The Nine Value Propositions of B2B SaaS Platforms (Revised Edition)

THE NINE VALUE
PROPOSITIONS OF
B2B SAAS
PLATFORMS
www.softwareplatform.net
SOFTWARE
PLATFORM
CONSULTING

2 THE NINE VALUE PROPOSITIONS OF B2B SaaS Platforms www.softwareplatform.net
TABLEOFCONTENTS
Table of Contents
Introduction....................................................................................................... 3
VALUE PROPOSITION #1:
 Supply Chain Automation........................................................................... 6
 Matchmaking.............................................................................................. 12
 Credentialing.............................................................................................. 17
 Industry Catalogs....................................................................................... 23
 Leveraged Contracts..................................................................................28
 Payments Transaction Financing.........................................................32
 Industry Big Data....................................................................................... 38
 Collaborative Project Management.........................................................42
 Managed Services...................................................................................... 45
Summary.......................................................................................................... 49
2

For the purposes of this e-book,
I’m going to define B2B SaaS Platforms as:
Intermediaries that bring two,
or more, different types of
customer groups together to
facilitate commerce.
INTRODUCTION
Understanding B2B SaaS Platforms
Let’s start by defining B2B SaaS Platforms. You already know what “B2B” and “SaaS”
mean. Defining “Platforms” turns out to be a little more difficult.
Platforms go by many different names:
ĬĬ Academicians and Nobel Prize winners call platforms two-sided or multi-sided
markets.1
ĬĬ Venture capitalists and private equity partners typically call platforms
“marketplaces” or “industry clouds”2
ĬĬ Entrepreneurs call them “disruptors” or “platforms”3
ĬĬ Others refer to platforms as “catalysts”4
or “networks”
1 Claire Cain Miller, ‘How Jean Tirole’s Work Helps Explain the Internet Economy’, In The New York Times,
Retrieved November 20, 2019, from https://www.nytimes.com/2014/10/15/upshot/how-jean-tiroles-work-
helps-explain-the-internet-economy.html
2 Grant Shirk, ‘The Evolution of the Industry Cloud: A Q+A with Gordon Ritter of Emergence Capital’, In
Box Blogs, Retrieved November 20, 2019, from https://www.box.com/blog/the-evolution-of-the-industry-
cloud-a-qa-with-gordon-ritter-of-emergence-capital/
3 Marshall Van Alstyne, ‘MIT IDE 2015 Keynote’, On YouTube in channel: SiliconANGLE theCUBE, Retrieved
November 20, 2019, from https://www.youtube.com/watch?v=dEu16KHwdlw
4 ‘Catalyst Code’, In Wikipedia. Retrieved November 20, 2019, from https://en.wikipedia.org/wiki/Catalyst_Code
3

INTRODUCTION
DIAGRAM 1
Why are B2B SaaS Platforms so Attractive?
Diagram 1 depicts the typical structure of a B2B SaaS Platform. At least two
different customer groups, as well as complementors, interact on the platform.
(Complementors are businesses that sell a product or service which complements
the product or services being traded between buyers and suppliers on the platform.)
SaaS software is fascinating from a technology perspective.
But, more fascinating is how Software-as-a-Service (SaaS) business models and
associated technologies have changed the underlying economics of:
ĬĬ Creating and supporting software products
(e.g., one release for all platform users)
ĬĬ Hosting software
(often in scalable, affordable “public clouds”, such as Amazon Web Services)
ĬĬ Selling software
(e.g., in small, annual subscriptions versus lumpy, perpetual licenses)
4

THE NINE VALUE PROPOSITIONS OF B2B SaaS Platforms www.softwareplatform.net5
INTRODUCTION
B2B SaaS Platforms enjoy the same economic benefits as more general
SaaS offerings, but B2B SaaS Platforms are even more attractive because they:
ĬĬ Take full advantage of the massive
multi-tenancy made possible by
the cloud
ĬĬ Benefit from network effects
and “winner-take-all” outcomes
ĬĬ Often have diversified revenue streams
If that MBA jargon rankles, just think
about it this way: there are only 3 major
cell networks in the U.S., 1 major search
engine, 4 major payment networks, and
just a few major cable networks. Becoming
a dominant platform creates a lucrative
business with wide moats. In fact, one of
the problems many successful platforms
experience is anti-trust scrutiny! Some might
say that is a nice problem to have!
The Nine Value Propositions
ofB2B SaaS Platforms
I started by defining B2B SaaS platforms
as intermediaries that bring two or more
different types of customer groups together
to facilitate commerce. Now it’s time to
delve into exactly how these platforms
facilitate commerce.
I’ve spent 20 years building B2B SaaS
platforms in industries ranging from
oil field services to pharmaceuticals to
facilities management. In that time, I’ve
found that regardless of the industry or
the business process involved, B2B SaaS
platforms offer varying combinations of
nine basic value propositions (depicted in
Diagram 2, on the following page):
Bob Solomon is the principal of Software Platform
Consulting, Inc. (SPCI). Bob helps clients develop
successful networks and platforms.
Prior to founding SPCI, Bob was President of
ServiceChannel, a SaaS platform in the facilities
management industry. Preceding ServiceChannel,
Bob was Senior Vice President, Network and Financial
Solutions for Ariba, Inc. (now SAP). Reporting to Ariba’s
CEO, Bob was responsible for monetization of the Ariba
Network. Before his 10 years with Ariba, Bob spent 14
years working in the food industry supply chain. Bob
began his career in the Chicago office of the The Boston
Consulting Group. Bob serves as Lead Director of Ariel
Investments and on the boards of Eved, LeaseAccelerator,
XSB, Bamboo Rose, OEConnection, and Enverus.
Bob received his AB in Economics from Princeton
University. He received his MBA from Stanford’s
Graduate School of Business.

INTRODUCTION
DIAGRAM 2
The Nine Value Propositions of B2BSaaS Platforms
Some B2B SaaS platforms offer just one value proposition, most offer several highly
complementary value propositions. All platforms struggle with the issue of how many
value propositions to attempt to offer and in what order.
In the rest of this e-book (feel the suspense!), I’ll cover each platform value proposition
in detail providing a:
ĬĬ Description of the platform’s value-add
ĬĬ Segmentation of providers offering each value proposition
ĬĬ Checklist of strategic issues faced by each type of platform
ĬĬ Case study of a successful example of each value proposition
When (and if) you complete this e-book, my hope is that you will:
ĬĬ Appreciate these businesses as much as I do
ĬĬ Know a lot more about building these platforms
ĬĬ Have examples and reference materials you can study further on your own
ĬĬ And just maybe, want to hire some help in building yours! ;-)
Supply Chain
Automation
Industry
Catalogs
Industry
Big Data
Credentialing
Payments
Transaction
Financing
Managed
Services
Matchmaking
Leveraged
Contracts
Collaborative
Project
Management

THE NINE VALUE PROPOSITIONS OF B2B SaaS Platforms www.softwareplatform.net
Supply chain automators offer very clear ROI. They reduce
the paper, workflow, inventory, risk, and working capital
associated with buying and selling of goods/services.
It’s a simple, yet surprisingly effective, value proposition.
Enormous fortunes have been built simply by eliminating
the headache associated paperwork as basic as the
expense report. I’m sure you will Concur. (Get it?)
Segmentation
Supply Chain automators come in four basic varieties:
FINANCIAL SUPPLY CHAINS:
Concerned with the flow of financial documents (e.g., purchase
orders, invoices, and payments). (Note, however that I put
payments companies in value proposition #6: Payments and
Transaction Financing.)
PHYSICAL SUPPLY CHAINS:
Concerned with the physical flow of goods.
INDIRECT AND SERVICES SUPPLY CHAINS:
Concerned with the flow of indirect goods and services (e.g.,
freelance labor, legal services, outsourcing, office supplies,
IT equipment, etc.). (“Indirect” meaning the stuff that does
not end up in the cost of goods sold line on the PL.)
QUALITY AND COMPLIANCE SUPPLY CHAINS:
Concerned with quality, inspection, or risk associated with a
particular shipment of product.
SUPPLY CHAIN AUTOMATION
7
QUICK TAKE
VALUE ADD
Elimination of paper and automation
of workflow
SEGMENTS
Financial Supply Chain, Physical Supply Chain,
Indirects and Services Supply Chain and Risk
Management Supply Chain
EXAMPLES
SAMPLE VALUATIONS
Supply chain automation platforms drive
hard dollar savings and working capital
improvements. As a consequence, their
valuations can be among the largest in B2B
SaaS platforms.
COMPANY MARKET CAP*
Ariba Acquired for $4.3B (EV/
Revenue: 10x) in 2012
Coupa $8.3B (EV/Revenue: 30x)
Descartes $3B (EV/Revenue: 10x)
Open Text $10.7B (EV/Revenue: 4x)
* as of Fall 2019 if public

DIAGRAM 3
Supply Chain Automation Segmentation
FINANCIAL SUPPLY
CHAIN AUTOMATORS
PHYSICAL SUPPLY
CHAIN AUTOMATORS
INDIRECT
SERVICES SUPPLY
CHAIN AUTOMATORS
RISK MANAGEMENT
SUPPLY CHAIN
AUTOMATORS
Examples of each type of supply chain automator are found in Diagram 3. A few notes
are in order for this diagram:
1. Several of the examples fit in more than one supply chain segment. For instance,
EDI networks (e.g., Sterling and OpenText) could also be placed in the physical
supply chain segment.
2. I’m not including procurement card, payment, or supply chain finance providers
in the financial supply chain because I’ve placed the provision of payments and
financing into their own value proposition (#6). Having said this, most e-invoicing
providers, who are in this category, have added financing services to their
platform—usually with the help of complementors.
3. The entire quality and compliance supply chain is very closely related to the
credentialing value proposition (#3). In this diagram, I tried to list only companies
assessing risk at the transaction level (e.g., lot or shipment level). You may also
consider this a segment of value proposition #3.
VALUEPROPOSITION#1:SUPPLYCHAINAUTOMATION
8

