Deem's Expense Strategy

Deem president & COO John Rizzo talks:

• Renewed investment in expense
• Deem's recent acquisition of Olset
• Machine learning and artificial intelligence

A little over a year ago, Deem founder Patrick Grady boasted about Deem's Amazon-like experience and the 100,000 merchants and 11 million products that corporate clients could purchase from its platform. Grady also had aspirations to expand Deem Expense into the enterprise sector by mid-2016. However, in April 2016, Grady stepped down and John Rizzo stepped in as president and COO, armed with $34 million in secured funding, a narrower strategy and a new squad. He spoke with BTN payment and expense editor JoAnn DeLuna.

BTN: How has Deem's expense management strategy changed since Grady left?

Rizzo: We have a relatively small existing customer base of 50 or so customers that were 2,000 employees or less. Around midyear, we decided to invest further in the support of a handful that would represent the needs of a much broader set of customers in that segment and do feature enhancements, adding capabilities and testing the scalability in the platform. We want to make sure we have a product that is second to none in that category before we start to market and sell it broadly. We've done releases on the code, made improvements to the software and we continue to focus on servicing those customers. We'll probably be doing that for another three to six months before we decide whether we want to broaden.

BTN: What are some of the planned enhancements?

Rizzo: We have some customers that want to have per diems built in so that as long as [the amount expensed] matches the per-diem amount per day, then it's OK. Some want to do very sophisticated allocations of expenses across certain departments and projects. Fortunately for Deem, we have a very sophisticated workflow engine that we already built for travel because we do that every day on the travel side. We also built a connector, a cloud service that allows Deem [Corporate] Travel to connect to any other third-party software platform, which could be an expense platform, as part of the overall vision and strategy. We wanted to make sure that just because we had an expense product, we weren't going to be religious about it.

BTN: Does that mean you eventually will get rid of your expense tool?

Rizzo: At this point, it's a strategic decision-making process. If you look at the market, Concur is positioned clearly as huge expense, little travel. So effectively, they monetize expense by giving away travel for free. We're huge travel, small expense. We want to monetize travel to the extent that expense is an enabler to do that. There's another philosophical question that's important, which is: Do you believe employees are going to exploit the company or are honest most of time? If you believe the former, then you put lots of stuff in place to identify, surface and prevent exploitation. On the other hand, if you believe that most employees will not [exploit the company], then you will do things differently. I think expense today is a huge overhead to catch a tiny number of exceptions.

BTN: What problems exist with expense tools?

Rizzo: They are not context aware. [For] example, in Japan, entertainment is a key part of Japanese culture. We had a successful event, closed a huge deal and took the team out for cocktails. It was a special occasion. My expense report had a big cocktail bill, and it got kicked out. I had to go back to our CFO [and explain]. If the system was aware that this is what happens, then it can provide some intelligence in the process and say, "We'll pay the entire expense report but flag this particular expense as unusual. We're not going to kick the whole report. We're going to ask a question."

BTN: Olset, your recent acquisition, is all about contextual intelligence but applied to the travel side: curating hotel rooms that meet individual traveler preferences. It sounds like you are looking to apply that same context technology to expense.

Rizzo: We always knew that we had to apply machine learning and AI, which is becoming more commonplace in the consumer space than in corporate travel. Tony [D'Astolfo, chief commercial officer] knew the Olset guys from his Phocuswright days, and they happened to become available. That technology has to be a part of a platform, not really a stand-alone technology feature. It was a match made in heaven, and [the timing] was fortuitous. We could've not done the deal and a year from now hired a bunch of people to do that, then taken it to market two years after that.

BTN: How do you see it working for expense?

Rizzo: If I'm a project manager at a construction company and I have a certain behavior with respect to expenses compared to other people in the same category, it allows Deem to build a pattern match that says, "That person is way out of balance relative to other companies or other employees at the company in the same job class." So you can apply all this [hotel] analytics and machine learning to expense, as well, but in a very different way. That's the magic leap. If we have a strong set of data scientists and a mechanism to do machine learning and natural language processing, you can apply a natural-language processor to scan expense reports, just as you do to scan hotel room use.

BTN: What else can such technologies accomplish?

Rizzo: Technology is making it very difficult to not have real-time visibility into what's actually going on. Meaning, you can data-mine how much a hotel costs in every city and every moment in time, know exactly how much a plane trip should cost or an Uber should cost. Computers can basically model out and say, "Tony is going to San Francisco for four days and it should cost $3,000." It could predict with incredible accuracy what value the trip should be. If the trip was [expensed for] $5,000, then maybe we should do something about it, but if it's within the band, forget it. If the orientation is that people won't exploit the company, then there are lots of ways to solve the expense problem without doing it the old-fashioned way, which used to be receipts taped to papers with Excel. Now it's the Web version of that with Concur. It's really not different.

BTN: What other companies are you keeping your eyes on?

Rizzo: Data mining, Big Data, data-rich and analytics-rich opportunities are really interesting. [Companies that] think about optimizing mobile experiences. Finding good mobile developers is very difficult.

BTN: There has been so much activity in the expense management sector. Would you consider buying a smaller expense company?

Rizzo: Anything is possible, although for us, all the dollars are in spending rather than accounting for the spend. If I go back to the philosophy that says most employees are not going to abuse the system, then we don't think we can add a lot of value in mitigating abuse on the expense side. We can add a lot of value on optimizing travel.

Our job is to take the available money we have and inject as much innovation in the market as we can. We'd rather inject the innovation on the travel side, which is making travelers' lives easier and making corporate travel departments run more economically. There's a lot more leverage there in adding any bit of value than there is in being a better policeman for people filing expense reports that everybody hates.