Another OpenTable?

OpenTable was a great story. (I wrote about it almost exactly three years ago here.) To refresh your memory, the company went public in March, 2009 at the bottom of the stock market with a market cap of $700 million.  Two years later its market cap rose to 5-6x that figure, before falling back to $900 million.  At that point, many pundits wrote OpenTable off for “dead”, but it worked its way back to a market cap of $2.6 billion when Priceline bought it this past July.

As you know, OpenTable helped diners make reservations at restaurants and helped restaurants get rid of their paper reservation book.  But what about casual dining restaurants that do not take reservations–take TGI Fridays, Buffalo Wild Wings, or Little Serow, the hottest little restaurant in DC?  These restaurants typically ask you to call or come in, put you on a paper wait list that looks sketchy, and then may hand you one of those plastic disks that lights up and buzzes when your table is ready.  A few restaurants may take your phone number and text when your table is ready.

NoWait, which just raised $10 million in their Series B, aims to improve this process for the restaurant and their diners alike. Using their smart phones, diners can find and get in line at participating restaurants without physically being there. The NoWait app ( clearly shows wait times and place in line, and confirmations are delivered by text message. Who wants to wait in the restaurant lobby when you could wait at home, go shopping, or have a drink somewhere?

For the restaurant, NoWait offers complete wait list, notification, and floor map management for the front of house, delivered via iPad and/or smart phone. By putting this process in the cloud on an iPad, adding a seating chart and some analytics, adding some ability to make promotional offers in the text to the “waitee” and presumably helping restaurants build a diner database–NoWait hopes restaurants will buy their app and toss out those plastic, flashing, buzzy disks!

Statistically, NoWait appears to be a much bigger idea than Open Table in some ways. After all, only a tiny percentage of restaurants take reservations–though one has to remove fast food from the target market.  And this idea could extend to any business with wait times, not just restaurants–how about the DMV, for instance?!!!

On the other hand, many of the target restaurants may not have a big wait list problem and if they do, they will be unlikely to pay the fees that Open Table was getting. (Ironically, Open Table was starting to get some pressure on its fees and some restaurants stopped taking reservations just to avoid them!)

In any case, there is a lot of room between this $10 million B round for NoWait and $2.6 billion for OpenTable.  Personally, I cannot wait to see how this one develops!

Two Stock Indices for US B2B E-Commerce Companies

For a while, I’ve been wanting to create a stock index of US public companies specializing in B2B cloud e-commerce.  There are many cloud indices, but typically they are not focused on B2B and/or they are not focused on inter-company platforms. Until recently, I had not found the right tool that was simple, free, and would allow me and others to invest (at our own risk)!

Then came along Motif Investing which makes the entire process a snap (and free).  (I highly recommend it for investing nerds).  I have created two indices:

  1. B2B E-commerce which you can view here.  This index consists of 30 stocks of US companies engaged in business to business cloud commerce. (30 stocks is the Motif Investing limit.)
  2. Industry Clouds which you can view here.  This index is a subset of the above index and is limited to similar cloud B2B companies, but only those with an industry or vertical focus.

(Both indices are market capitalization weighted, mainly because it was easy to do the weighting that way and market cap weighting is a common, though problematic approach.)

I created the indices on Monday, September 15.  Since then the returns have been incredible ;-)! (How is that for short-run results!)


















Don’t let this one week of performance mislead you!  As you can see, both indices include Concur (CNQR), which received a take-over offer from SAP at a 20% premium on Thursday, three days after starting the index!

Motif provides a “look-back” on performance for up to five years for any portfolio you create.  Here’s that data for the Industry Cloud portfolio:


This data fits with the overall performance of cloud tech stocks.  Tech stocks came roaring back after the March 9, 2009 market low and then have fallen behind the market as a whole over the past nine months.  The bottom line is that these stocks have tracked the S&P 500 over the past five years with a lot more volatility.  Over the past year, they have under-performed the market, as most small stocks have.

Let me be clear, I’m not recommending that you invest in these portfolios right now, after all, valuations remain quite high.  (I take no responsibility for my own actions, much less yours!)  But it is fun to watch these stocks (which should have decent moats in most cases) and which operate in segments that should continue to grow faster than GDP for a long time.