Strategic Issues Facing Supply Chain Automators
Supply chain automators face several common issues:
ON-BOARDING
Success in supply chain automation depends on transporting large volumes of
transactions at attractive prices per document relative to offshore paper processing/
scanning. Supply chain automators therefore have to figure out how to make it cheap
and fast for participants on both sides of a transaction to get on-board the platform.
Integration and training ideally must be self-service.
PRICING FOR PARTICIPATION
Supply chain automators have to consider whether to charge buyers, suppliers, third-
parties, or all participants. Every conceivable pricing model is currently in use in this
market, as providers struggle to keep costs commensurate with value and encourage
participation. Pricing in multi-sided marketplaces is a recurring strategic issue for every
B2B SaaS platform value proposition. Pricing in such markets is worthy of an e-book of
its own. (Perhaps that will come next!)
STANDARDS
Supply chain automators must decide which standards (e.g., communication protocols
and formats) to adopt, support, and maybe even establish. Ariba, for instance,
supported one EDI standard and created the cXML standard. Historically, EDI providers
were slow to adopt standards, but ANSI jumped in with X12 after supplier complaints
regarding the lack of standards grew louder. Europe came up with its own standards.
EDI providers eventually supported multiple standards, including XML. Entire businesses
have been built on translating, or mapping, between these standards (see SPS
Commerce). (For more on EDI see the first case study.)
HOW MUCH APPLICATION?
Perhaps the most vexing strategic issue facing supply chain automation providers
is whether to offer just “pipes” to connect buyers, suppliers, and intermediaries (with
the transported data being consumed by applications made by others on the ends) or
to also offer the applications at each end of the transaction.
Traditionally “pipe-builders” and application providers tended to be different parties.
It is not easy to do both. Pipe builders are great at integration, on-boarding, and secure
transport. They are the “telecoms” of this world. Applications providers, on the other
hand, understand UI, workflow, and increasingly analytics. They are the “Apples” of this
world to continue the “telecom” analogy.
As seen in the accompanying case study, the EDI giants, Sterling and GXS, remained
primarily pipe providers. As a result, they created an opening for many of the new
supply chain providers of the 2000s.
By contrast, many of the newer vendors in supply chain automation market started
as application providers and later realized that there was a platform/network effect to
be gained by connecting the applications to the same cloud infrastructure. Ariba, for
example, was a procurement application first, a network second.
9

Summary
Supply chain automators represent a rich and diverse set of companies. There are
multiple gigantic industries and business processes that still involve tons of paper
and cry out for automation. This value proposition produces giants that can grow for
extended periods of time.
One of the most fascinating aspects of this value proposition is that every supply chain
automator tends to have tension between the application and the platform portions of
their business. These two businesses have different economics and needs—especially
for “openness”. Platforms “want” to be open to an entire industry to gain scale,
applications want to be exclusive to their owners.
American and United Airlines, for instance, built reservation system platforms for
travel agencies that eventually had to be separated from the airlines’ applications
(See case study in value proposition #4). The Federal government almost forced
Microsoft to separate its applications from its platform. At Ariba, it was almost
10 years after the company was founded that it “opened” its network to non-Ariba
procurement applications.
Today, observers wonder whether Amazon will keep both its application business
(e-commerce) and its hosting platform, Amazon Web Services. Salesforce.com faces the
same issue with its CRM and its Force.com platform. Only time will tell, but the forces
that pull application and platform businesses apart are strong.
Case Study: Different Paths for EDI Giants
EDI was the original language of B2B e-commerce. It began in the 1980s as proprietary
technology used exclusively by the largest corporations. Gradually, EDI became
somewhat more standardized. By the ‘90s it was a fast-growing business. No discussion
of supply chain automation platforms is complete without a discussion of the EDI giants,
the grand-daddies of B2B e-commerce platforms.
THE BIG BOYS
Over the past 25 years, two companies came to dominate the EDI
network world: GXS (now OpenText) and Sterling Commerce (now
IBM). This pattern of consolidation is common in B2B cloud platforms.
Eventually, economies of scale and network economics mean only a
few platforms can thrive.
GXS was initially the EDI business of General Electric. GXS was spun off and proceeded
to buy several more EDI networks. When OpenText bought GXS in 2012, GXS had
revenue of $488 million and EBITDA of $144 million. Nice cash flow!
Sterling Commerce grew from a $200 million business in 1995 to over $600 million in
1999. Sterling was bought by SBC shortly thereafter for the princely sum of $3.9 billion.

(Sterling was very profitable, but it was also the bubble era.) SBC merged with ATT
and Sterling remained an ATT subsidiary until 2010 when IBM paid $1.4 billion for it.
Sterling remained at approximately $600 million in revenue, shrinking a bit organically,
but also acquiring several companies along the way.
WE ARE NOT DEAD YET!
When the Internet took off in the late ‘90s, pundits predicted XML and the
Internet would quickly kill the EDI “dinosaurs” due to their relatively high cost,
inflexibility, and use of proprietary VANs. GXS and Sterling staggered, but as
you can see, they survived and remained profitable businesses with over $1
billion in revenue between them. In this story of a meteor (the Internet) hitting
the dinosaurs, the dinosaurs shrink for a while, but they survive!
The EDI giants survived for several reasons:
ĬĬ They could afford to lower prices
ĬĬ Pundits forgot that “sunk costs are sunk”, but clients did not. While EDI is expensive,
its main expense is in the set-up costs and less so in on-going operational costs.
Customers (appropriately) looked only at the marginal costs of using EDI (not the
sunk costs) when considering whether or not to replace it.
ĬĬ GXS and Sterling moved their value proposition to managed services (outsourcing)
of their clients’ B2B e-commerce strategies, not just the provision of technology.
ĬĬ XML and AS2 (new internet-based technologies) took a while to be trusted and
take root. GXS and Sterling wisely convinced customers to continue to use the
EDI message formats and simply move some of the volume to AS2/ web-based
transport. They became experts in facilitating this transition.
SURVIVING, BUT NOT THRIVING
GXS and Sterling survived, but neither thrived during a period when
at least another $2 billion in B2B commerce revenue was generated by the
likes of Ariba, GHX, Change Healthcare, e2open, and many others.
Why? For three reasons:
The Innovator’s dilemma: GXS and Sterling simply did not want to see their base
business rapidly disappear through cannibalization caused by the new XML/Internet-
based protocols. They were slow to respond.
Cash Cows: GXS and Sterling’s owners, (PE firms and ATT respectively for much
of this time) wanted cash flow, not investment opportunities. This left the market open
for others.
Pipes versus Applications: GXS and Sterling saw themselves as primarily a Post
Office—they transported messages electronically through their “pipes”, but they did not
“open the envelopes” to see what was inside. Both companies made small acquisitions
in the 2000s, suggesting a desire to add value to the messages they were transporting
through their “pipes” with applications that would “consume” and make this data usable.
(GXS bought Celarix, HAHT commerce, and Rollstream. Sterling bought Yantra, Nistevo,
and Comergent.) But neither company committed to this course of action and their
owners had limited interest in more investments.
11

APPLICATIONS VERSUS PIPES
To see the opposite approach of “pipes” versus “applications”, it’s
interesting to study a company that began as an EDI network and evolved
more aggressively to add applications, value-added services, and analytics.
That company is Change Healthcare.
In the 1990s, the predecessor to what is now Change Healthcare was a $100 million dollar
processor of largely EDI-based healthcare transactions for payers (insurance companies)
and pharmacies. Over the next twenty-five years, Change Healthcare kept its core
business of connecting payers, providers, and pharmacies for transactions but used that
cash, IPO, and investor cash to grow applications organically and through acquisitions.
Change Healthcare
Change Healthcare went far beyond being a
“post office” for their customers, managing
just connectivity, to becoming integral to their
workflow, revenue management, and operations.
By 2018, Change Healthcare was a $3 Billion company
with half of its revenue coming from applications and
analytics. Network solutions represented just 16% of
revenue, but had glorious 60% EBITDA margins! After
going public, then private, Change Healthcare went
public again in 2019 with a market cap of $4.2 billion.
Automating transactions is a great business, but when
this activity becomes commoditized, moving up the
value chain to other value propositions becomes
critical to outsized valuations.
CHANGE HEALTHCARE ADDED:
ĬĬ Workflow/ revenue cycle
management applications on top
of the network for providers and
pharmacies
ĬĬ Analytics and reporting to provide
real-time information to all players
in the process
ĬĬ Managed services and
consulting services

Supply Chain Automators (Value Proposition #1) improve
the transactional efficiency of already established buyer-
supplier pairs. Matchmakers, by contrast, seek to
create new relationships between buyers and suppliers
who were previously unknown to each other.
The value proposition is to make the search process for
a new supplier or product faster, easier, or cheaper for buyers
and do the same for the sales and marketing process of
suppliers. For those of you familiar with “Fiddler on the Roof”,
think of matchmakers as an “e-Yenta”!
Matchmakers are the true B2B marketplaces.
Markets Where Matchmaking Adds Value
Because matchmaking involves creating new business
relationships, matchmaking adds the most value in markets
where:
ĬĬ Buyers and suppliers are fragmented and not well-known
to each other (e.g., small businesses)
ĬĬ Frequent search for suppliers is necessary due to supplier
turnover or localized supply markets (e.g., contractors)
ĬĬ Products or services where the inventory is perishable (e.g.,
logistics, fresh products)
ĬĬ Products or services are custom or project-oriented (e.g.,
job shops, consulting)
ĬĬ Collaboration between multiple buyers or suppliers changes
the economics (e.g., asset sharing)
From this list, you can see why there are so many consumer to consumer (C2C) and
small business to consumer (b2C) matchmakers ranging from Ebay to Uber to AirBnB
to Angie’s List.
Matchmakers are less common in the B2B world since buyer-supplier relationships
tend to be less fluid, but there are still plenty of examples in several segments.
13
QUICK TAKE
VALUE ADD
Decreasing Search (buyers) and
Sales Costs (suppliers)
SEGMENTS
Goods, Services, Sharing, Crowdsourcing
EXAMPLES
SAMPLE VALUATIONS
Matchmakers are classic marketplaces. It’s
hard for them to solve the “chicken and the
egg” problem, but notable successes have
emerged.
COMPANY MARKET CAP*
Capterra Acquired for $180M in 2015
Fiverr $0.7B (EV/Revenue: 7x)
MarketAxess $16B (EV/Revenue: 32x)
Upwork $1.6B (EV/Revenue: 5x)
MATCHMAKING

