Concur employees woke to the surprising news last Friday that enterprise giant SAP had bought their company for an eye-watering US$8.4 billion. What does the world’s most famous ERP company want with a horizontal app in expense and travel management? And why did it pay so much?
The answer clearly has less to do with Concur’s software than its success in conquering a market that SAP must be very keen to enter. SAP’s press release made a lot of noise about synergies, expanding markets and additional sales.
It said much the same thing about its 2011 purchase Ariba, which streamlines procurement supply chains like Concur does with corporate travel. The two acquisitions had almost identical revenues in 2011 (US$335m vs US$349m respectively) – although Ariba was profitable and Concur wasn’t (net income US$33m vs -US$10m).
So why did SAP pay almost double for Concur?
Strong on Strategy
Concur has shown an impressive ability to pick trends early and move fast enough to ride them. “We saw that the consumerization of enterprise was happening years ago,” Matt Goss, Concur Australia’s managing director, told me in June. “We recognised very early the shift to mobile, too.”
The company launched its travel and expense management app as a cloud solution back in 2005 when Microsoft was still telling the world that the cloud couldn’t happen. Concur not only made it happen, it cracked open the market that SAP wants to enter today.
Launched in 1994, Concur spent the first two decades building its brand in enterprise and government circles. Once its cloud app went on sale Concur realised it could sell to a much larger number of companies that would never install Concur’s server-based software – the SMB market.
With the backing of an enterprise brand and the low-friction delivery mechanism provided by SaaS, Concur built a specially tailored sales program for SMBs in America, Goss says.
While enterprise vendors often dream of tackling the SMB market few have done it as successfully as Concur, and this goes for double in SaaS. Two of the biggest SaaS vendors, Salesforce.com and Google with Google Apps, have struggled to replicate their market share in enterprise among SMBs. Neither has managed to foster a strong network of SMB partners to help them make the sales.
However, Concur has created a strong network of referring partners in the US and is looking to do the same in Australia and other countries to supercharge its growth. Concur already had ISO accreditations and PCI compliance in place for its government customers – “all the things that you need to trust a business to host these services”, Goss adds.
Goss explains the model that has won over expense management agencies, travel risk assessors, supply chain consultants and accountants. Typically a VAR (value-added reseller) will sell the travel and expense management app to a customer, for which the VAR is paid a referral fee.
“As that customer expands their utilisation of Concur products we can grow that revenue share proportionally with partners,” Goss says. “Partners walk away the understanding that Concur is a platform.”
An Unlikely Prize
Concur has divided its sales and marketing teams into separate divisions for enterprise and SMB. The latter is responsible for a lot of the company’s recent growth.
Look out for similar tactics soon within SAP. In the very last paragraph of its press release SAP discreetly nods to Concur’s products in the small and medium business space that will complement its Business One cloud solution. In Australia SAP markets Business One as “affordable, scalable small business software”.
Perhaps credit for this deal should go to one of SAP’s biggest threats. Cloud ERP NetSuite has stolen market share from SAP as the latter has floundered trying to create a cloud solution in response.
In the meantime NetSuite too has been experimenting with selling itself as online accounting software for SMBs. JCurve, an Australian company, sells NetSuite’s accounting module to small businesses which can turn on more functions as they grow larger. Once JCurve has proven it can sell the enterprise ERP to Australian SMBs en masse, it plans to take it to the rest of Asia Pacific.
At NetSuite’s partner conference in San Jose in May, executives talked in the keynote of scaling its software from SMB to enterprise. That same speech cited Concur as a company that had successfully expanded from enterprise down to SMB.
SAP chief executive Bill McDermott told the Wall Street Journal on Friday that Concur hadn't put itself up for sale. It was SAP who had approached Concur’s CEO, Steve Singh, about 90 days ago to explore a takeover.
McDermott’s first phone call to Singh came less than a month after SuiteWorld. Coincidence? No doubt Concur and SAP would prefer to call it serendipity.