From a small base, electronic procurement and online project collaboration are growing fast

— By Edward Sullivan, Editor

“I wish I had more competitors.”

Come again?

“There aren’t enough competitors. We can’t absorb the number of customers that want procurement solutions. We all have backlogs.”

Comments like those — the first from Chris Bradshaw, vice president of the Buzzsaw business of AutoDesk, the second from Mike Praeger, CEO of AvidXchange — are the most striking evidence of vitality in a market segment facility executives might have assumed was moribund: electronic business.

Eighteen months ago, it seemed the future was now — or tomorrow at the latest — for e-business in the facility arena. Then came the collapse of the Internet bubble. A facility executive could be excused for wondering if applications like electronic procurement of MRO supplies and online project collaboration would go the way of eToys.

They haven’t. The revenue numbers aren’t as gaudy as venture capitalists would have liked, and some business models have changed, but facility-related electronic business firms say they’re thriving.

That’s not to say that it’s been a smooth ride. The venture capital that poured into e-business companies in the construction, facility and real estate market totaled hundreds of millions, perhaps billions, of dollars. But some firms that came in with a bang went out with hardly a whimper.

“There was an argument that you could get huge revenue curves, and that attracted the venture capitalists,” says Frank Bouchard, vice president of sales and marketing for eQuorum. “And that led to the one- or two-year life of some of the dot-coms.” eQuorum is an online document management company formed in 1999 through the merger of two software companies: Image Machines, which did imagining and document distribution, and CADnet, which specialized in CAD printing and plotting.

The disappearance of so many facility e-business companies has been a mixed blessing for those that remain. “The shakeout will help us,” says Bill Sullivan, CEO of SiteStuff. “It has drastically limited the field.” SiteStuff offers e-procurement for MRO supplies and enables clients to process service RFPs online; investors include major real estate firms. Sullivan came to SiteStuff from one of those firms, Jones Lang LaSalle, where he was executive vice president, investments and technology.

If less competition is good news, there’s also bad news in the collapse of many dot-coms: It has made some facility executives hesitate for fear that the e-commerce or collaboration platform they select might not be there in a year or two.

Although the future of individual businesses can never be predicted, it’s worth noting that the companies now offering online procurement and project collaboration generally differ from the venture-capital-fueled dot-coms of 1999 and 2000. Many have grown from existing businesses that give them a financial base as well as knowledge of both technology and the market. And many of the firms still in operation aren’t solely funded by venture capitalists; their sources of financial support sometimes include investments from customers.

What’s more, companies have adapted to market realities. “Burn rates” for cash are way down, marketing budgets have often been slashed, and business models have changed. The case of Buzzsaw is instructive. Buzzsaw.com was spun off from Auto Desk in October 1999. The original business model was based on multiple tiers of revenue, including electronic procurement and advertising. It didn’t pan out. Today, Buzzsaw — minus the “.com” — is again part of AutoDesk, having been reacquired in August 2001. The company has eliminated its free-trial period — a relic of the days when market penetration was the dot-com mantra — and is focussed on generating revenue from project collaboration and document management subscribers.

“Business is good,” says Bradshaw. “We’re growing 100 percent year over year.” He says the return to AutoDesk will boost the company’s credibility among customers.

Sound Footing
A focus on building sustainable revenue streams has put facility-related e-business providers on sound footing, many industry sources believe. “The companies that are around today will be around for some time,” says Matthew Provenzano, director of marketing for SupplyCore.com. The company, founded in 1987, began offering electronic procurement of MRO supplies in 1997 after winning a Defense Department contract that required online purchasing.

The elimination of weak players in the facility e-business arena is one reason the market seems more stable today than it was 18 months ago. Another reason is that software companies are starting to report customer savings. FacilityPro, an MRO e-procurement marketplace, recently completed a cost analysis for Cushman & Wakefield. The study looked at what the real estate firm was paying for products before and after it started using FacilityPro; the analysis, covering about 10 percent of what Cushman & Wakefield spends through FacilityPro, looked at actual cost data by item broken down by individual buildings. The results: savings of 9.5 percent.

Does that mean Cushman & Wakefield is saving that much on all the items it buys online? Jerry Goldstein, vice president of marketing for FacilityPro, isn’t ready to go that far. “I don’t know if this was a statistically valid sample. But I think it’s a good indication of what we’re doing for their organization.” FacilityPro was originally the electronic procurement division of Service Resources, Inc., a facility management outsourcing firm; Facility Pro was spun off in August 1999. Investors include major real estate firms.