VALUEPROPOSITION#2:MATCHMAKING
14
Segmentation of Matchmakers
B2B SaaS matchmakers come in several varieties described in diagram 4
Product matchmakers help buyers of physical stock keeping units (SKUs) or physical
assets (new or used) find sellers and vice versa. They are especially valuable where there
are few branded manufacturers or several versions of the same item are available—
such as OEM, aftermarket, refurbished, etc.—and supply sources are unknown.
Service matchmakers perform exactly the same function for providers and buyers
of services ranging from web design to strategy consulting.
Sharing as the name implies, comprises matchmakers who rent space or equipment
to other parties. Sharing platforms may also facilitate sharing of non-physical assets
including intellectual property (e.g., patents).
Crowdsourcing is similar to services matchmaking, but involves using many suppliers
simultaneously on the same project. In that way, this segment overlaps with value
proposition #8, collaborative project management.
DIAGRAM 4
Matchmaking Segmentation
PRODUCT
MATCHMAKING
SERVICE
MATCHMAKING SHARING CROWDSOURCING

15
Strategic Issues Facing Matchmakers
All matchmakers face the following strategic issues:
BEATING GOOGLE SEARCH!
Google is not optimized at the supplier or product level, but it is free and
ubiquitous. Like it or not, most supplier or product searches start there or
at Amazon. If a matchmaker does not have better content and search than
Amazon or Google it will not attract enough buyers. Without enough buyers
there will be no reasons for suppliers to join. Welcome to the death spiral!
Matchmakers have to find a way to drive buyers to search on their site–
without paying a zillion dollars for AdWords.
SOLVING THE “CHICKEN AND THE EGG” DILEMMA.
All platforms need to address the “chicken and egg” dilemma of which
comes first--the buyers or suppliers? Matchmakers are the “poster
children” for this problem. Their entire value proposition is making a
liquid market between two groups. Buyers need to see many alternative
suppliers or items and suppliers need access to a critical mass of buyers.
As a general rule of thumb, suppliers are willing to pay more to find new
buyers than buyers are willing to spend on finding new sources of supply. As a result,
matchmakers lean toward “subsidizing” the buyers, getting them into the site and then
counting on their collective “eyeballs”, searches, RFQs, or actual spend to draw suppliers
like bees to honey.
I could write an entire e-book on how B2B platforms try to solve the Chicken and the Egg
dilemma. For now, I’ll just point out a couple of techniques. One way for marketplaces
to solve the dilemma is to find niches, segments or geographies where they can build
a critical mass of buyers and suppliers one-by-one, before expanding to adjacent
segments. Another technique is for the B2B platform to partner with an existing offline
or online community that has already aggregated one side of the market.
CREATING RECURRING RELATIONSHIPS
By their nature, many of the goods and services bought on matchmaker
platforms fill a one-time, or “spot”, need. After all, who needs to search
for a supplier for something they are already happily buying? In short,
there is often no need for a recurring relationship. To make matters
worse, once a matchmaker helps create a new buyer-supplier relationship,
there is a strong incentive for the buyer and supplier to move “off platform” to transact
without paying the matchmaker’s fee. (Ever bought more stuff from an Ebay seller off
Ebay? You are not supposed to!)
Matchmakers try to limit this problem of “off-network” using:
ĬĬ Tough terms of use and threatened penalties for going “rogue”
ĬĬ Added commerce services of supply chain automation (value proposition #1)
(e.g., escrow systems, payment systems, financing, progress payment capabilities)
ĬĬ Using a volume-based rating system to encourage on-marketplace transactions
ĬĬ Offering transaction-related insurance or return capabilities

16
In the end, the best hope for a matchmaker is simply to establish themselves in a
market where matches constantly have to be made!
DETERMINING WHAT OTHER VALUE PROPOSITIONS TO OFFER.
Matchmakers end up dabbling in at least two other value propositions:
ĬĬ Credentialing (Value Proposition #3)–to encourage transactions and
ĬĬ Supply Chain Automation (Value Proposition #1) to stay a part of the
transaction, as mentioned above.
Ebay, the granddaddy of matchmakers, is a great example of both approaches. Ebay
had a partially volume-based rating system to encourage “on-network” transactions and
eventually bought PayPal to to participate in settlement of the matches it made.
HOW MUCH CREDENTIALING (VALUE PROPOSITION #3)?
Matchmakers must decide how robust to make their credentialing systems.
What will the scoring algorithm be based on? Should the system be
influenced by suppliers? How will its integrity be maintained? All of these
are issues for matchmakers and credentialers (which is also a stand-alone
value proposition, covered in the next section.)
MONETIZATION.
Matchmakers typically monetize buyer “eyeballs”, search, purchase intent
(RFQs), or actual buyer transactions. They have to decide which one of these
steps in the process is their ultimate goal and which to charge suppliers for.
At one extreme, some matchmakers charge membership, listing fees, or use
an ad model to be on the platform. These membership fees may scale with organization
size or list size. Used parts markets in aerospace and elsewhere tend to use this model.
At the other extreme are matchmakers who place a surcharge on the winning bidder
of an RFQ, which is much more of a pay-for- performance method. In between are
matchmakers who may charge per lead. As you can imagine, over time, the pressure
from Google and Amazon is to pay-for-performance of the ad or the resulting sale
versus simply paying for eyeballs.
Summary
Matchmaking is one of the fundamental innovations of the Internet and search–
especially in the consumer and small business world. That’s why there are so many
successful B2C and C2C Marketplaces. But matchmaking can also be a great value
proposition in the right areas of B2B where search is critical and the right additional
value propositions are added in context.

17
Case Study: Cvent
One of my favorite examples of a B2B Matchmaker
that gets investor recognition (it was acquired by Vista
Equity for $1.7 billion), but not much press, is Cvent.
Cvent has stand-alone applications such as cloud
meeting registration software and strategic meetings
management software, but another real revenue engine and differentiator is its
marketplace that matches corporate meeting event planners with meeting venues.
Here’s how Cvent described its marketplace in an investor presentation:
Platform with Powerful Network Effects
Cvent solved the “Chicken and Egg” problem of participation using a variety of
techniques: stand-alone applications, building the supplier database, aggregating RFQs,
etc. They have now succeeded in driving $8 Billion in RFPs from meeting and event
planners to a listing of 200,000 hotels and meeting venues. Venues pay fees to advertise
to these meeting planners and even buy software from Cvent to respond to RFQs better
and faster.
The full Cvent story is amazing, including almost going out of business during the dark
days after 9/11. Anyone building a B2B services marketplace should study it carefully.
Increased RFPs
Attract More Hotels
Quick Hotel Responses Attact
More Corporate Buyers
Hotels
Venues
Increase group
business
Ready-to-transact
buyers
Group comp
intel and
analytics
Marketing /
Procurement
Receive quicker
responses
Reduce costs from
multiple blind bids
Access to new
destinations
and hotels
2008 $50M (0%)
$600M (0.5%)
$2.4B (2%)
$3.2B (3%)
$4.7B (5%)
$6.5B (6%)
$8B (8%)
$10B (10%)
2009
2010
2011
2012
2013
2014
2015P
Rapid Growth in RFP Value
(+ Market penetration)
Source: Cvent Investor Presentation

Credentialers provide risk management and compliance
services for buyers and suppliers. In particular,
credentialers help buyers assure their suppliers, and
other third parties, meet the requirements the buyer
has for doing business with them.
The requirements credentialers collect and verify can be of
several types:
ĬĬ Financial attributes (e.g., profitability or capital structure)
ĬĬ Physical attributes (e.g., location security, working
conditions,etc.)
ĬĬ Diversity
ĬĬ Safety
ĬĬ IT Security
ĬĬ Regulatory (e.g., OSHA)
ĬĬ Quality (e.g., ISO)
ĬĬ Social responsibility (e.g., Green)
In most cases, credentialers help buyers collect and monitor
credentials supplied by the supplier themselves. They do this,
in part, by providing suppliers a self-service portal to gather
information and keep it up to date. If the credentialer uses the
right architecture, a supplier can serve many buyers from the
same portal.
Credentialers exist in almost every industry and risk
management domain.
18
QUICK TAKE
VALUE ADD
Risk Reduction and Compliance
SEGMENTS
Company, Facility, Product, Lot, Individual
EXAMPLES
SAMPLE VALUATIONS
Credentialers can become de facto
proprietary standards. Such standards are
hard to replicate and become very valuable.
COMPANY MARKET CAP*
DB Acquired for $6.9B
including debt
Moodys $40B (EV/Revenue: 10x)
Tracelink Raised $170M in capital
CREDENTIALING

VALUEPROPOSITION#3:CREDENTIALING
19
Credentialer Segmentation by Level of Data Collected
We can segment credentialers, either by the type of information they collect as
mentioned above (e.g., financial versus safety versus corporate social responsibility
(CSR)) or by the level within the supply chain the credentialer collects this data:
ĬĬ Company
ĬĬ Plant/Facility
ĬĬ Product
ĬĬ Lot
ĬĬ Employee
The right segmentation will depend on the industry involved. For fun, let’s look at the
value proposition both ways.
DIAGRAM 5
Credentialing Segmentation by Type of Information
FINANCIAL SAFETY/REGULATORY CSR
You are probably familiar with the companies in the financial segment. In the safety and
regulatory segment, ISNetworld (see case study) and Avetta focus on safety. Bitsight is in
the cybersecurity market, Icix in consumer packaged goods, and Vendormate (now GHX)
is in healthcare. In the CSR space, these companies collect everything from diversity
information to “green” qualifications.
I’m personally more interested in the segmentation shown in diagram 6 which groups
credentialers by the lowest organizational level at which the credentialer gathers
information. The granularity of the data (e.g., company level versus lot level) tends to
change the nature of the business dramatically.

