Amex, IBM: Expense Partners

American Express and IBM earlier this month announced they would jointly develop a low-cost, easily configurable Web-based expense reporting and reconciliation tool. The tool will be hosted by IBM and marketed as part of American Express @ Work beginning in the second quarter, bringing IBM's technology to the midmarket for the first time.

The agreement followed by about a week the announcement of a $4 billion technology services deal in which IBM this month would take over all of Amex's U.S. technologies operations work, with international systems to follow in May. The deal includes the transfer of an expected 2,000 Amex employees to IBM.

According to an American Express spokesperson, 20 companies now are testing the expense management tool, which requires a small implementation fee and a monthly fee based on total users. "For smaller and midsize companies, there would be minimal setup cost and annual costs in the low thousands," said the spokesperson. "For more complexity in larger organizations, it'll be in the low tens of thousands. We think that's pretty appealing."

Called American Express @ Work Reconciliation Management, the tool is expected to eliminate such accounting practices as obtaining signatures and verifying and assigning codes to expenses. The solution automatically inserts T&E card data into expense reports and purchasing card data into reconciliation forms, "enabling users to quickly review charges for accuracy and only supply a few necessary accounting codes," according to a joint statement. The technology is based on the Java application IBM developed for its own use and has sold to a limited number of large, existing clients.

"It could be for any size company, but this is good news especially for the midmarket, which is the sweet spot of the American Express @ Work suite," said Christa Degnan, senior analyst with The Aberdeen Group in Boston. "It's a reasonable price point. We're not talking about the hundreds of thousands of dollars you need for hardcore expense management and yet you have all the functionality of the IBM system. This helps Amex drive more revenue through the cards, which is where they make the real money."

According to Ray Curatolo, practice leader for IBM Expense Reporting Solutions in Southbury, Conn., IBM's strategy "has been to provide a value-add solution to large, existing clients. We were not focused as others have been in the medium and small market segments." While the American Express "packaging" could be attractive to some large companies, Curatolo said, the new arrangement does not affect existing IBM clients.

Asked whether the IBM partnership means American Express would not support other expense reporting tools, Amex vice president of global product development Yvonne Schneider said, "We'll still have third-party support with full data integration for other expense systems."

Amex in late-1997 paid Redmond, Wash.-based Concur Technologies to take over the expense needs of clients who had selected American Express' internally developed system, which it discontinued. A mid-1998 deal extended that "referral" arrangement to Concur's hosted expense solution, and Concur paid Amex $433,000 in 1999 for such business, followed by $24,500 in 2000. By 2001, however, the agreement had ended and Concur made no such payments, according to Concur's annual report issued in December.

American Express officials said the IBM arrangement involves no referral payments. Concur vice president of product management Elena Donio agreed with Amex that the two companies will continue to work together, particularly in support of card data feeds. These basic, mutual customer-support relationships are relatively universal among corporate payment and expense system providers.

Regarding the Amex partnership, IBM global executive of e-workplaces Scott Smith said, "The relationship is not exclusive, but for now we're focusing on it."

While saying that such expense providers as Captura, Concur and Extensity are "not unknowns," Dave Hillman of D. Hillman and Associates in New York—who has done work for Kirkland, Wash.-based Captura—acknowledged the power of the Amex brand: "Purchasing cards had been around for five years when Amex launched theirs, but they took out a bunch of full-page ads and, ultimately, the market thought they invented it."

Concur's Donio was undaunted. "IBM's entry into the space validates the expense management market," she said.

While noting that Concur "talks in the same terms" on midmarket pricing—depending on certain definitions of midmarket—she and others said some companies will be cautious about tying their expense reporting vendor with their card and/or travel agency provider. "Clients understand what nearly free means two years down the road when they renegotiate their card agreement," Donio said.

According to an Amex spokesperson, "We're not undercutting the marketplace in terms of fees, we're competitive with Web-based offerings, but it's right that we're a charge company and not a startup trying to make a living off this."

"IBM's and Amex's $4 billion outsourcing deal is probably the biggest component of this announcement," said Elizabeth Ireland, senior vice president of marketing at Extensity. "It's a bigger competitive threat to Concur than to us."