Praeger says AvidXchange customers have seen an average savings of 16 percent on product costs; the typical time it takes to bid a service contract has dropped from 30 hours to 8 to 12 hours. AvidXchange provides online bid management, procurement and payment; the site, which started working with customers at the end of 2000, is funded by industry partners and clients.

It’s not just facility executives who have to see the benefits of online purchasing, say industry sources. “Before the buyers come, the suppliers have to be there,” says Chad MacDonald, CEO of ebuyxpress. That company offers online and catalog procurement services as well as facility management outsourcing. The firm, owned by MacDonald and a group of employees, also owns two large group purchasing organizations.

Getting suppliers to come on board hasn’t always been easy for online procurement sites. To reduce costs for facilities and — for sites that make their money by taking a percentage of transactions — to earn revenue for themselves, sites look for reduced costs from suppliers. A key benefit to suppliers is increased volume. But to deliver that volume, Web sites need a solid base of facility customers. As transaction volumes grow, so does supplier interest.

More Interest, More Knowledge
Another significant change is the extent to which facility executives have been driving the use of online collaboration. Consider Bricsnet. First launched as a site for architects, engineers and contractors, it was relaunched this year as an “owner-centric” platform that provides online collaboration functions along with features for real estate and facility operations. Bricsnet grew out of a privately held firm called Brics, founded in 1986; Bricsnet was formed when Brics went public and acquired six other companies in February 1999.

“Our clients have serious knowledge of what they’re looking for,” says Brian Haines, director of applications engineering for Bricsnet. Customers are asking detailed questions about how online project collaboration tools will work in specific applications. What’s more, once the facility executive decides to move forward, the organization is more often ready. In the past, Haines says, people sometimes came to the first training session without understanding why they were there. That’s no longer the case. “The organization is primed,” Haines says.

Other collaboration platforms are seeing more interest from owners. “Over the last two years, owners, developers and real estate professionals have become the fastest growing segment of our business,” says Bradshaw of Buzzsaw. Facility executives are using online collaboration, not just for major construction projects, but also as a facility management tool, he says.

Even when another member of the design team is actually paying for online project collaboration, it’s sometimes at the insistence of the building owner. “Owners are often putting in a requirement that general contractors have to have an Internet-based system to even bid on the job,” says Al Marshall, vice president of sales and marketing, Meridian Project Systems. “Owners want to know more about the effects of changes earlier in the cycle. They’re getting more involved in the projects.” Meridian Project Systems was founded in 1993 as a developer of project management software; ProjectTalk.com, its Web version, was launched in June 2000.

Although growth is steady, the markets for online procurement and project collaboration haven’t quite taken off. Some online initiatives have been put on hold out of concern about the economy; the terrorist attacks on Sept. 11 will undoubtedly cause delays in Web efforts.

Another factor is a wait-and-see attitude. “There will be more growth once there are more adopters and more successes people can point to,” says Gary Craig, CEO of ProjectEDGE.com. ProjectEDGE is a collaboration platform designed by Edgewater Services Co., a real estate developer; both the software and the real estate entities are owned by Craig.

Some obstacles to further electronic business applications are so basic it can be easy to overlook them. “The user has to feel comfortable buying online,” says Jackie DeCarvalho, vice president of e-lights, a Web site for procurement of lighting products launched in April 1999. There are also such mundane but crucial issues as outdated browsers, lack of access to high speed Internet connections — even the question of whether a user can type.

Perhaps the biggest hurdle to wider use of electronic business is getting users to give up comfortable ways of doing things. Some firms that provide online tools also offer offline ways of doing business.

“Are our clients happy they can interact with us online?” asks Sue Wiggins, CEO of Art4Business.com, which advises corporations on their art collections. “Yes. Do they use the Internet exclusively? No. For those that want to do business in a traditional way, we’re staffed up to do that.” Art4Business.com grew out of an art advisory firm founded in 1978.

MacDonald of ebuyxpress puts it this way: “You do the deal in the boardroom, but you execute in the boiler room.”

Overcoming resistance to change takes a good deal of work, providers admit. What they’re counting on to make it happen is the promise of greater efficiency and, more important, solid evidence that online tools are trimming procurement and project costs.

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