20
DIAGRAM 6
Credentialer Segmentation by Level of Data Collected
SUPPLIER FACILITY PRODUCT LOT INDIVIDUAL
Most credentialing platforms have traditionally collected quality or risk information at
the supplier level. For many industries and risks this is sufficient. But in some industries:
food, pharma, apparel, online advertising, and healthcare, data is collected and
hopefully (but not always) analyzed at a much more granular level—the plant level, the
line level, the lot level, or even the individual level!
Strategic Issues Facing Credentialers
HOW MUCH VALUE TO ADD?
As mentioned in the section on Matchmakers, Matchmakers and
Credentialers have to decide how deep they want to wade into the
credentialing process.
ĬĬ Is the credentialer simply a repository for self-reported credentials from suppliers
(e.g., certifications, test results, safety plans, etc.)? Or
ĬĬ Will the credentialer verify the authenticity of these documents and attestations?
ĬĬ Will the credentialer assess quality, or provide ratings, and if so, according to what
standard?
ĬĬ Will the credentialer create their own standard or rating system or is an accepted
standard already in use?
®

21
DIAGRAM 7
Levels of Credentialing
Some of the options along the continuum from “repository”
to “standard-bearer” are shown in diagram 7 below.
The more depth in credentialing, the higher the expense, but the greater the value add
for the platform. Some credentialers like Achilles or ISNetworld (see case study) work
with buyer communities, or on their own, to create standards an entire industry will
accept. This standard-setting can reduce costs for both buyers and suppliers, but is hard
to achieve.
Most credentialers end up getting fairly
deep into this this process. Clients generally
realize that repositories, alone, do not a risk
management strategy make. As Ronald Reagan
said, “trust, but verify”.
Repository

Veriﬁcation
Repository Plus Aggregation
of 3rd Party
Data
Plus Platform
Stats
Plus Platform
Standards
Plus Platform
Audit
Veriﬁcation

22
How many dimensions?
Credentialers must decide how many dimensions on which to credential
suppliers. No buyer wants eight different portals for their suppliers. But
some of the information to be collected is quite specialized and requires
considerable domain knowledge. Plus, credentialers may sell to a buying
center (e.g., finance) that is distinct and unconcerned with CSR or safety
issues. The same is true for suppliers. There is little value in bundling when
the people within the buyer or supplier who are responsible for collecting
this type of information do not know (or like) each other!
As a result, a credentialer has to decide where to invest, where to aggregate, and where
to integrate with other data sources. (Build, Buy, or Partner decisions abound.)
MONETIZATION
As with any multisided platform, credentialers must decide which side of the
market to charge for their services. Some buyers want to minimize perceived
friction for their supply base to provide the required information. These
buyers prefer to pay on behalf of suppliers. Some credentialers provide little
value to suppliers, but suppliers still pay because being on the platform is a
customer requirement and those customers are big! Some platforms provide enough
value to suppliers in their industry, in terms of buyer exposure and a “seal of approval”,
that suppliers will readily pay to broadcast this information to an entire industry.
MATCHMAKING
Credentialers must decide whether to get into the matchmaking business.
Once a credentialer has a great database on risk and quality of suppliers,
buyers may want to search the database for new suppliers. Unfortunately,
this supply chain data can be very sensitive and strategic to each buyer, so
sharing may be frowned upon. In addition, even a great database will not be
worth much in a industry where supplier search is infrequent.
Summary
As the cost of security breaches, recalls, and poor press generated by bad actors in
the supply chain (e.g., sweat shops in Bangladesh) has risen, enterprises with valuable
consumer brands are turning their attention to how the cloud can help tackle risk and
compliance management. Credentialers stand ready to gain.

23
Case Study: ISNetworld
My favorite example of a credentialer is ISNetworld.
It’s a great example for several reasons:
ĬĬ It is a “pure play”, in that the only value proposition ISNetworld
offers is credentialing.
ĬĬ ISNetworld focused on credentialing contractors’ safety plans and
insurance for capital intensive hiring companies (e.g., oil and gas,
utilities, construction). It has expanded, but remains quite narrow
in who it sells to and the information it collects.
ĬĬ ISNetworld has the slogan “Collect. Verify. Connect.” It does not act as a simple
repository, but also as a verifier and grader of submitted documents and plans.
ĬĬ ISNetworld’s monetization plan is transparent and two-sided. Hiring companies pay
a flat annual fee plus a small set up. Contractors do the same, but the fee scales with
company size.
ISNetworld has been very successful in adding 600 hiring clients and 73,000 contractors
since their inception in 2001. It’s RAVS score has become an industry standard and there
is even an ecosystem that helps contractors get a good score.
B2B credentialing at is finest.
25,000
Insurance documents verified per month
1,300
International safety protocols developed
953YRS
of combined experience
500,000
Safety programs reviewed annually
About RAVS
The ISN Review and Verification Services
(RAVS) Team members are specialisits in
their respective fields. From insurance to
health and safety. RAVS incorporates a level
of due diligence in assessing the accuracy,
relevance and timeliness of self-reported
data. The review process reduces Hiring
Clients’ administrative costs, time and effort.
For contractors, RAVS outlines the process
for an effective safety program, provides
access to applicable regulations and helps
identify deficiencies in safety programs.
Source: www.isnetworld.com

There are many industries in which the dominant
suppliers (e.g., distributors/wholesalers) previously
offered paper catalogs and now offer electronic ones.
MRO providers such as Grainger, office supply providers
such as Staples, and VWR or Fisher in lab supplies are
common examples.
By industry catalogs, I’m talking about platform providers
who aggregate cleanse and enrich information across these
suppliers, and/or platforms who will take on industries that
have traditionally resisted search and aggregation.
Industry catalog providers seek to make the previously
unsearchable, searchable and comparable. Almost by definition,
industry catalogs are a specialized form of matchmaker. (Maybe
I should have them as subset of that group?! You decide.)
Many, but not all, of these industry catalogs disintermediate
distributors, wholesalers or brokers by separating the shopping
experience from the stocking and distribution of the goods.
They may only be the catalog and leave the supply chain to
others! In fact, those asset-light models are my favorites!
Industry catalogs exist in direct, indirect, or services categories.
All that is required is:
ĬĬ Products are “SKU-able”, that is highly definable
ĬĬ There is a premium on search because items are complex,
perishable or come in multiple versions (e.g., OEM, 3rd
party, used, refurbished)
Segmentation of Industry Catalogs
We can segment Industry catalogs in a number of ways, but the simplest is by products
or services. See Diagram 8.
Product-based industry catalog suppliers exist in indirect goods (e.g., Amazon Business),
elements of the food industry (e.g., PartsTown, iTradenetwork, Syndigo, 1 worldsync),
automotive parts (e.g., OEConnection), and healthcare (e.g., Jaggaer and PartsSource).
24
QUICK TAKE
VALUE ADD
Search and compare the previously
unsearchable
SEGMENTS
Products, Services
EXAMPLES
SAMPLE VALUATIONS
Choose an industry with a zillion products or
services that are hard to compare and, voila,
you have the recipe for a valuable business.
COMPANY MARKET CAP*
Amadeus $32B (EV/Revenue: 6x)
itradenetwork Acquired for $0.5B in 2010
Sabre $6.5B (EV/Revenue: 2x)
Travelport Taken private for $4.4B
in 2018
INDUSTRY CATALOGS

VALUEPROPOSITION#4:INDUSTRYCATALOGS
25
Services catalogs are exemplified by the airline
global distribution systems (see below and case
study). You can also think of Cvent (see the
Matchmaker case study) as a catalog of hotel
meeting spaces if you do not like to think of
them as a matchmaker! Fiverr, the freelance
matchmaker, is also trying to turn many of their
services into catalog-like items.
The Global Distribution Systems (e.g., Sabre,
Amadeus, and Travelport) are so large, so
important and so hidden, they deserve a little
more description. GDS providers aggregate seat
availability data from the airlines and serve it
up to travel agencies—online (e.g., Expedia/
Travelocity) and offline. Even though you have
not heard of them, they are involved in many of
the transactions you participate in.
As you can see from diagram 9, the GDS systems
collect fees from the airlines (suppliers) and share
some revenue with the travel agents (buyers).
(Paying one side is not a bad way to solve the
Chicken and the Egg dilemma—though it is
expensive!) Note also that these companies are
not only catalogs, they are also supply chain
automators, as many industry catalog providers are.
DIAGRAM 9
Overview of the Global Distribution System (GDS) Industry
DIAGRAM 8
Industry Catalog Segmentation
PRODUCTS SERVICES
Supplier GDS Agency Traveler
Service
Fee
Booking
Fee
Incentive/
Revenue
Share
Ticket
Price
Commission Override
Ticket Price
Online
Oﬄine

26
Strategic Issues Facing Industry Catalogs
ACCESS/LEVERAGE
It’s the old Chicken and the Egg problem again. How do industry
catalogers get the leverage to gain access to the content necessary for a
great catalog? It’s not easy to get large suppliers to develop their content,
and if they have it, it is really hard to get them to part with it!
Many industry catalog providers have to compile this information
themselves, develop relationships with secondary suppliers, use “open data”, or gain
leverage over suppliers by aggregating buyers. Suppliers with brand recognition and
differentiation may not ever participate. Southwest Airlines and the GDS providers are
an example.
HOW MUCH VALUE ADD?
Industry catalog providers must determine how to add value to the
content through cleansing, enrichment, normalization, ratings, and
other techniques. Simple aggregation is typically not enough
value-add in this business.
WHAT OTHER VALUE PROPOSITIONS TO OFFER?
By definition, most industry catalogs are matchmakers, but they also
need to decide if they are just going to provide a catalog, or will they
add portions of the rest of the procure-to-pay process. Some industry
catalogs stay virtual and never stock product and some become
complete distributors. Some industry catalogs that start as just catalogs
became complete procure to pay, supply chain automators. Jaggaer
started as a lab supply catalog and became a complete procure to pay vendor.
Itradenetwork evolved similarly in foodservice. Most procure-to-pay vendors are
now dabbling with cross-catalog search and marketplaces, so they are adding
elements of this value proposition, but coming at the problem from the opposite
approach of Jaggaer.
Summary
Industry catalogs are fascinating businesses that have existed in niches and now
have some of the world’s biggest platforms, Amazon (in the form of AmazonBusiness)
and Google, slowly, but steadily, headed their way! Some may be bought, some may
partner, and some may keep adding value to differentiate.

