automated order generation, order types, discounted prices and contract compliance), and fulllment (i.e., order tracking, fulllment tracking, and receiving). Ariba, Oracle, and PeopleSoft were all equally capable, with SAP at a notch lower. The hosted eProcurement products were more than adequate but lacked some of the advanced features of the licensed software products and so scored lower across the board. Perfect Commerce was the strongest of the hosted vendors and Ketera the weakest of the hosted vendors, with ICG Commerce in between.

Services purchasing. In this factor, we rated the products on the breadth of service

categories that they covered; how well they tracked and recorded the results of the services engagement management; and how well strategic sourcing managers and procurement professionals could gain visibility, identify opportunities, and better manage these service categories. Ariba was the clear leader in this factor. Oracle and PeopleSoft were behind Ariba but still very capable, while SAP wont catch up until its next release in 2005. Among the hosted vendors, ICG Commerce scored best and was comparable with Oracle and PeopleSoft, with Ketera next and ahead of SAP. Perfect Commerce was weak in this factor though its acquisition of Pantellos with its services procurement capabilities will strengthen its capabilities. It should also be noted that for comparison purposes we did not include service procurement specialists like Elance,

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Fieldglass, or IQNavigator, which oer broader solutions for the sourcing, analysis, and contract management of services in addition to the purchase and management of services engagements.

Settlement. We rated the products on their ability to support eInvoicing, a wide range
of payment methods, split accounting, payment discounts, and payment settlement. All of the products except ICG Commerces were capable for all or most of these criteria; Ariba, Oracle, PeopleSoft and Perfect Commerce all scored well against all of these criteria. SAPs and Keteras products were weak on payment discounts but were otherwise strong.

Reporting. We rated the products reporting capabilities on the basis of buyer

evaluation metrics, supplier evaluation metrics, contract evaluation metrics, and reporting tools. Ariba, Ketera, Oracle, and PeopleSoft got top scores, with SAP one level below due to weaknesses in buyer evaluation and contract evaluation metrics. ICG Commerce was average in all criteria, while Perfect Commerce was generally weak across the board.

Process conguration. This factor evaluates a products ability to be adapted to a

companys process on the basis of buyer administration, approval hierarchies, workow, rules administration, and contract management. Ariba and Oracle scored the highest, with PeopleSoft slightly lower due to weaknesses in contract management. Ketera, Perfect, and SAP had no major weaknesses but no major strengths, either. ICG Commerce scored the lowest due to weaknesses in contract management and rules administration; it also had no major strengths.

Supplier enablement and catalog management. Because of the critical nature of

employee compliance with purchasing policies in relation to the overall value of eProcurement applications, how well these products create and manage employeefacing catalogs and how well they provide a network of suppliers for employee purchase are very important factors. The criteria used in this area include supplier enablement, external catalog links, catalog format standards, catalog creation, and catalog maintenance. All the products are good or very good in terms of the catalog management criteria. There is much greater product variation in supplier enablement, which we consider to be the most important of these criteria; we rate this criterion on the basis of a products participating supplier network, focusing on purchase order and invoice exchange, catalog loading and refreshing, supplier directory, supplier catalog tools, catalog maintenance, and price list management. Thanks largely to the breadth and depth of its Ariba Supplier Network, Ariba is the clear leader in this category. Oracle, PeopleSoft, Perfect Commerce, and SAP, which all use, to greater or lesser degrees, Perfects Open Supplier Network, are not as strong in supplier enablement,

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although SAP gets a higher score than the others due to its access to the cc-hubwoo supplier network in Europe. We rate Ketera slightly below the others because its supplier network is made up of clusters of suppliers brought by each buyer client and is not open to all other buyers. ICG Commerce scored lowest in this area due to its small supplier networks.

Integration. eProcurement applications need to be integrated with a variety of ERP

and other applications: nancial management systems to receive budget and accounting code data and to provide data for accounts payable and accounting systems; human resources management systems to get data on current employees, their positions, and their spending authorities; direct materials purchasing systems for data for analytical reports and purchase items; and other systems like asset management and inventory management. Because each enterprise will have its own ERP systems typically, from one of the big three of Oracle, PeopleSoft, and SAP we have rated each product in terms of its ability to integrate with each of the major ERP systems and with the broad category of second-tier ERP systems. Companies that have standardized to one ERP system can set the weights for other systems to 0%. Not surprisingly, Oracle, PeopleSoft, and SAP score the highest in terms of integration with their own ERP applications. Ariba, Oracle, and PeopleSoft score best in terms of integrating with other ERP systems, largely because each provider prebuilds adapters to SAP and (more selectively) to PeopleSoft and Oracle ERPs. SAP scored lower because it relies on the generic integration capabilities of NetWeaver instead of providing prebuilt adapters. ICG Commerce scored better than the other hosted vendors because it too provides at least some prebuilt adapters instead of general-purpose integration tools.

