Concur — ISV.com Poster Child

In December 1999, Summit Strategies published ISV.com — A 12-Step Program for Capitalizing on the IAH Phenomenon. The report discussed the potential of applications hosting to reshape the ways in which traditional independent software vendors (ISVs) would develop, market and sell software; it also examined the issues on which they would need to act in order to succeed in this space.

Since then, the ASP tale has taken many twists and turns. As the model continues to evolve, many ISVs still struggle to create service-centric, hosted-solutions businesses without cannibalizing their licensed-software business. Those swimming in the murky ASP waters may want to look at how Concur Technologies, which develops automated expense-management solutions, has navigated through many of the same critical issues that we raised in our ISV.com report.

Growth Through the ASP Model
Concur launched delivery of Web-based travel and expense (T&E) solutions via the ASP model in October 1999, when it had about 235 customers (primarily from the Fortune 1000 ranks) for its licensed products. Today, after just 18 months in the ASP business, more than half of its 725 customers are ASP customers — and the company continues to grow its licensed-software business, too.

Concur went through its own twists and turns before finding its current formula. Caught up in the B2B hype of 1999, the company initially planned to create an employee-facing portal suite, investing in complementary solutions, such as procurement and human resources. But, by early 2000, the bloom was off this rose. Concur found that sales cycles for its suite were lengthier than for T&E solutions; that the company faced stiff competition from better-known and better-funded vendors; and that simultaneously investing in a new business while maintaining leadership in T&E was proving untenable.

In June 2000, Concur announced that it would refocus on its corporate expense-management roots and shift its priorities from top-line results to profitable revenue growth. Concur concluded that it would need to both preserve its high-end market position and add new revenue with its ASP Expense offering to do this — and evaluated considerations that were strikingly similar to those we postulated in our ISV.com report.

From our vantage point, Concur made many of the right decisions. For example, here are 11 key steps the company took:

1. Redefining solutions for an Internet ecosystem. Rather than simply retrofit its existing solution for the ASP model, Concur designed its ASP Expense offering specifically for Internet hosting. The company replaced customization options with self-service configuration options; substituted a shared server architecture for the dedicated server model it uses for client/server deployments; and shifted from perpetual license fees to monthly subscription fees.

2. Choosing the "right" target markets. With most of its licensed customers in the Fortune 1000, Concur decided to target midsize customers (100 to 1,000 employees) with its standardized, more affordable ASP expense-management solution.

3. Adapting to new revenue and pricing models. Concur reformulated revenue and pricing tactics for the ASP model. Whereas pricing for Concur's licensed product starts at about $100,000 — plus hourly charges for professional services — Concur ASP Expense customers spend about $5,000 for implementation, and from $4-10 per user, per month. On the revenue side, Concur splits revenues with partners, based on the roles and responsibilities each partner assumes.

4. Creating an effective ASP strategy. Developing corporate expense-management solutions -- whether for internal customer deployment or hosted deployment -- is Concur's central mission. Although the company flirted with creating a broader, hosted portal suite, Concur recognized that achieving profitability would mean getting back to basics. As a result, the company now focuses on delivering its own corporate expense solutions via licensed and ASP models.

5. Changing the channel mix. Concur's direct-sales force sells its licensed applications to large companies. Though it jump-started its ASP business with a small direct-sales team, the company's long-term plan is to distribute its ASP service through partners, and it is transitioning its direct ASP sales representatives to channel-management roles. In May 2000, Concur signed an exclusive agreement with Automatic Data Processing (ADP), in which ADP's 5,500 Major Account representatives sell Concur's hosted T&E service to ADP's 30,000 midsize customers, as well as to midsize prospects. In May 2001, the two announced that their alliance had garnered more than 100 ASP Expense customers and that they are adding about one new customer per day. Last April, Concur announced another original equipment manufacturer (OEM) ASP deal, with Great Plains Software (now known as Microsoft Great Plains), which will market Concur's ASP Expense through its 2,000 resellers that currently serve more than 57,000 customers.

6. Preserving and promoting brand equity. Maintaining brand equity and quality through multiple sales channels is challenging for ISVs. By serving as an OEM ASP to its new distribution partners, Concur controls delivery of its solutions to these partners' customers. It co-brands its ASP Expense solution with its distribution partners to ensure visibility for its brand.;

7. Charting the optimal course for Web-centric development. Many ISVs still proudly point out that users can access their applications through an Internet browser. But to be truly Web- and hosting-friendly, ISVs must address other issues that go beyond simply "Web-enabling" client/server products with a browser interface. Concur addressed the tougher issues of simpler interfaces, self-service access and configuration, and Internet performance and scalability issues early on.

8. Scaling for the one-to-many model — and — rapid deployment, quick provisioning, brisk change. Concur built its ASP offering to run in a shared server model. In contrast to a dedicated server mode l — where ISVs must add new servers and associated management costs each time they add a customer — a shared server model becomes more cost-efficient and profitable as ASPs add new accounts and users to the system; and will be more manageable as Concur gears up to support millions of users.

9. Following the KISS — Keep It Simple, Stupid — rule. Larger organizations have IT budgets and resources to customize Concur's enterprise solution. But midsize companies' IT resources range from scarce to nonexistent — they need affordable, turnkey solutions. Concur's rapid implementation program provides them with a standardized, yet configurable, solution that they can deploy quickly. Configuration enhancements give customers more flexibility without introducing complexity;

10. Interoperability and integration. Customers may initially procure a hosted solution as a "silo" service, but, over time, many will want to integrate hosted offerings with each other and with in-house solutions. Concur has integrated its ASP Expense offering with its partners' solutions — such as ADP payroll and Great Plains's financial solutions — for integrated expense reimbursement.

11. Selecting a synergistic data-center partner. Deciding that its primary requirements from a data-center provider were route redundancy, "fat" pipes, redundant power grids and a secure facility, Concur chose Exodus Communications. At least in the early going, Concur wanted to manage and control the application and supporting technology itself. Over time, as the model matures, it may look to data-center providers for additional services; but, for now, the company believes that having this control is integral to success.

While it still has a ways to go towards achieving profitability, it's making good progress, posting a 2001 loss of 45 cents a share (much improved from last year's figure of 83 cents a share), and modestly exceeding analysts' expectations for three consecutive quarters. For its fiscal year 2001, Concur expects total revenues of about $40 million — up from $34 million in 2000 — and is headed in the right direction to reach its goal of attaining profitability in the fourth quarter of 2002.

Tools:

Add aspnews.com to your favorites Add aspnews.com to your browser search box IE 7 | Firefox 2.0 | Firefox 1.5.x

Back to Analyst Columns