27
Case Study: Sabre
No document on B2B platforms can leave out SABRE. SABRE was
the original passenger reservation system for American Airlines. It
went live in the 1960s! (That is not a typo.) SABRE migrated to being
available through Compuserve and GEnie (dial-up services) in the
1980s and finally met the Internet through AOL in the ‘90s. It went
partly public in the ‘90s and in 2000 (when else?) it was spun off of American Airlines
completely. SABRE is now a public company. (BTW, SABRE orginally stood for Semi-
Automated Business Research Environment. You cannot make this stuff up.)
Sabre had three operating segments:
ĬĬ The Travel Network or Global Distribution System (GDS) which is the original booking
and transactional system for making reservations on first American Airlines, then
most airlines and now hotels, car rentals, cruise lines, etc. The last time I looked, this
segmented represented 57% of revenue and 80% of EBITDA!
ĬĬ Airline and hospitality solutions which means applications to help airlines and hotels
run their businesses (e.g., reservation systems, revenue management, scheduling
tools, etc.) This segment is 22% of revenue and 20% of EBITDA.
ĬĬ Travelocity was Sabre’s well-known, consumer-facing online travel agency.
Travelocity contributed 20% of Sabre’s revenue, and less than 1% of EBITDA! Fame
and fortune are not always bedfellows! (Travelocity was sold to Expedia.)
SABRE’s story has many lessons for how a gigantic platform evolves.
1. Move from a closed/biased application to an open decision engine or platform.
Sabre was American Airlines’ passenger booking system. It was a proprietary system
which showed only AA flights. Even when it “opened” to show other companies’ flights,
the Sabre display algorithm showed AA flights first and relegated United flights to the
second page as a competitive weapon. (AA learned long before Google that no one looks
at the second page!) This systemic bias, and complaints from competitors, eventually led
the US government to force AA to eliminate the bias. Over time, Sabre became a more
true “decision engine”, allowing flights to be displayed according to user requirements.
(This same lesson of the importance of unbiased search played out again in the early
search wars that helped paved the way for Google—and is now playing out a third time
as European governments and Yelp accuse Google of biasing search results.)
2. Start in a niche, evolve to a complete solution.
Sabre started as an airline booking tool. But what the user wants is a complete trip,
not just an airline reservation. Sabre now provides the ability to book hotels, cars, rail,
cruises and most major elements of a trip. They needed to enter these businesses
outside their core to meet the user need, but they had to build liquidity in airlines first.

3. Price commensurate with value to drive usage.
From the start, GDS pricing was transactional—tied to value/usage. To drive
participation, Sabre subsidized the buyers (agencies) and charged mainly the suppliers
(airlines). Sabre had minimums for travel agencies (and they definitely still have volume
discounts and rebates to drive users exclusively their system) but customers could get
started on the system cheaply and grow with it.
4. Becoming an industry platform is a long slog that never ends.
Sabre has been around 50+ years. Sabre and its competitors have changed
everything about the way we book travel, but they still represent a small part of all
bookings. Consumers can still book from almost every carrier directly and there are
still online and offline travel agencies--remarkably in some ways. (In an interesting
irony, American Airlines is trying to offer some online capabilities only through
its website and not through GDS customers, including Sabre!) B2B industries take
decades to change and dominance of a platform is always relevant to a particular
segment or portion of an industry.
5. Stay focused on the core
It’s easy to get excited about all the value-added items a marketplace can provide with
the data and the applications it can add, etc. EDI networks, for instance tried to add
applications. Ariba and Tungsten have been adding payment and financial services. But
platforms must always remember to invest in the core commerce business. Note that
50+ years later, Sabre is generating 80% of its EBITDA from the core Travel Network.

Leveraged contracts are a small segment within the
world of B2B platforms. Leveraged contracts aggregate
the spend of many small buyers to achieve price and/or
non-price concessions that would not be available to the
participants as individual buyers. A supplier on the other
end of a leveraged contract, in theory, receives access to
many buyers, and ideally larger volumes, with just one
sales process.
Leveraged contracts are the primary service of a Group
Purchasing Organization (GPO) or “consortium buying group”.
Leveraged contracts exist wherever small buyers need to pool
their purchasing power to gain leverage over large suppliers.
Examples of industries where the buyers are small relative to
the suppliers are:
ĬĬ Hospitals relative to pharma and medical devices suppliers.
ĬĬ Restaurants and hoteliers relative to food service
distributors.
ĬĬ Contractors and builders relative to building supplies
manufacturers.
ĬĬ Small and mid-size businesses and governments buying
many indirect goods and services.
Segmentation of Leveraged Content
The most common examples of leverage content providers are the GPOs, a well
established part of the healthcare industry. (In healthcare there are over 600 GPOs
and 96-98% of hospitals purchase from one or more large GPOs.) Large GPOs
include: Vizient, Intalere, Provista, and Premier. These GPOs charge hospitals an
administrative fee of 3% or less to help the fragmented hospital industry buy from
the large pharmaceutical and medical device companies and distributors.
The other segments of leveraged content providers are hospitality, contractors, and
corporate/public sector indirect as shown in diagram 9 below.
29
QUICK TAKE
VALUE ADD
Aggregate buying power for better prices,
greater volume for suppliers
SEGMENTS
Healthcare, Hospitality, Construction,
Corporate and Government Indirect
EXAMPLES
SAMPLE VALUATIONS
The leveraged contract providers in
healthcare and hospitality have built sizeable
businesses.
COMPANY MARKET CAP*
Premier $4.4B (EV/Revenue: 4x)
MedAssets Acquired for $2.7B in 2015
Avendra Acquired for $1.4B in 2017
LEVERAGED CONTRACTS

VALUEPROPOSITION#5:LEVERAGEDCONTRACTS
DIAGRAM 10
Leveraged Contracts Segmentation
HEALTHCARE HOSPITALITY CONSTRUCTION
CORPORATE PUBLIC
SECTOR INDIRECT
Strategic Issues Facing Leveraged Contract Providers
LEGAL/REGULATORY
The government keeps a watchful eye on both monopolists and
monopsonists. (Cool word, huh? That is a market where there is one buyer,
rather than one seller.) If GPOs get big, they have to steer clear of anti-trust
provisions. In healthcare, for instance, there are special rules for GPOs and
there is constant scrutiny by the government.
HOW MUCH APPLICATION TO ADD TO THE CONTRACT?
Leveraged contract providers may just send pdfs of negotiated agreements
to their members or they may decide to instantiate their contracts in the
form of industry catalogs. They may even provide their members full
e-procurement solutions. Some leveraged contract suppliers have stayed
away from any technology, while others have built, bought, or partnered to
offer complete source-to-pay solutions. (The process can work the opposite
direction as well. Coupa, a procure-to-pay vendor, has added a light GPO to its offering.)

DELIVERING SUPPLIER (AND BUYER) VALUE
For GPOs to receive concessions from vendors, vendors have to win as
well. There is no free lunch. Vendors need to realize the increased volumes
and reduced cost of sales GPOs promise, but sometimes fail to deliver.
If the GPO is just a first step in getting on a member’s “preferred” vendor
list, expect the prices and terms to be similar to what you can get with
your AAA card! GPOs often end up just negotiating terms and conditions, as they cannot
guarantee volume, so suppliers are cautious on providing them with price concessions.
The GPO negotiation adds value for buyer participants, but 1-3% of spend seems
expensive, since most world-class sourcing and procurement organizations cost their
organizations less than 1% of spend.
REAL CATEGORY AND COLLABORATIVE PROCESS EXPERTISE
GPOs need to develop great processes for managing strategic sourcing
processes across companies with varying needs. Most companies cannot
even convince their internal divisions to agree on the same supplier
requirements, much less 15 different companies! GPOs need to be
experts in collaborative sourcing and contract management, as well as
in understanding supplier cost structures if they are going to negotiate
“win-win” solutions for all parties.
Summary
GPOs are under pressure. They can bring a lot of value, but the value tends to be
one-sided. Also, as the other eight value propositions of B2B platforms become
available from other parties, GPO services are being unbundled, so they need to be
careful on their pricing and tight on their value-add. By definition, GPOs are a third-
party in the negotiation between buyer and supplier. Two’s company, three’s a crowd.
This “third wheel” has to add value through real aggregation, innovation, or domain
expertise, or it will be gone.
Case Study: Premier
Premier is a public company (PINC) that started as a healthcare GPO,
and still is one, but is trying to expand well beyond that offering.
Premier highlights many of the strategic issues facing leveraged
contract providers.
Besides its public shareholders (including me), 74% of Premier is
owned by the 181 hospitals—the buyers. Premier figures it manages about
$61 billion in spend from 2,800 contracts and 1,300 suppliers who sell to their
owners and non-owner participants.

Administrative fees from this operation and other supply chain services provide about
73% of revenue.
Think of Premier’s administrative fee as sort of a slotting, marketing, or sales fee
the suppliers pay for having access to the huge client base represented by the
owners of the GPO.
The owners of the GPO use this money to run the GPO and in some cases also receive
back a portion of these fees (“cash sharebacks” or “revenue share”) for each dollar
they spend on the contracts. GPOs can collect these fees as long as they meet the
requirements of a safe harbor provision of the Social Security Act—known as the Anti-
Kickback statute.
Through organic growth and acquisitions, Premier has expanded into the big data
associated with analyzing healthcare outcomes. Premier claims it has Integrated clinical,
financial, operational data—insights into ~1 out of every 3 U.S. health system discharges.
It leverages that data and its strength in collaborative processes to derive about 27%
and a growing proportion of revenues.
As you can see from Diagram 10, Premier is trying to move well beyond its GPO origins.
For perspective, during fiscal year 2019 ending June 30, Premier reported revenues of
$1.2 billion and adjusted non-GAAP EBITDA of $560 million!
I think of Premier as a way to derive profits from the non-patient treatment side of a
hospital’s business—its data and its supply chain.
Comprehensive approach to cost, quality and population
health challenges differentiate Premier in the marketplace
HISTORICAL BUSINESS GROWTH CURRENT BUSINESS GROWTH
Single
oﬀering
GPO
only
Multiple
oﬀerings
several years
“All in”
QUALITYADVISORTM
OPERATIONSADVISOR®
QUEST
PACT
S2SGLOBAL
PHYSICIANFOCUSTM
POWERED BY PHYTEL
C A R E F O C U S T M
Quality
Labor
Safety
PremierConnect
Enterprise
Integrated
Solutions
Population
Health
Supply
Chain
© Premier, Inc. The illustrations above are representative of Premier’s business growth and
do not necessarily depict the specific product or service adoption patterns of the organizations
represented here.

