Expense Software Sales Boom

<B> Expense Software Sales Boom</B>

By Mary Ann McNulty

If first quarter sales are any indicator, vendors finally are giving corporations what they want in automated expense reporting systems. From outsourcing to outright licensing of software, expense vendors report an uptick in sales, faster implementation and even shorter sales cycles.

Buyers explain the movement quite simply: with the introduction of Web-based software, vendors finally have brought to market products that truly meet their customers' needs.

"As soon as the books were closed at year-end, we saw an uptick in sales," said Vince Kroening, president and founder of Value Integrated Network, an expense solution outsourcer based in Barrington, Ill. "We saw sales double in the first quarter and we had a surge in 1997 too."

Outsourcer Gelco Information Network, Eden Prairie, Minn., likewise saw its business skyrocket--particularly in March, when sales shot up 62 percent compared to a year ago, according to Ken Davison, vice president. Part of that surge was due to the signing of larger corporations, beginning in 1996.

"As the Year 2000 issue heats up, we're seeing many customers coming to us," saying handle this for us as our IT people focus on mission critical tasks, Davison said.

Gelco processed more than 4 million expense reports last year, Davison added. In the first quarter, revenue for processing rose 15 percent, reflecting both new sales and additional business from existing customers. "I don't think there's any question that the market is starting to move very aggressively. We're still not in a massive market, but people are definitely moving," said Scott Anderson, president of Necho Systems Corp., a Mississauga, Canada, unit of The Rider Travel Group. "Customers are seeing several credible vendors out there now and that's adding to the interest level."

Sales have primarily been through licensing, but Necho just implemented a customer on a service bureau basis with a couple more in test, Anderson said.

Interpro Software completed seven demos and seven closings in the first quarter, said Mike Hanna, founder of the company now known as Interpro Expense Systems (see story, page 8). "We used to have a three to six month sales cycle," but at times now, it's much shorter.

Tech To The Fore

Competitors agree that certain business situations--such as accounting system changes or Y2000 worries--are prompting some corporations to act much faster, but contend it still takes most corporations at least three months to decide on an automated expense reporting solution. It's no wonder, as most of the systems will cost a corporation with more than 3,000 users well over $250,000.

Portable Software, Redmond, Wash., reported that 27 corporations purchased its XMS in the first quarter of 1998, compared with just eight in the same quarter a year ago. Company president and CEO Steve Singh said only a couple of the sales were as a result of a marketing agreement with American Express signed in early January (<I>BTN</I>, Jan. 12). In the deal, Amex dropped its homegrown expense reporting solution in favor of Portable's XMS as part of the Amex end-to-end suite.

"The way the market typically works," Singh said, "is that early adopters take the product and see how it works. Now, we're seeing a lot of followers or mainstream customers look at expense reporting."

One of Portable's newest customers is Hewlett-Packard, which plans to deploy the system globally, Singh added. H-P has used a homegrown solution in Europe, but searched for years for a system to deploy in the United States.

Others are looking at expense reporting solutions as an opportunity to drive down processing costs. "One of the reasons JC Penney bought the product is to drive down processing costs so they can drive profit margins up," he added.

A recent Gartner Group study of administrative processes estimated that not automating will be costly for corporate America. "Through 1998, enterprises that do not automate their administrative processes will experience growth in administrative cost from approximately 3 percent of revenue in 1997 to 5 percent of revenue in 1998," the Stamford, Conn.-based consulting firm stated.

The trend to drive down such costs isn't limited to large corporations, said ADP's Robert Brandes, vice president and general manager of its e-Xpense Services unit. Small and mid-size companies likewise are identifying expense processing as an area for potential cost savings. Even if a company has 100 employees filling out 12 expense reports a year, the savings can be substantial, Brandes said, with payback typically in 12 to 16 months. Four such companies are among ADP's recent customers: Atlantic Mutual Insurance Co., Embraer Aircraft Corp., ITT Flygt Corp. and The Netherlands Insurance Co. "This was by far our strongest quarter," Brandes said. ADP offers its services as both an outsourcer and software licenser.

For Atlantic Mutual, ADP developed software that allows the company to integrate the expense reporting software with its Lotus Notes communication system. This integration is now available for other customers as well, he added.

At IBM, sales of its high-end enterprise solution were up 25 percent first quarter over the same period in 1996. The sales cycle also is shortening, to as little as three and a half months, down from six months just last year.

Market conditions have ended the push to pilot systems for a few weeks before considering purchasing them, most agreed. Now, corporations are deciding on a system and rolling it out in phases.

Even newcomer Extensity Inc., which launched its product in January, reports it has five customers already, including NationsBanc Montgomery Securities, @Home Network, Incyte Pharmaceuticals, Scopus Technologies and Reltec. "All our betas are converting," said Elizabeth Ireland, vice president of marketing, "which means they like the product enough to buy it."

Despite the rapid rise in sales, market penetration for automated expense systems remains minuscule, compared with the potential, all agree.

Last September, the two dozen expense vendors reported just over 1,000 implementations of their expense solutions. In the first quarter, the most successful vendor closed 27 new sales, with most closing fewer than 10. But with momentum finally building, vendors are optimistic that 1998 will be the year expense reporting solutions reach some critical mass.

Just how large is the market? Portable's Singh pegs it at $2 billion with the spend at about $50 million this year and $150 million next year.

Necho's Anderson contends there are 40,000 corporations in North America alone that spend more than $1 million on T&E and could thus benefit from automated expense reimbursement. "The market potential is phenomenal," he said.