Private Company Spotlight: Rearden Commerce

Amid all the talk of a maturing software industry, there has been tremendous interest in the concept of Software-as-a-Service [SaaS] or OnDemand [pick your moniker]. Several public companies, most notably salesforce.com [CRM] and RightNow [RNOW] have garnered significant investor interest, trade at lofty multiples, and are perceived as revolutionary players in the world of software. While both companies are important early movers in the SaaS arena, they are not alone and I believe several other private vendors have a chance to be as significant, if not more significant, factors in the evolving software landscape. A few weeks ago I profiled one such company, NetSuite.

Today I turn my attention to Rearden Commerce, arguably the 4th Horsemen of the SaaS applications market [along with salesforce, RightNow and NetSuite].

Rearden was founded in 2000 by Patrick Grady, a former VC who saw the potential of XML to transform the procurement of services. Grady has invested $3 million of his own money into the firm, and raised a total of $67 million including a $25 million round in September 2005 led by Oak Investment Partners. Nothing if not patient, Grady spent five years developing the SOA-driven services procurement platform before coming out of stealth mode in early 2005. Originally called Gazoo [yes, that Gazoo], Grady is very much the face of Rearden. To get a sense of Grady's approach from the man himself, listen to this podcast from Supernova 2005. 

Rearden Commerce Milestones

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What does Rearden Commerce do?

I've seen Rearden described as..."Ebay or Amazon for service providers", "an online concierge", "What B2B e-commerce hubs tried to be but couldn't during the bubble", "spend management for SMBs", among others. They all are accurate descriptions in their own way.

Rearden provides a services procurement platform, the Employee Business Services [EBS] platform, delivered as an OnDemand solution. EBS is essentially a SOA-driven spend management application for the scheduling, procurement and management of the most common services needed by business users. Rearden has created a hosted marketplace that currently features more than 130,000 suppliers. From the company's documentation:

      The Rearden EBS application currently comprises four key modules:

• Travel – A complete, GDS-independent corporate travel procurement module that delivers seamless travel booking, transparent travel policy management, access to negotiated rates, and biasing for preferred suppliers. It provides access to more than 530 airlines and 80,000 hotel properties.

• Conferencing – This module allows employees to easily schedule audio and web services,from leading providers, and automatically comply with corporate policies. It integrates with employees’ calendars, contacts and preferences, and coordinates conferencing sessions for groups of employees.

• Dining – The dining module enables employees to easily secure dining reservations at more than 50,000 restaurants through the Rearden EBS web interface, automatically updating their calendars and those of invited guests. Selection of cuisine type and cost per person are available at a mouse click.

• Shipping Module – Shipping services are available from the world’s top package shipment companies, enabling employees to quickly and easily rate and label domestic and international shipments while companies gain real-time visibility into shipping spend.Automatic notification of shipping status is sent to phones, PDAs, or e-mail addresses.

Underlying those modules is an object oriented platform, dubbed the Rearden Commerce Platform.

Some of the technological tidbits include:

• Asynchronous message-based infrastructure
• Single-instance, multi-tenant
  • Rearden runs one instance of its software platform in its own data center so every customer receives updates in real-time, simultaneously.
• Re-usable, event-driven SOA components
• Three interfaces:
  • Console for procurement officers -- spend management, provisioning and analysis tools
  • Assistant for end users -- single sign-on, hosted procurement portal with integration into calendar and notification for a variety of devices
  • Supplier grid -- allows suppliers to integrate into the system with ease, and existing suppliers can be enabled with the click of a button

While spend management is an enormous market unto itself, Rearden has made no secret its plan to offer a litany of other applications on top of its SOA-based platform. 

Other metrics of note...