Pure play payments platforms are pretty straightforward.
In the US, most B2B payments businesses focus on:
ĬĬ automating and/or outsourcing the need to collect supplier
payment information and
ĬĬ automating payments to eliminate checks (which still
represent 50% of US payments)
A further nuance in many U.S. B2B payments businesses is
the conversion of some of the payments stream to card-based
payments. Using cards allows interchange to be shared with the
issuer, platform, and buyer, but can be expensive for suppliers.
Transaction financing, on the other hand, comes in many
flavors under many names, but the core value proposition is
easy to understand if you just “follow the money”.
B2B suppliers typically first deliver their goods and services to
buyers. Second, they submit an invoice. Third, suppliers hope
and pray to get paid at a previously agreed upon date in the
future (e.g., net 30-60-90).
For most B2B transactions suppliers are, in effect, financing
buyers. This process generally reoccurs regardless of the
supplier’s track record with that buyer and their relative cost
of capital. This arrangement is both customary and completely
illogical from an economic standpoint!
Transaction financing seeks to rectify this problem. Ideally,
transaction financing helps suppliers get paid earlier, in return
for an interest fee that exceeds the financier’s cost of capital,
but is lower cost than alternative borrowing costs for the
supplier (e.g., term loans). In these transactions, the lender
sometimes takes on the risk that the buyer will not ever pay the
supplier, but sometimes the lender can avoid much of that risk,
as we shall see.
In technical terms, transaction financing is credit arbitrage at
the invoice level. In layman’s terms it is just lending to suppliers
to pay them earlier.
33
QUICK TAKE
VALUE ADD
Payments automation and/or credit
arbitrage at invoice level
SEGMENTS
Buyer Contracted, Supplier Contracted
EXAMPLES
SAMPLE VALUATIONS
Visa, Mastercard, American Express are giant
payments and financing platforms that work
with both consumers and businesses. Pure-
play B2B payments and financing businesses
are attracting substantial capital.
COMPANY MARKET CAP*
C2FO Raised $200M in 2019
Cass $0.8B (EV/Revenue: 4x)
Greensill Raised $800M in 2019
Nvoicepay Acquired for $200M
Paymode-X
(Bottomline
Technologies)
$1.8B (EV/Revenue: 4.2x)
Payments Financing
PAYMENTS TRANSACTION
FINANCING

VALUEPROPOSITION#6:PAYMENTSTRANSACTIONFINANCING
It Started as Factoring
The oldest form of transaction financing is factoring. In factoring, a supplier sells its
receivables to a third-party finance company (i.e., “factor”) for partial payment up-front
and most of the rest later (less interest charges).
Historically, the factor:
ĬĬ Took on the risk of collecting from buyers (as invoices were not approved)
ĬĬ Bought a portfolio of receivables
ĬĬ “Serviced” (kept track of) everything manually
Because of the risks and work involved in factoring, the interest rates were typically high.
You can think of all other forms of transaction financing as methods to improve on
factoring. These alternatives to factoring include:
ĬĬ Procurement cards
ĬĬ Dynamic discounting
ĬĬ Supply chain finance (also called “Reverse Factoring” just to make things
more confusing)
ĬĬ Crowdsourced lending
These financing alternatives attempt to improve on factoring through automation,
increasing the granularity of lending and the manipulation of just three variables:
REDUCING RISK OF COLLECTION
By receiving some assurance from the buyer, or simply accessing better information on
a buyer’s payment history and supplier collection history, a lender takes less risk. The
more the buyer will guarantee payment, or the better a lender thinks his/her algorithm
is, the lower the risk and the lower the interest rate to the supplier.
VARYING THE SOURCE OF THE CAPITAL
Capital can come from cash-rich buyers, banks, non-banks, and/or “crowds” of investors.
Each capital provider has different costs of capital and will lend at different rates.
VARYING LEGAL CONDITIONS (E.G, SUBORDINATION, RECOURSE, TRUE SALE, ETC.)
This variable relates to #1 and gets pretty technical, pretty quickly. (That is a nice way of
saying it is beyond me!)
Transaction financing opportunities exist on any B2B SaaS platform where there are:
ĬĬ Large dollar flows
ĬĬ Elongated payment terms between buyers and suppliers and
ĬĬ A differential in the cost of capital (e.g., credit rating) between buyers and suppliers.
(The classic opportunity exists between large buyers and small (ideally foreign)
suppliers.)

Segmentation of Transaction Financing
Based on the variables described above, there are a dizzying array of slightly different
options in transaction financing. I’m going to suggest a very simple segmentation. In
some forms of transaction financing, the buyer is involved and signs a contract (along
with the supplier and financier). I’m calling these “Buyer Contracted”, because they
have an extra (and hard) step in the sales process. In other forms of financing, only the
supplier and the financier are involved. (The buyer is not a party to a contract, and may
simply send payments to a different lockbox.) I’m calling these “Supplier Contracted”.
DIAGRAM 11
Transaction Financing Segments
BUYER CONTRACTED SUPPLIER CONTRACTED
Supply Chain Finance (aka reverse factoring)
Dynamic Discounting
Procurement Cards
Note: I am not including the many crowdsource or peer to peer (P2P) lenders, even though they are clearly
platforms, only because they tend to offer term loans and lines of credit, rather than financing of specific
transactions. Examples include OnDeck, LendingClub Business, Kabbage, Fundera, Funding Circle. This is a very
flimsy distinction, but then again this is a free e-book!
Buyer contracted options
Buyer contracted options are worthy of a few more words, as they tend to be a
bit newer and are the true two-sided transactions.
EARLY PAYMENT DISCOUNTS, INCLUDING DYNAMIC DISCOUNTING
In this case, a buyer agrees to pay a supplier’s approved invoice earlier than term,
at a discount. For instance, the buyer might take a 2% discount if they make the

payment within 10 days, otherwise the payment will be made in full at 30
days. (This discount is called “2/10 net 30″, for short, and it is still the most
common early payment discount.) In the case of early payment discounts,
the capital for the early payment is provided by the buyer.
Many buyers already offer early payment discounts to their suppliers,
either manually, through their ERP systems, or through dynamic discounting software
from Ariba, Taulia, C2FO and others. (Dynamic discounting exists because 2/10 net 30 is
an illogical payment term–since it ignores possible declining discounts on days 11-29!)
PROCUREMENT CARDS (P-CARDS VIRTUAL CARDS)
P-cards pay suppliers very quickly in return for a discount-- just like an early payment
discount. The main difference here is that a bank is providing the early
payment on behalf of the buyer, allowing the buyer to hold onto their
money longer and make only one payment to the bank instead of many
small payments to suppliers. (Suppliers also gain by normally not having
to submit invoices.)
Because the discount the bank takes from the supplier is high (around 2.5%), and there
is a clear legal structure for both the buyer and the “merchant” (supplier) in the form
of a card or network agreement, the bank can afford to pay some of this discount
(“interchange”) back to the buyer in the form of rebates. P-card and virtual card
providers are American Express, Visa issuers, and MasterCard issuers. For a variety of
reasons, including the high fees, p-cards are typically only used on small ticket items.
SUPPLY CHAIN FINANCE
In this case, a bank or multiple banks (plus a technology provider) will set up a legal and
technical infrastructure to allow banks to pay suppliers early on approved
invoices at interest rates based on the buyer’s credit profile, rather than the
supplier’s. The buyer guarantees to pay the bank back on these approved
invoices at a certain future date. Prime Revenue is probably the leading
generalized, bank-based supply chain finance technology supplier, but there
are specialized providers in freight and energy (Cass), healthcare, and online media
payments (Fast Pay), as well as other verticals. Many of the major banks have either
bought, built, or partnered with technology providers to provide this service and act as the
capital provider. Non-banks are getting in the game of providing capital as well, since they
are less highly regulated. Greensill Capital is a leader in providing non-bank financing.
Some companies in this market would rightfully object to the segmentation I just
provided between “buyer-contracted” and “supplier-contracted” companies, since
many of the providers now offer buyers and suppliers a complete portfolio of options
of both types. In the end, the offerings simply have different risk profiles, interest
rates, and legal requirements. So ditch the segmentation if you like and stick with the
underlying principles.

Strategic Issues Facing Transaction Financiers
TRUST AND ADOPTION
At the end of the day, with most transaction financing products, a
supplier is going to be asked if they want to get paid early, at a discount,
by someone “new”. That is not an easy sell.
Merchants who accept credit cards understand this concept, so do
suppliers who accept early payment discounts from their clients. That’s why these two
approaches enjoy relatively high levels of acceptance.
Beyond these two approaches, the sales pitches for these products can easily look like
“phishing” scams to wary suppliers. This is one reason why banks have been important
to this market. Banks bring hassle, but they also still bring credibility.
Bottom line: whenever you are talking about people’s payments and bank account
numbers, they get really nervous. (It’s hard to remember, but credit cards did not really
take off until more than 25 years after their introduction!)
TWO-SIDED LEGAL STRUCTURES
The less risk there is for the lender, the more attractive the interest rate
they can offer. Reducing risk involves guarantees by the buyer to make
good on all approved invoices by a certain date. This type of agreement,
necessary to supply chain finance or for procurement cards, requires a
negotiation with a large enterprise’s CFO. Not an easy task.
The holy grail for transaction financing providers is the “better algorithm” that allows
them to better assess the risk of any particular transaction and therefore price it better
than the market—without having to go to the buyer.
BIG DATA AND THE SUPPLY CHAIN
P-card providers pay suppliers upon shipment. This approach works
because the transaction sizes are small and the rejection rates are low.
Supply chain finance pays upon invoice approval. There is no reason
payments could not also be made at other supply chain “triggers” starting
with the PO, progressing to Advanced Ship Notices, or anywhere else in the
supply chain, as long as the lender has a view into the risk they are taking
by lending at that particular point in the procure-to pay-process. Big Data
will allow this. Look for transaction financiers to move upstream in the
process over time.
HOW MUCH SUPPLY CHAIN AUTOMATION TO ADD?
The first big opportunity in supply chain finance (SCF) comes when the
invoice is approved by the buyer earlier than the payment term. At
that point, in effect, a new, lower-risk asset class has been created. As a
result, SCF providers have an incentive to help clients get invoices in and
approved faster. Ariba started with supply chain automation and added
dynamic discounting and supply chain finance. Xign was similar. Taulia
started in dynamic discounting and added supply chain automation. Cass

