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Market Dislocations and the CTRM Software Category

In our book (published over a decade ago and now mostly well out of date) and many different papers and blogs over the years, Patrick and I have talked about the evolution of C/ETRM software in terms of technology adoption curves and market dislocations. Some of you might be familiar with our model? The general idea is that the technology adoption curve for E/CTRM software keeps on getting ‘dislocated’ by sudden and disruptive changes in the industry -such as for example, the Enron and merchant collapse, the introduction of many regulations, deregulation of markets, emergence of cloud, and many other events either globally, regionally, across all commodities of commodity-specific. The model helps us explain the overall behavior of the CTRM/CM software category.

It is based on the idea of the technology adoption curve as below. Innovators and early adopters are willing to take a risk on new or emerging technologies. Then, after a period of time, that technology may or may not ‘cross the chasm’ and the early majority start to invest in it. after a good while, the laggards follow.

 

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However, CTRM/CM isn’t really one market at all but multiple markets – commodity-specific, multi-commodity, regional, industry segment and so on, technology adoption curves all exist at once. This is not truly a package software market at all but a custom software market in which vendors have built software that have configurability and are constantly adding functionality to reach into peripheral markets. Then, just as things look reasonable for the vendors, something abruptly changes – a dislocation event occurs. The impact of these market dislocations is to stall the natural growth of the adoption curve creating a set of stranded products from smaller vendors who cannot afford to adapt while creating a new and larger market/adoption curve for an enhanced version of CTRM/CM. Some products and vendors survive and transition while there is an opportunity for new entrants in the form of start ups and opportunists from nearby markets – banking, risk management, treasury etc.

 

The model helps to explain why there remain over 100 vendors in the market despite many being very small, highly focused and regional in nature. It helps explain why the top 2-3 vendors haven’t yet saturated the market and why build is more often a solution than one might imagine in what is now a fairly ‘mature’ software market.

Of course, over the last two years, we have witnessed a super dislocation event in which it was not a single factor that shifted the market but multiple factors simultaneously including;

  • Pervasive and sustained collapse in some commodity prices and volatilities in many commodity markets,
  • Technology and deployment innovation including cloud, mobile devices, automation, and so on,
  • Regulatory uncertainty,
  • The rise of renewables and impacts,
  • Cost cutting and lower margins,
  • Focus on physical supply chains,
  • Geopolitical risks,
  • and more….

Then we have had lockdowns, work from home and business continuity issues. Undoubtedly, this is having a huge impact on the vendors, products and innovation in the market. However, now is a good time to think about the dislocation model as outlined above as it applies to the current market conditions. New entrants are suddenly everywhere – mainly cloud and new technology, multi-tenant solutions with instant availability like CTRMCloud, for example, or with different models of deployment like Previse Systems, for example. Older, more established vendors are having to adapt and are seeing their market share eroded slightly as the more modern technology platforms win more business. There maybe other new entrants from outside of commodities yet to emerge. There may be casualties as well. Time will tell. However, we do seem to be in the middle of a new dislocation event at the moment.