• ROI/Value Proposition -- Rearden has a tremendous amount of detail on its value proposition on the site, particularly if you register. In simple terms, it comes down to saving time and money. Procurement for many indirect services is inefficient and, because it's a cost center, is not an area where CIOs feel comfortable devoting significant internal resources to in today's tightened IT spending environment. For those who register, there are three White Papers which detail the company's focus, service oriented architecture and the travel application. 
• Customers -- Rearden hasn't publicly disclosed the number of customers to date, but they have announced a few major deployments. It seems Grady has taken to big game hunting. According to published reports, Rearden is being rolled out on 60,000 desktops at Motorola and GlaxoSmithKline is going to roll out the service on 140,000 desktops. Those are the kind of make or break deployments that can open the floodgates for Rearden sales reps in a hurry. 
• Revenues -- Again, not publicly disclosed but I've heard from several credible references that Rearden exited 2005 at a $5-$10 million run rate [Rearden charges an annual subscription per user in most cases]
• Profitability -- Highly unlikely at this point, as the company is in a land grab mode. One can assume the $25 million venture raise in September was in part to fund growth through to IPO, which likely means that gives them 18-24 months of cash burn plus a bit of a cushion. My educated guess is $1-$2 million in monthly cash burn at this point.

A market particularly well-suited for a hosted environment

Spending on business services is largely considered a necessary evil, a "non strategic" expense. For that reason, a hosted, SaaS-driven platform is an ideal sell to larger corporations as they have more strategic arenas with which to devote internal IT resources. Some of the hurdles other hosted vendors have to overcome [e.g., a CFO not wanting to let his financial data be controlled by an outside vendor] actually works in Rearden's favor [what company isn't thrilled to offload their travel, entertainment, printing and shipping infrastructure?].

Time will tell whether Rearden's admittedly lofty goals are attainable. But there is an enormous market opportunity in front of Rearden [half of the B2B e-commerce craze five years ago was promising to do these things, only the technologies weren't mature enough]. As a public investor, it's unlikely I'll be able to bet on the success of Rearden for some time, but Patrick Grady has steadfastly maintained his intent to build the company and eventually come public, versus selling out to a bigger vendor. With public SaaS companies enjoying an enormous scarcity premium, we need Rearden and others like it to flourish to help moderate some of the frothy expectations being put forth by my fellow investors. 

Related Articles:

• Online Concierge Wants to be Your Indispensable Tool [San Francisco Business Times]
• A Man for All Services [BusinessWeek]
• Rearden would rather buy Google [Phil Wainewright]

Note: At the time of this writing I and/or funds I maintain discretionary control over may have maintained long equity positions in any or all of the companies mentioned but did not maintain a short equity position in any of the mentioned firms.

rearden rearden commerce procurement spend management saas ondemand woodrow software

Comments

[Jason Wood]

Bill, thanks for the comment. As someone who dealt with the pain of the "e-procurement mania" firsthand during the bubble, I agree that indirect procurement by any other name is still the same.

For me, where Rearden makes or breaks itself lies in the claims its made vis-a-vis its platform. If the 5+ years of R&D have truly delivered on the boasts Grady makes, they've got massive potential to scale.

I've no idea whether Rearden's platform is all its cracked up to be, but can we honestly say we've got any more confidence in the platform claims of AppExchange? The hype train is in full effect on AppExchange, with lots of my fellow investors [who aren't really software guys by trade] hyping AppExchange as THE disruptive platform that's going to change enterprise computing.

Talk about unfounded bravado.

[Bill Burnham]

I think Reardon has an interesting product, but the level of hype coming out of that company is way over done. It's amazing to me that a company can make the kind of over-the-top statements they make with a straight face.

Let's face it: they are a moderately interesting SaaS-based spend management platform that currently has very poor coverage of total spend. In addition, I would argue that spend management is not an ideal SaaS application. Unlike many of the initial SaaS applications that are ideal for incremental "try and buy" adoption, Reardon's problem is that the very nature of spend management requires them to sell enterprise wide deals at big companies. This means that they can't generate a lot of "cheap" SMB/departmental adoption and instead have to invest in a classic top-heavy enterprise sales force that must convince the CFO to sign off on the deal. In addition, many of the best prospects for enterprise wide spend management have already purchased Ariba or one of the other n-tier plays, so Reardon often has to displace an existing vendor which is very different Saleforce.com displacing spreadsheets and whiteboards.

If I were an investor in Reardon I would love the hype machine that they have built, but I am glad I am not because there is no way they can ever live up to it.