offers complete AP outsourcing and auditing, largely in an effort to get the invoice
approved faster (see case study).
LEGAL, ACCOUNTING AND SECURITIZATION ISSUES
Most readers will be bored by this stuff, so I won’t go into it deeply. Suffice
it to say that approved invoices might some day be standardized, rated,
traded and securitized like mortgages or commercial paper. But given what
happened in 2008, no one wants to come forward right now and suggest that!
Summary
Payments automation has been growing for twenty years. Transaction Finance has
been around forever, but its automation has been a long time coming. This area has
now arrived and will inexorably grow at double-digit rates. There is a lot of money at
stake in how supplier payments are handled and very little economic rationality, so
the area is ripe for the term of the moment: disruption. The promise of this disruption
is part of the reason Tradeshift, Greensill, C2FO and others can raise 10s or 100s
of millions of dollars with little revenue to show. Watch out, though, change in B2B
transactions is steady, but slow relative to the consumer world.
Case Study: Cass Information Systems, Inc.
By now, you can tell I like off-beat case studies. Cass fills the bill
quite nicely. Cass is a public company (CASS) that describes itself
as follows:
A leading provider of integrated information and payment
management solutions. Cass enables enterprises to achieve visibility,
control and efficiency in their supply chains, communications networks, facilities and
other operations. Disbursing nearly $60 billion annually on behalf of its clients, and with
total assets of $1.6 billion, Cass is uniquely supported by Cass Commercial Bank.
Cass helps company receive, approve, audit and pay complex payables such as freight,
waste, telecom, and utility bills. Why do they have a bank? Because they sometimes pay
these providers on behalf of the buyers. They add value through consolidation and by
paying the suppliers earlier and taking a small discount.
Cass does a little more of the processing and a little less of the lending than some of the
“new wave” competitors, but Cass is not as different as some of these new providers
think. I’ve put it in this value proposition because of the financing element, but it could
also easily be put in the managed services segment as an outsourcer of complex
payables. Either way, this public company is well worth studying.

Industry Big Data (IBD) providers bring transparency
and insights to industries that have been devoid of price,
quality, or performance transparency. IBD providers
help buyers and sellers make better decisions on these
attributes as well as others. They sell “market data”
or “data-as-a-service”. They may sell an application for
displaying that data, or they may simply feed the data into
other systems. Think of companies such as Bloomberg,
Nielsen, or IRI.
There is some overlap between this value proposition
and the industry catalog and credentialing value
propositions. After all, enriched and normalized catalogs
provide transparency and performance ratings are a form
of credentialing.
Segmentation of Industry Big Data Providers
IBD providers can be segmented by industry or by the type of
data the collect—price, quality, performance, etc. Let’s go with
the industry segmentation.
Anywhere there are huge datasets and/or opaque markets,
there are IBD providers. Industries with large IBDs include:
Healthcare, Financial Services, Energy, Auto, Real Estate,
Retail/CPG, and the Public Sector.
39
QUICK TAKE
VALUE ADD
Transparency and insights based on
specialized data
SEGMENTS
Price, Quality, Performance/Outcomes
EXAMPLES
SAMPLE VALUATIONS
Industry Big Data platforms tackle the
largest segments of the economy with
gigantic datasets. Not surprisingly, they
grow quite large.
COMPANY MARKET CAP*
CCC
Information
Services
Acquired for a
rumored $3B
CoStar $22B (EV/Revenue: 16x)
eVestment Acquired for $700M in 2017
Inovalon $2.3B (EV/Revenue: 6 x)
Nielsen $7B (EV/Revenue: 3x)
INDUSTRY BIG DATA

VALUEPROPOSITION#7:INDUSTRYBIGDATA
Strategic Issues Facing Industry Big Data Providers
PRYING THE DATA LOOSE
Transparency is often lacking in an industry because someone wants it
that way! Figuring out a way around the defenders of the status quo in an
industry is critical. IBD providers have to find the “side” of the market that
values the data most and convince them to pay, while perhaps subsidizing
the group that stands to “lose” from giving up their data. IBDs can also use
public sources/regulatory data to seed their database with such “open data”.
DIAGRAM 12
Industry Big Data Segmentation
HEALTHCARE FINANCIAL SERVICES ENERGY AUTO
REAL ESTATE RETAIL/CPG PUBLIC SECTOR

GAINING CRITICAL MASS
A little data on many subjects is worthless in B2B. There’s a critical mass
of information necessary to draw conclusions, establish statistically
validity, and have the breadth that clients demand. Getting to critical
mass can take time and be expensive; investors in these businesses need
patience—a rare commodity.
PRICING
Platform businesses, and especially data businesses, have price as a strategic
issue. Buyers know IBD providers have low marginal costs once they have
built a database, but no buyer wants to pay for the fixed cost of information
collection or maintenance! Industry Big Data providers have to define and
“fence” off their products in creative ways to maximize value extraction.
PRIVACY AND OWNERSHIP ISSUES.
This issue relates directly to issue #1. Many B2B platforms begin with
another value proposition (e.g., supply chain automation) and later realize
they have an industry big data asset as a form of “exhaust” or “intellectual
sawdust”. The problem with this approach is that the rights to the data
have not been clearly established, and neither has a coding or classification
scheme. At this point, clients of the platform may find it unacceptable for
the platform to use the data for other purposes or the data may simply be
too hard to scrub.
GXS and Sterling (the large EDI networks) could have made a lot of money predicting
retail or auto sales, but their clients would not have appreciated it! ADP aggregates its
hiring data to generate publicity about where the economy is headed. It makes ADP
rather famous, but presumably ADP does not trade on that information, nor does it sell
it at a company level! Business Wire recently announced it will no longer sell early access
to their data to high-speed traders. One B2B platform that has successfully started
monetizing some of its transactional data is Yodlee, which collects consumer data and
sells it to hedge funds. These examples will keep coming up as more industry big data
providers and platforms succeed.
Summary
The most successful IBDs are “pure plays”. That is, they have existed to collect and
sell data from their inception. This strategy has been clear to all participants. These
IBDs also remain neutral in the commerce that ensues. Despite this, every B2B platform
believes it has a big data play. For most of these platforms, Big Data is a secondary
business proposition and tends to be a “nice to have” (e.g., benchmarking) versus a
“must have”– if for no other reason than participants did not get involved in the platform
to have their data shared with others! Still, if the platform was architected properly,
adds value to the data, and has the right legal rights, great data businesses can be
added to the platform.

Case Study: Inovalon
Inovalon is a public industry big data company (INOV) delivering
real insights and making real profits—on a GAAP basis! Inovalon
collects data from a wide variety of sources (e.g., patient records,
pharmacy records, lab tests, supplemental sources of data),
cleanses and enriches the data, and then uses the results to
provide insights to doctors (and others). The goal is to improve patient outcomes and
lower costs. (Inovalon has other use cases as well: such as using the data to
help pharmaceutical companies recruit patient and investigators for clinical trials.)
Diagram 13 is from the Inovalon investor presentation that describes the process.
DIAGRAM 13
Inovalon, An Industry Big Data Player in Healthcare
Acute / Inpatient Post-Acute Care SettingsAmbulatory / Outpatient
Care Settings
In-Home Care SettingsStable Health SettingsEmployer Settings
THE INOVALON ONE® PLATFORM
Point-Of-Care Venue Coordination
ConnecƟvity
IntegraƟon
Master Plaƞorm Data Warehouse Master ComparaƟve Data Warehouse
Data
VisualizaƟon
ReporƟng
Support
Services
ParƟcipaƟng
OrganizaƟon
Porƞolio
Support
AnalyƟcal
Algorithms
Engines
Management
AdministraƟon
Consoles
RealWorld
IntervenƟon /
Point-of-Care
SoluƟons
Data FoundaƟon
The company appears to be moving
from a business that involved a fair bit
of intervention/consulting, to a more
pure big data business as seen below.
Inovalon looks like one of those great
B2B companies that does not steal
headlines, just customers!

Collaborative Project Management providers put
buyers and suppliers in an industry on the same (web)
page in some, or all, of the “design-to-source-to-pay”
process. Most of these providers focus on the product
design and sourcing process and leave purchasing
and supply chain execution to others. But some offer
solutions throughout the entire process.
In any industry in which product design or project management
is complicated and involves multiple enterprises, a collaborative
project management provider has an opportunity.
Segmentation of Collaborative
Project Management Providers
The easiest way to segment collaborative project
management providers is into those that encourage
collaboration on projects/services versus those that facilitate
inter-enterprise collaboration on products. See diagram 14
on the following page.
Collaborative project management companies such as
Aconex, BuilderTrend, Procore, and others providers bring
together architects, developers, GCs, and subcontractors in
commercial, governmental or even residential construction
projects. Ecosys does the same for large industrial projects in
oil and gas. Each provider covers a different part of the design
to build process.
There are plenty of collaborative project manager examples
outside of construction space as well. Medidata facilitates
collaboration on clinical trials. Smartling helps facilitate
localization (translation) of websites (see case study).
In the product space, Bamboo Rose joins retailers and their
suppliers in designing in private label consumer products.
43
QUICK TAKE
VALUE ADD
Improved Design to Launch process
SEGMENTS
Products, Projects
EXAMPLES
SAMPLE VALUATIONS
It’s hard to build a recurring revenue stream
based on projects alone, but it can be done
with scale. Several companies offering this
value proposition have achieved substantial
valuations.
COMPANY MARKET CAP*
Aconex Acquired for $1.2B in 2017
Medidata $5.7B (EV/Revenue: 8x)
Procore Raising capital at rumored
$3.3B valuation
RIB Software $1B (EV/Revenue: 4.8x)
COLLABORATIVE
PROJECT MANAGEMENT

VALUEPROPOSITION#8:COLLABORATIVEPROJECTMANAGEMENT
DIAGRAM 14
Segmentation of Collaborative Project Managers
PROJECT COLLABORATION PRODUCT COLLABORATION
Strategic Issues Facing Collaborative Project Managers
HOW MUCH TO AUTOMATE?
Collaborative project managers must decide how much of the
transactional process to automate beyond the design phase. Textura
and Bamboo Rose, for instance, automate almost the entire process,
but many providers cover just the design-intensive phase.
BUILDING RECURRING REVENUE
These businesses often live on lumpy, large projects. If they are not
sufficiently diversified across clients, geographies, and industries, it can
be hard for them to build consistent, recurring revenue streams. This
lowers their valuation and makes it hard to get participants on both
sides of the market to renew their subscriptions.
PORTALS OR TRUE NETWORKS?
Fundamentally, many of these businesses offer their clients portals to
connect to their supply base, but they may not become networks. They
bring together one buyer or project owner with its supply chain, but
the supply chains may not overlap. A supplier may only have one client
or project on the portal and feel very little network effect. Information
contained in the design phase is often so proprietary and so unlikely to
be consistent across buyers, there simply may not be a strong network effect.