Hosted options. While the prior criteria apply to all potential buyers of an

eProcurement system, hosting is a discretionary criterion. Potential buyers who are not interested in a hosted oering can set the weights for this variable to 0%; those who want a hosted product should set the weights higher than the 10% weight we have assigned. We have scored this criterion separately for hosted single-instance services in which the buyer has a license to the software product and can customize it but has the vendor operate the application on its behalf and for hosted shared instance services in which multiple buyers share the same instance of software with their own data and congurations but little potential for customization. Since potential buyers would generally choose one or the other form of hosting and not both, they should set the weight for one hosting option to 0% and set the other to 100%. In terms of single-instance hosting, Ariba and Oracle score highest, with PeopleSoft, Perfect, and SAP scoring lower due to limited experience. In terms of shared-instance hosting, ICG Commerce, Ketera, Perfect, and SAP (through partnerships with cc-hubwoo) are the strongest.

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Globalization. Globalization capabilities are another discretionary variable.

Enterprises operating just in one country, especially if that country is the US or Canada, can set the weight for this criterion to 0%. Multinationals should use a higher weight than the 10% we have used. SAP scores highest on this criterion because of the breadth of its language support and its adaptability to dierent geographies. Oracle and PeopleSoft are close behind, with Ariba a respectable fourth. The hosted vendors generally come up short in this criteria, although Perfect has good capabilities and Ketera is not too bad. ICG Commerce is weak in global capabilities.

Rating Vendors Strategy A vendors strategy and vision and its ability to invest in continued product development indicate its customer commitment and potential long-term viability. Rather than trying to do it all, the vendor should demonstrate the ability to maintain value-added relationships with system integrators, technology leaders, and complementary application vendors. Accordingly, our criteria for rating the vendors strategy focused on three variables: product strategy, corporate strategy (and eProcurements role within it), and nancial resources to pursue the strategy. Product strategy. The key factors in this variable are pricing strategy, which indicates the vendors ability to price appropriately across the full range of potential clients; planned enhancements, which indicate the vendor as a technology leader or follower in this category; and key technology partners, which indicate the strength of a vendors business reach support and expansion. In pricing strategy, we look for exible, transparent pricing that links benets to solution cost. The best pricing strategy is one that is explicitly based on volume of spending through the eProcurement system, such as those used by Ketera and ICG Commerce. Here, business benets from eProcurement are most directly linked with spend volume. Second best is basing prices on transaction indicators, such as pricing by the line item used by Oracle. Third best are pricing models that are based on formulas involving company size, number of employees, etc., which have been used by Ariba and PeopleSoft. While these do allow smaller companies to pay less than larger ones, clients have a hard time determining how the price was calculated. Least satisfying are pricing models based on the number of employees or per CPU the former discourages companies from putting low-spending employees on the system (thereby reducing its value), and the latter has little relationship with benets. In planned enhancements, we look at what the vendors have told us about their future plans for their eProcurement products in the context of where they stand in functional leadership. Top scores go to vendors like Ariba that have set the bar for features and

