Frank Scavo, one of my Advocates' colleagues suggested I take a look at Plex Online, a SaaS provider in the manufacturing space. Frank's assessment is here. Past conversations about helping manufacturing companies move to SaaS have been hampered by the fact it has been difficult to find vendors that offer enough functionality to meet the needs of mid-sized, let alone large companies. As Frank says:
I've been frustrated by the lack of SaaS solutions for manufacturing companies. There are a number of SaaS providers of CRM solutions, HRM and other point solutions, of course, that can work for manufacturing firms. But where is there a complete ERP, deployed as SaaS, for manufacturing operations?
Frank then does a quick jog past NetSuite, SAP and Workday but comes up short on all of them. That is a reasonable assessment and one with which I have struggled the last year when talking to manufacturing clients looking for alternatives to the on-prem world. My introduction to Plex changes that perception.
Rather than repeat Frank's post, which contains many good nuggets, I want to add to what he is saying. Mark Symonds, Plex's CEO was remarkably frank with me. That's a good thing, providing a level of confidence that is harder to discern among the larger vendors.
Like Frank I asked why there are so few competitors in this space and was able to discover that when Plex switched from an on-premise model to SaaS, they took a 20% revenue hit and needed to refinance for re-engineering. "When you're used to up front license fees and they suddenly dry up, then you're challenged. I can't see anyone out there that would take that kind of hit," he said. That puts the problem in perspective for vendors like SAP, Microsoft and Oracle but it does not preclude a new vendor from arriving out of left field with a different approach.
Mr Symonds also said that up until 2005, the company had been 'sleepy' and that its current main challenge is to get market visibility. "We didn't really believe in sales and marketing as such. We know we've got to invest in these activities if we're to become the market leader we'd like to be. We have a big push i Germany at the moment where we see significant opportunity." Small vendors all share this problem given the noise that fashionista brands can amplify. And let's face it. Which is more interesting: the image of a set of false teeth leading a marketing charge or detailed talk around tinbashing functionality? The first of course but that doesn't necessarily mean value is delivered.
Image courtesy of TechVentive/VitalAnalysis report
Plex Online has ambitious plans to hit around $50 million in revenue in time for a planned IPO towards the end of 2011. Current revenue is in the "mid-30's.' That explains the company's target of 30% growth in 2010-11. Can they achieve that?
Mr Symonds believes that with manufacturing still representing a third of the US economy and potential customers running 10, 15 and 20 year old systems that while the economy may be difficult, there are clear advantages to considering the SaaS model. "Avoiding that upfront cost is a big one for customers, even though we're looking for $50-100,000 in monthly subscription revenue. But there's much more to this. We have a genuinely modern system, built upon Microsoft technology. It's been re-engineered from ASP to .NET, it's true multi-tenancy, single source," he said. That price seems hefty to me but Mr Symonds explained how this works:
- A sweet spot of companies that are turning over less than $2 billion pa
- License is per site for the modules the buyer needs. Site license pricing drives 80% adoption among the best customers from the plant floor through HR, customer service, accounting and administration
- Unlimited number of seats including supply chain partners
- Daily updates that are optional. The buyer does not have to take new functionality if itis not needed
Thinking about the cost angle for a moment. Let's say you have a business with potential 200-300 users. $i million is still a lot to pay. But let's say you can see the vision of being able to tap into the supply chain. That could potentially add thousands of users. The payback from being connected to those users in terms of reduced error rates, reporting, problem solving and the like suddenly makes the license fee pale into insignificance. It's a true value play for those businesses that 'get it.'
I asked if allowing companies to connect with business partners - essentially for free- was such a good idea. Mr Symonds came up with other reasons worth considering: "We like it. It gives us visibility and as the community grows, challenges us about the direction we need to take. It has also mean that some companies have come to us because they're already part of someone else's supply chain, have access to our system and like what they see." These are all great points and reflect what I have seen at the SME end of the market where vendors tell me that the best help they get comes from watching what the community of users is looking for.
During our conversation, I got the sense that Mr Symonds sees a window of opportunity but that it is closing. The upcoming SAP Business ByDesign will present challenges. In a few days, Epicor will release Epicor Express, designed for job shops at the low end of the market. Others are bound to follow. And then there are the myriad of specialist vendors all trying for a piece of this pie. His answer is to address more vertical markets: "Automotive has been a bi market for us but food a Mr nd beverage is booming, medical devices are taking on greater importance and pharmaceuticals will also be big once we all figure a way of overcoming some of the FDA issues that hamper all players in this market."
I asked where he sees the biggest challenges outside the obvious competitive pressure points: "Finding the right partners. We need a big consulting firm. Right now we have good tier two relationships but it is one of the big boys we need on board." That reflects the kinds of deal the company is doing. I suspect Plex will struggle on this in the short term.
SaaS typically present different challenges to on-premise implementations. The market needs to see the emergence of a new style of consulting operation that is more nimble and doesn't come with the mindset of body shopping tens or hundreds of consultants onto an implementation. If you're looking at (say) $1 million in first year license then it is hard to see how consultants can package up at their $200 per hour and up rates for what would otherwise be a $3-5 million upfront license plus maintenance win. Those economics and the methodologies that support them have not been worked out yet.
As part of my follow up, I contacted other Advocates and fellow ZDNet'er Brian Sommer, who, under his TechVentive brand has prepared a report on the company. (contact Brian via his ZDNet email contact form for a copy) He agrees this is a company worth watching and his analysis is broadly in line with my own. Customer examples are particularly illuminating:
The software implementation was completed by a team of customer and Plex experts. Approximately five customer IT/business analysts worked with a Plex expert during much of the effort. No third parties were involved. The implementation was essentially a big-bang effort with many of Plex’s applications going live at once.
TCO (total cost of ownership) is “a wash or slightly to our benefit” according to their IT executive. Why? The company’s continued growth has allowed them to scale up their business without additional hardware expenditures. Of particular value to the customer has been the absence of time and money spent on performing IT systems administration. According to this executive: “We want to put our money into our products and not in our IT”.
The customer’s favorable experience with this SaaS application suite (their first SaaS application) is now generating interest in the firm for other SaaS applications (e.g., email).
In concluding, this is a company that is making the kinds of noise I like to hear. Modest cost, decent functional footprint, modern technology, some international presence and a community that is growing at a good pace. There is much to admire but as Frank says - none of that can replace proper due diligence. The next step is to start talking to customer to discover their likes and dislikes of what Plex Online has to offer.