VALUEPROPOSITION#8:COLLABORATIVEPROJECTMANAGEMENT
If the platform provider brings a unique industry process, best practices, industry-
specific content, or if the supply base is sufficiently concentrated, a true network effect
may become possible. If not, the collaborative project manager may just be a “souped-
up” version of SharePoint.
Summary
Collaborative project managers add significant value in various industries, but require
extensive change management across organizations to be successful. Collaborative
project managers are often asking participants to change core business processes of
how they work with suppliers. Even if these platforms succeed, enjoying strong network
effects and recurring revenue streams can be a challenge.
Case Study: Smartling
Smartling automates localization projects. That is, projects involving
the translation into additional languages (and optionally hosting) of
websites. By working in this market, Smartling avoids the first strategic
issue facing collaborative project managers: the “lumpiness” of a project
businesses based on capital projects. No big, periodic capital projects
like buildings or offshore oil wells. Just continuously evolving websites,
which Smartling tracks through-out their lifecycle.
Smartling also solves the issue of moving from a series of portals to a true network
by offering a set of shared tools, including translators, a growing database of translated
phrases, and a slick user-interface to greatly enhance network effects.
As you can see in Diagram 15, Smartling
has assembled technology, workflow,
human translators, editors and
crowdsourcing into a neat little platform.
In a way, Smartling is a very specialized
UpWork (formerly Odesk), but it provides a
stickier on-going service—instead of discrete
projects which are easier to take off platform.
Smartling has many opportunities in front
of it. Smartling could add several of the
other B2B platform value propositions—
from managed services (which they
already are adding) to matchmaking/
credentialing and even transaction
financing. It will be fun to see if Smartling
can translate (bad pun intended) their
growth into future profitability.
DIAGRAM 15
The Smartling Ecosystem

Managed service providers are companies which
may have built a technology platform or network,
but provide that platform only, or primarily to, their
own employees rather than providing the platform
directly to buyers or suppliers. In other words, use of
the technology platform is “mediated” by the platform
provider themselves. Venture capitalists call these
companies “tech-enabled” service providers or
business process outsourcers.
There are several reasons why a company might build
a platform, but provide a managed service, rather than
deliver the technology directly to the end-user:
ĬĬ because the end user/buyer has to be very knowledgeable,
or have specialized expertise, to execute proper transactions
ĬĬ because buyers wants to outsource the need entirely.
They do not wish to use the technology to achieve their
goals they want to buy “outcomes” or
ĬĬ because the software sucks! (In this case, the managed
services provider is doomed!)
Examples of managed service providers include:
ĬĬ Print procurement providers such as Innerworkings,
Newline Noosh, OneMarket, etc.
ĬĬ Logistics providers such as EchoGlobal, Coyote Logistics,
or other 3PLs
ĬĬ Facilities maintenance providers such as SMS Assist,
CBRE, JLL, Vixxo
ĬĬ Travel agencies such as American Express
ĬĬ AP outsourcers for complex payables such as CASS
or AvidXchange
46
QUICK TAKE
VALUE ADD
We manage the suppliers or customers for you
SEGMENTS
Buyside and Sellside
EXAMPLES
SAMPLE VALUATIONS
Managed services providers typically
have lower margins than pure SaaS
platforms. They also tend to grow more
slowly. The result is lower market caps
for this value proposition.
COMPANY MARKET CAP*
Coyote
Logistics
Acquired for $1.8B in 2018
Echo Global
Logistics
$0.5B (EV/Revenue: 0.3x)
Innerworkings $0.2B (EV/Revenue: 0.4x)
MANAGED SERVICES

VALUEPROPOSITION#9:MANAGEDSERVICES
Strategic Issues Facing Managed Service Providers
MEDIATING USE OF THE PLATFORM WITH PEOPLE ADDS COSTS
The value added by this labor must be commensurate with its costs,
otherwise platform providers will displace managed service providers.
This displacement is what has happened to many ticket brokers, travel
agents, real estate brokers, ad agencies in media buying, etc.
SERVICE PROVIDERS AND GREAT SOFTWARE CREATORS TYPICALLY
DO NOT MIX WELL
This is especially the case if they are both profit centers. Ask IBM,
Accenture, Ariba, and any SaaS providers. The cultures and incentives of
software and services clash. One or the other part of the business usually
becomes neglected and eventually a “step-child” in the organization. If
it is the services part, the consultants will not add enough value, if the
technology suffers, talent may leave and total costs may become uncompetitive.
FINALLY, BECAUSE OF #1 ABOVE, MEDIATION OFTEN BRINGS A LOSS OF TRANSPARENCY
FOR THE BUYER.
Managed services providers and outsourcers are pushed constantly by
their buyers to prove that their economic incentives are transparent
and aligned with the buyer’s. Handing over responsibility for an entire
business process to a third-party requires trust and verification.
Summary
When I hear technology-enabled service providers tell me how great their technology
is, I always ask “Why don’t you unbundle the technology from your services and sell
the technology directly to customers who may not want services ?” When the answer
is not a good one, I figure the provider is struggling with #2 above and is really an
outsourcer or broker with a little technology, but not a real platform provider. A good
test for any of these providers is for them to ask themselves, “Would my technology
stand-alone?” If not, someone else may develop technology that will stand-alone and
will force unbundling of the services and technology.

Case Study: Innerworkings Echo Global Logistics
The section on matchmakers should have convinced you the Internet
was tailor-made for building marketplaces to connect buyers
and sellers in markets where there is fragmentation, perishable
inventory, and a complex order to cash process. Eric Lefkofsky
recognized this same fact in 2000.
Lefkofsky started a company called Innerworkings, a managed service
provider (or tech-enabled service) for helping companies purchase
their marketing materials, especially print. (Innerworkings has since expanded to
promotional items and all sorts of other marketing needs.) Lefkofsky recognized that
print capacity is expensive and perishable. Whoever has idle machines will run the job
cheapest! Innerworkings (stock symbol: INWK) built a network for their employees to
use on behalf of customers to find qualified suppliers with available capacity.
As he was running Innerworkings, Lefkofsky realized the same exact characteristics
were true of logistics, so he spun out of INWK another BPO called Echo Global Logistics
(ECHO). Echo matched buyers of transportation services with truckers with capacity.
Essentially this company is a 3PL for managing transportation on behalf of its clients. In
both companies, the modus operandi was the same: buy up a bunch of brokers (print or
trucking), add some technology, go public, and keep doing the same.
But Lefkofsky did not stop there. He executed roughly the same playbook in
advertising with MediaOcean (nee MediaBank), though that company was more of
a pure software player.
What we are
A global outsourced
managed service
of the design,
procurement and
delivery of branded
marketing materials.
The value we bring
We deliver
substantial savings,
greater brand
consistency, and
a new level of
transparency across
the marketing supply
chain.
How we do it
Through proprietary
technology, an
extensive supplier
network, substantial
procurement data,
buring power,
focus and domain
expertise.
Who we serve
Global Fortune
500 corporations,
primarily in the
CPG, retail, financial
services, pharma,
media and not-for-
profit verticals.
Source: Innerworkings website

In 2007, Lefkofsky wrote a book called Accelerated Disruption. In it he points out:
“Innerworkings, Echo and Mediabank are businesses that deliver the same end
product to customers as their more established competitors do: print materials,
transportation services, and tools for media buying respectively. But what
differentiates each is technology that finds excess capacity or pricing advantages
in their respective and deeply fragmented markets, while offering customers
exponentially more information on their strategy and total spending”.
At the time of the book, Lefkofsky also had a new start-up called The Point.com.
It was supposed to be an “online collaborative network of people working together
to solve problems”.
Think of it as collaborative problem management or crowdsourcing of solutions to
societal problems. It was not a bad idea, but it was hard to monetize and never went
anywhere. Instead, it pivoted and became Groupon—Lefkofksy’s biggest success at
that time.
In total, there’s about $5 billion in market capitalization (the majority was Groupon)
created by those companies and borne of one brain. Pretty impressive. Only two nit-picks:
ĬĬ Why not create true platforms, rather than managed services or BPOs which are so
much less valuable and less profitable? This value proposition is one reason why
INWK and ECHO have been disappointing in their profits and market cap relative
to their size. (MediaOcean, as mentioned, was more true software and sold at a
valuation of $720 million.)
ĬĬ In most cases, public shareholders have not fared very well in Lefkofsky’s
companies. INWK and GRPN have been duds. ECHO was a dud until it announced a
sizeable recent merger. (MediaOcean never went public, but claimed to be valued at
$1.5 billion at one point and was sold for half of that.)
Lefkofsky seems to be a genius in tech enabled services and MA, but less so in
software. In addition, it seems best to try to invest in his companies when he does
—not after!
49

E-BOOKSUMMARY
E-Book Summary
If you have been following at all carefully, you’ve noticed that while
there are nine different value propositions for B2B Cloud Platforms,
they are by no means independent or uncorrelated.
Some of the value propositions overlap. For instance,
industry catalogs by their nature provide matchmaking
and quality/compliance supply chain automators can be
thought of as credentialers.
Some of the value propositions also fit into natural groupings:
ĬĬ Supply Chain Automation and Transaction Financing
ĬĬ Supply Chain Automation and Industry Catalogs
ĬĬ Matchmaking and Credentialing
Many of the case studies involve platforms offering multiple value propositions:
ĬĬ Cass is a managed service provider that also offers transaction financing
ĬĬ Change Healthcare started as a supply chain automator and is becoming an industry
big data provider
ĬĬ Premier is both a leveraged contract provider and an industry big data provider
It’s best to think of the nine value propositions as paints on the palette of a B2B SaaS
Platform. Platforms can stick with just one value proposition (e.g., ISNetworld) and great
art can be created with just one color (e.g., Mark Rothko). Or the platform can combine a
few value propositions in just the right order and amounts, just as most artists create a
great painting. But platforms almost never employ all of the value propositions at once,
just as a great artist limits his palette. Trying to add value in too many ways often ends
up in adding no value at all!
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