A VC in Vacationland

The continued success of on demand software models, especially the big push by Oracle and SAP into these spaces, makes us venture guys push up the valuations on our SaaS investments.  But the hidden value in SaaS environments, and one not shared by all on demand software, is in the data collected and managed by many SaaS software providers, especially in the supply chain space. The tech blog cognoscenti are already lauding the idea, but few of them give us many ideas of how this might apply to the supply chain world. Well, let’s let the tiger out of the bag.

Procuri in the sourcing space, Apriso in manufacturing execution, Datatrac in courier/express carrier management, Redtail Solutions in retailer sourcing management and Lean Logistics in the transportation execution space (to name a few) all own the data they collect to manage their respective processes in running supply chains. The data sources represented include primary vendor, manufacturer and carrier transaction files, as well as EDI and RFID environments. All this data is generally outside the firewalls of user companies and not available from a single source at present.

Is the value of the data currently reflected in the valuations of these companies?  The answer is : not yet.  The reason is that the companies that own the data have yet to monetize the value of information contained in these sources to their customers.  There are three possible uses of the information:

1. Execution–providing better and actionable real time data to ensure transactions complete successfully.
2. Benchmarking–evaluating supplier costs by industry and region, transportation costs by lane, transit times and delivery performance, to name a very few applications.
3. Strategic Analysis–evaluating trends in procuring and prices of components by region, availability of back hauls, manufacturing lead times by industry and carrier performance in retail delivery are a few of the many analyses that could be performed.

For reasons of confidentiality, I have not gone into detail on how these SaaS providers are planning to monetize their content.  Suffice it to say that the process involves the development of significant data mining capabilities as well as making sure that individual client data and information is well protected in the analysis and reporting process.

During 2007, supply chain SaaS providers will begin to test the market with their clients on willingness to pay for new information gleaned from aggregated transactions data.  Also, they are beginning the process of designing and testing methods for mining and reporting the data from their files.

Issues remain about willingness to pay for the new information and also whether the clients have the in house ability and tools to work with the new data.  A number of clients have commissioned SaaS providers in supply chain to do special studies on their own and on aggregated data to, for example, evaluate possible warehouse locations (availability of carrier, outbound rates, etc. by possible site).  This is an important first step in the process of using more real time information from the SaaS data bases to manage supply chain operations.

A number of non supply chain SaaS vendors who own and manage large data bases are beginning to set up "research groups" to monetize this data.  Taleo Research and Monster Intelligence are data mining the HR space using all their job and candidate databases to evaluate trends in salaries by job and region, for example.  Perhaps the supply chain guys can learn a thing or two from them.