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functions and have a road map to extend that lead. Second-best scores go to vendors like Ketera, Oracle, PeopleSoft, and SAP that have road maps to catch Ariba. Vendors like ICG Commerce and Perfect, whose product road map would close current holes in its product and maintain its current position, score in the middle. Those with weak or no product road maps score the lowest. In technology partnerships, we look for a vendors partnerships with other IT vendors to determine if they aect the platforms upon which the product will work, if the vendors bring industry-leading capabilities, and if they can bring new customers to the eProcurement vendor. Top scores go to vendors like PeopleSoft that have a wide range of partnerships with other vendors for both platforms and key functions. One level down are those like Ariba and SAP that have many partners for platforms so they can run on a range of databases and application servers but not necessarily for key functions like analytics that they oer themselves. In the middle are vendors like Oracle because its eProcurement product only runs on Oracles database and application server or like ICG Commerce, Ketera, and Perfect, which have few platform partnerships because they are hosted oerings but do have partnerships with specialists. Those with few or weak partnerships score at the bottom. Corporate strategy. The key factors in this variable are: 1) focus and resources that the vendor commits to its eProcurement product, and 2) how clearly or vaguely it denes its target market. The market focus variable assesses the priority that the vendor places on its eProcurement markets. Vendors like Ariba that have a large number of sta members focused exclusively on eProcurement score well on this criteria, as do those like Oracle, PeopleSoft, and SAP that dont focus exclusively on eProcurement but still have a large sta behind these products. Specialists like Ketera, ICG Commerce, and Perfect obviously focus exclusively on these products, but they dont have the same level of resources as the larger players do. The target market variable measures how well the vendor matches its level of resources against the opportunities. The best scores are for vendors like PeopleSoft, Oracle, and SAP that are targeting both large and midtier companies but have focused on their existing installed customer base in the specic industries in which they have had success and have devoted enough resources to be successful. Next-highest scores are for vendors like Ariba that have only targeted large enterprises but do so with vertical industry focus and sucient resources. Middle-range scores go to the hosted vendors that are opportunistic in looking for clients rather than being target-focused. The hosted vendors have no real alternative to being opportunistic because there are no obvious criteria of company size or industry to indicate which companies would be interested in a hosted option. Still, this makes client acquisition a greater challenge for hosted vendors than for other vendors.

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Financial resources to pursue the strategy. Any corporate strategy will only be eective if the vendor has sucient revenues to achieve it. Therefore, this criterion evaluates the income statement and balance sheet strength of a vendor to gauge nancial resources it has to sustain its strategy over time. Not surprisingly, the large ERP vendors like Oracle, PeopleSoft, and SAP score highest on this variable. Rating Vendors Market Presence Market presence is measured through a combination of installed base client counts, employee counts, and revenue for the vendors eProcurement product specically.

Installed base. This criterion rates vendors on the number of clients that they have

on the current version of their product, on all versions of the product, the growth in the number of clients on the product, the number of new clients, and the number of clients on maintenance. SAP scored highest, followed closely by PeopleSoft and Oracle; Oracles refusal to provide necessary data hurt its scores a bit. Ariba was one tier lower, with Perfect Commerce close behind. ICG Commerce and Ketera were lower still, either due to their relatively small client bases or slower client growth rates.

Employees. This factor rates the vendors on the total number of employees each has,

the number of dedicated engineers for their eProcurement product, the number and strength of partnerships with professional services rms, and the number of sales sta available for selling the product. Not surprisingly, the ERP vendors scored highest on this variable, followed by Ariba. The hosted vendors scored lowest, not only because they have smaller stas but also because they lack the systems integration partners to help install their products. The lack of a product that has to be installed is, of course, part of the core value proposition of the hosted vendors. Nonetheless, it hurts their market presence because with the exception of Ketera, which has a strong relationship with IBM Global Services, they lack the SI partners that can bring them into deals.

Revenue. This measure assesses the revenues that the vendors will derive from their

eProcurement product in 2004. Because no vendors report this information directly, Forrester estimated revenues based on information on number of clients and average deal size. Our estimates are that SAP will have the most revenue from its eProcurement product in 2004, followed by Ariba, Oracle, and PeopleSoft. The eProcurement product revenues of ICG Commerce are signicantly smaller, with Keteras and Perfects smaller still.

Revenue growth. This measure rates the revenue growth of the vendors eProcurement
products from 2003 to 2004. We estimate that Ketera and Perfect will have the strongest growth in revenues, followed by SAP and PeopleSoft. Based on their

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nancial results for the rst three quarters and realistic estimates for the fourth quarter, we project that Ariba and Oracle will have basically at revenue growth for their eProcurement products in 2004, while we believe ICG Commerce will see more signicant decreases from 2003 levels as it shifts more and more toward a BPO oering. THE FORRESTER WAVE RESULTS: A TWO-TIERED MARKET Forrester graded each vendor against the criteria based on questionnaire responses, supplemental information, and our existing knowledge of this software market segment (see Figure 4). We reviewed the scoring of each vendor with that vendor prior to publication of this report.
Figure 4 Forrester Wave: eProcurement, Q4 04
The spreadsheet detailing this Forrester Wave is available online.

