Thinking Aloud…. As the big get bigger, the CTRM minnows benefit?
As we head into the weekend and I was pulling together some industry data for a presentation next week, I was struck by a couple of things. Firstly, the majority of announced license deals this last quarter have often been for less well-known and smaller vendors like Gen10, Fendahl, Contigo, Pioneer, Agiboo, InstaNext, InaTech, Molecule, and so on. Secondly, the most noteworthy activity among the larger vendors has been on dog eat dog and acquisition.
Having realized this from the data, I saw evidence to suggest that the predictions we have been making at ComTech over the last 12-18 months have been pretty spot on.
We predicted that there would be more acquisitions and there have been. ION has continued (and we would bet they are not done yet) its buying and acquired another big name in the top 5 of CTRM vendors (no announcement yet, but its common knowledge), EnergyOne acquired Contigo, CubeLogic acquired FERDEC, ComFin was acquired in an essentially management buy out and so on. Yet despite these mergers and acquisitions, there is still no lack of choice if you are a buyer. We still track over 100 CTRM vendors in our directory and we find new ones every quarter. Indeed, with the emergence of the cloud and the disaggregation of the monolithic CTRM solutions of the past (another prediction made here), we expect to see any number of new entrants in the space over the coming months in the form of discrete and aggregated services in the cloud from existing vendors and from new ones as well.
We also predicted that smaller vendors would start to take market share from larger vendors and we can now see that this trend is in full play. We thought there were a couple of primary reasons for this. First, the move to the cloud and looking for cloud-native applications that are fast to deploy and cheap to use. We saw the big vendors as lagging in this area while the newer vendors actually started up in this technological environment. Secondly, we have seen industry change as top tier firms (e.g. banks) either largely exited commodity trading, essentially broke themselves up into smaller and more focused firms (e.g. Generators and Utilities), or decided to build their own solutions and a far greater number of smaller, niche or boutique firms in every segment from retail energy to trading and so on. In fact, the larger deals in the CTRM world seem to have gradually migrated from out and out traders towards end user type companies intent on better managing their commodity exposure like food & beverage firms, for example. In this latter case, they have tended to lean towards more of a commodity management solution base around an ERP like SAP, or Microsoft and vendors like Dycotrade, Scalable, Cadran, and so on benefitted. So the industry dynamic has shifted towards smaller, more nimble users seeking cheaper and faster to install solutions in the cloud and guess who has those? The smaller and newer vendors.
So, while the bigger players eat themselves in pursuit of market share and premium accounts, the smaller guys are enjoying good times in a market that is more tailored to what they have to offer. Yes, it’s true that by ‘taking market share’, we may only be talking a couple of percentage points and the big guys may not feel it, the smaller guys most certainly will.
The other trend we have commented on is that buyers are generally seeking more focused applications with better vertical content. What I mean by this is they don’t want or need an all singing, all dancing solution for all commodities. What they want is the best in class for their market and operations which increasingly may well be Coffee or Cocoa, or European short-term power, for example. Even those who do manage multiple commodities are increasingly seeking best in class apps for each commodity overlain by best in class horizontal functionality for risk, regulatory and so on. Here, we see ‘platform’ players like Beacon offering another way to achieve this objective.
Of course, in the world of CTRM, nothing is ever simple or clear cut. SAP has made major in roads with over 150 customers using its CM solution and continues to be a logical choice in many instance for SAP users managing complex supply chains. FIS is engaged in bringing other products to the commodities sector like FrontArena and Apaptive and is innovating risk as a service concepts as well. Meanwhile, ION is pursuing a brand family approach and also counts Aspect among its platforms – arguably the first cloud-based solution and now with significant support across all commodity groups.
It’s going to be an interesting year.
