On a recent investor call, one of the members of the financial community asked a question many in the industry often think about: Will this market (Transportation and Logistics software) produce a gorilla? He offered a $500M revenue number as a benchmark. The other aspect of his question postured whether this size company was achievable based on the sheer growth of the market or instead, would there be fewer players to choose from (due to consolidation or competition), thus giving a few players dominant market share?1 Great question!
Can the TMS/Logistics Market Produce a Gorilla?
I was intrigued by this, since as market researchers we get asked this kind of question all the time. The gorilla would represent a 10%, 20%, or even 30% share of the market. As it dominates, it becomes harder and harder for others to compete.
Certainly, we have seen some of these phenomena in other markets. For example, desktop is still dominated by Microsoft regardless of Apple’s or Google’s efforts. Conversely, Google is the dominant search engine, regardless of other pioneers (now gone) or extra efforts by Microsoft to recapture some of that market. Yes, gorillas can be unseated, although this does not occur very often. Think of the smartphone market with Nokia being dethroned by Apple and Android.
Closer to home, we’ve seen SAP capture certain supply chain sectors, unseating i2 and Manugistics (now all part of JDA), and continue to gobble up supply chain players2 to establish credibility here. This battle still continues as SAP attempts to build a worthy TMS to go head-to-head against JDA’s, Manhattan’s, and Oracle’s transportation solutions. (All these also have WMS/TMS integrated solutions).
However, more of the pure Transportation players have shown stellar growth and the market shows a big upward trajectory for them — double-digit market growth rates with ~18% growth predicted for 2014 in the transportation solution market alone.
The TMS (I am using this in general terms3 ) market is extremely healthy and currently has room for new players — Cloud Logistics, 3Gtms, TransVoyant Voyant Logistics, and Cheetah, for example. Additionally, established players such as MercuryGate, Logility, and Airclic have made a significant expansion of their footprint, with subsequent revenue growth. Those players’ growth rates have exceeded the benchmark.
And then we have some giants — Descartes and GT Nexus — on the acquisitive hunt,4 which is also transforming their business reach. Interestingly, TradeCard’s merger with GT Nexus means they are no longer a pure transportation/logistics solution. Over time, they are looking more like a multi-module supply chain solution (will they compete against JDA?) from demand and procurement to transportation visibility. Descartes continues to broaden their solutions, but stays focused on the transportation and logistics professionals’ footprint for many industries. There are many more features that can be developed to fulfill logistician’s requirements, so it clearly is working for them, since now they are the biggest player in the transportation ‘space.’
Other players such as E2open,5 Amber Road, and INTTRA, who had more complementary solutions, are now building out more TMS and TMS-like solutions. As to the point about potential giants, Descartes’ growth last year was about 19%, and with lots of cash in the bank, they did not grow by giving away the store.6
What Users Want
In our business we receive a lot of confidential data from the players, so we can’t share private company-specific data, generally. But we can provide some aggregate estimates and comment specifically on public companies.
We are seeing the growth rates for SaaS/Cloud capture a greater share of the market. Year over year, user preference for cloud continues to grow (See Figure 1). Solutions from firms like Descartes, GT Nexus, MercuryGate, and other popular solution providers are mostly cloud offerings, as are most of the other TMSs. Particularly for Transportation, the SaaS offering will gain more of the market share.
Figure 1: Transportation Market Choice
Gorillas in the Midst?
But have we answered the question: gorilla or no gorilla? My prediction is yes, there probably will be.
An important factoid about the transportation software market is that the penetration rate is yet low. Transportation software is relatively new compared to say, forecasting or MRP. It really only got its start in the mid-to-late 90s. There are many more companies that have yet to purchase and implement transportation solutions. With virtually all product firms having some transportation requirements, one would think they already have ‘something.’ However, that is not the case. Why is this so?
- First, many companies have a hodgepodge of technology. As the demand for better process management, customer compliance, and performance improvements in logistics has increased, so has the need to purchase a transportation solution.
- Second, global dynamics for firms are changing quickly and there is a need to think about or rethink the global transportation methods and modes. Changing modes, intermodal, trans-shipping, and becoming more adept at inbound manufacturing and delivery (with consolidations, pooling, cross-docking, etc.) drive the need for more sophisticated software. Understanding spending is the first step; then getting it under control will be key. Along with the global changes, US firms are experiencing various new regulations such as reduced driver hours and potential fines for delaying trucks/wait times which means precision in logistics has to be achieved. Without some visibility, fine-tuning performance will be impossible.
- Third, yet equally important, are the changing business models and processes; therefore, new software is needed to manage them. Examples include global precision and visibility, cold chain management, Home Delivery, Risk Management and other processes that require real depth in the applications. So even firms who have invested in some transportation software will invest substantially more.
This all adds up to growth. To get to $500M, in the long run, seems possible, but will surely require a few more mergers along the road.
Read more — Transportation Systems Redefined for the current view of solutions
Read more on Home Delivery
Read more on Fleet or For Hire
Read more on Multi-Echelon Inventory Optimization
1 I am paraphrasing his question. — Return to article text above
2 SmartOps, Ariba, SAF AG, and others. — Return to article text above
3 TMS, visibility, DSD, etc. — Return to article text above
4 Last year’s merger of TradeCard and GT Nexus created a company of about $100M, but that revenue can no longer be counted as all transportation/logistics. — Return to article text above
5 Revenues are increasing, with close to an annual $80M in sales. The company reported more than a 30% increase in subscription revenue, but the overall revenue of the company has not achieved that same percentage of increase. e2open results. — Return to article text above
6 Q4 performance here https://www.descartes.com/news-events/financial-news/descartes-reports-fiscal-2014-fourth-quarter-and-annual-financial-results — Return to article text above
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