Risky Bets Strong

Contenders

Strong Performers

Leaders
Market presence

Ariba PeopleSoft ICG Commerce Oracle

SAP

Current oering

Ketera Technologies Perfect Commerce

Weak Weak Strategy Strong

Source: Forrester Research, Inc.

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Key Findings A review of the results of the Forrester Wave for eProcurement highlights the following key ndings:

A two-tiered market has emerged in eProcurement. The top vendors in terms

of current oering, strategy, and market presence are the licensed software sellers: Ariba, Oracle, PeopleSoft, and SAP. The hosted eProcurement services vendors like ICG Commerce, Ketera Technologies, and Perfect Commerce are on a dierent level; they lack some functions provided by the top vendors and are without their strategic advantages and market presence. However, some of the hosted vendors are growing more rapidly than the overall market is, thanks to a value proposition that emphasizes the more exible cost and faster and easier deployments of a hosted oering over the best-in-class functions of a licensed software product.

Core functionality is no longer a dierentiator. The average scores for goods

procurement, settlement, and process conguration are consistently strong across all vendors, averaging close to 4 (on a scale of 1 to 5) with a standard deviation of less than 1. Even supplier enablement and catalog management is only a dierentiator for one vendor, Ariba. Most of the others are at a similar level of capability. The largest areas of dierence are in services procurement, reporting and analytics, and globalization.

Ariba, Oracle, and PeopleSoft lead in current oering. Looking across all the criteria
for current oering, Ariba does have a narrow lead over Oracle and PeopleSoft, with SAP at this time a level behind. SAP, in turn, has a stronger current oering than the hosted vendors do.

SAP and Oracle are best positioned for strategic leadership. In terms of strategic

position, SAP and Oracle are the leaders. While Ariba is, and will remain, very competitive, its strategic future will lie more in the sourcing and analytical apps. PeopleSofts strategic position in eProcurement is hampered by the Oracle acquisition threat that still hangs over the company as a whole.

Ketera is the strongest among hosted vendors, with Perfect coming up. Among

the hosted eProcurement vendors, Ketera scores the highest on both current oering and strategic position. ICG Commerce is slightly higher on current oering, but it isnt as strong from a strategy perspective. Perfect is weaker on current oering, but its strategy position will improve once it completes the Pantellos merger.

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

LOOK BEYOND SCORES TO MATCH REQUIREMENTS AGAINST CAPABILITIES

Given the relative parity of scores among the licensed software vendors and among the hosted vendors, a company looking for an eProcurement product should focus on its most important requirements and use these to reweight this Forrester Wave. For example, a company that lacks the IT resources or the appetite for installing a licensed software product should weight the hosting options more heavily and lower the weights for other variables like globalization or integration. That would help it nd the best choice among Ketera, ICG Commerce, or Perfect Commerce. A company that has largely standardized on Oracle or PeopleSoft applications could nd that the ease of integration would move either Oracles or PeopleSofts product to the top of the list. On the other hand, a company with a heterogeneous ERP environment and a large supply base would probably nd that Ariba was the best choice. A multinational with an existing SAP environment and broad globalization needs is likely to nd that SAPs eProcurement product would be a better t than other higher-scoring products. Enterprises that buy lots of services and want to manage the procurement of services and goods through the same system should weight this variable higher, and they would probably nd that Ariba and PeopleSoft today and Oracle once its new oering gets tested would be the best choices. However, companies that want to manage the procurement of services directly should also look to the standalone services of procurement vendors like Elance, Fieldglass, and IQNavigator, which oer a more compact product footprint.

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SUPPLEMENTAL MATERIAL Online Resource The underlying spreadsheet detailing the forecast in Figure 3 and the Forrester Wave in Figure 4 are available online by clicking the XLS link above each gure. Companies Interviewed For This Document Ariba ICG Commerce Ketera Technologies Oracle ENDNOTES
1

PeopleSoft Perfect Commerce SAP

As part of Forresters Business Technographics April 2004 North American Benchmark Study of 878 North American IT decision-makers, we asked participants who had procurement and sourcing products in production the question, To what extent has the technology met your expectations for anticipated benets? For Forresters last comparative ranking of eProcurement vendors in 2002, see the TechRankings Archives, eProcurement Application 02, at http://www.forrester.com/TechRankings/ Archive/0,6426,,00.html.

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