Concur: Nothing but respect

The announcement that Concur (CNQR) will be bought by SAP for $8.3 billion highlights an incredible story.  Congratulations to the entire CNQR team on an unbelievable run over the last 15 years.

The Concur story comprises many lessons, I will highlight just two:

  • The importance of sticking to your knitting and the benefits of specialization
  • The initially painful, but ultimately rewarding transition from behind-the-firewall to SaaS

Recall that Concur briefly flirted with competing with Ariba and pulled back, instead choosing to focus on T&E.  Also recall that Ariba, IBM, and SAP all had T&E modules during this entire time frame plus procurement modules, and in Ariba’s case a network. On the surface, Concur with its fledgling point solution seemed unlikely to flourish.  But, Concur stuck to the T&E world, integrated with credit cards, bought an online booking tool and made the transition to SaaS earlier than anyone who did not start out that way.

Recall also that Concur did all of this while being a publicly listed company.  In fact, when the B2B bubble burst in 2000, Concur spent the next two years (while they were making the SaaS transition) with a market cap of under $100 million!  Fast forward 12 years later and they sell for $8.3 billion, or more than 1.5 times what SAP paid for Ariba.  That’s why I say nothing but respect for Concur!

Tom Russo, a great value investor, talks about how few companies are willing to make long-term investments that will disappoint the market in the short-turn and thereby risk losing control of the company as the stock price drops.  Concur ran this gauntlet and came out the big winner.

Now watch for the PE and VC firms to try to identify the logical #2, non-ERP player: Coupa, Certify, Chrome River, ExpensePoint, Mindsalt, Nexonia, Deem, or others!


Back to the Future

This headline from yesterday, not 1996, really caught my attention:

B2B Marketplace Kinnek Raises $10 Million From Matrix To Help SMBs Find And Purchase Supplies

Kinnek is a site that allows companies to post their Requests For Quotations (RFQs)(presumably for slightly arcane vertical-specific equipment or supplies–otherwise Grainger, Staples or Amazon might do) and collect quotes from qualified, rated vendors.  Vendors will presumably pay to subscribe to certain categories and/or pay a success fee.

Kinnek is an example of Matchmaking, one of the nine value propositions B2B Industry cloud platforms provide.  Matchmaking in B2B has been around since before the dawn of the millennium.  For example, some of the best people I have met in software were at SupplierMarket in 2000 trying to do the same thing in manufactured parts when Ariba bought them for $581 million (thankfully in stock).  Since then almost every industry and some cross industry companies have tried a form of this RFQ monetization:

  • I helped start a matchmaking service at Ariba called Ariba Discovery
  • has been picking away at manufacturing and textiles for a while
  • BuyerZone has been a form of this service in broad horizontal categories
  • elance and odesk are a form of this in contract labor
  • There are several example in the legal industry
  • Fedbid provides this service for the federal government and now commercial companies
  • And one could argue that Cvent is by far the most successful form of this in hotel meetings and events (though they do a lot more)

There are many more matchmakers that have gone by the wayside.  This is a really hard business, especially in the SMB segment where Kinnek seems to be playing. There are all sorts of reasons these businesses are hard and take a lot of capital:

  • These sites by their nature target “spot” versus recurring purchases, which are hard to monetize
  • Related to the above, it is easy for participants to go around the system after an initial introduction
  • Google and Amazon search and content just keep getting better
  • There are lots of small commerce and non-commerce sites by vertical
  • Amazon spent $157 million on Google adwords last year, competing with that is impossible, so how can you drive buyers to post RFQs on your site?
  • Which supplier gets the RFQ?  Is it based on ratings or payments?
  • If the RFQ does not add structure and content expertise, how different is it than sending an email requesting a quote?

These businesses monetize a flow of RFQs that they generate.  How Kinnek will economically generate that flow is the critical question.  The Matrix people are very smart and make a lot of good investments.  Perhaps they have an answer to that question that I have not found or perhaps they are willing to spend even more capital. If not, they may eventually be calling it DisKinnek.

Marketing Automation Vendor Hubspot to IPO

Large enterprises automate their marketing functions with a tool such as Eloqua (now Oracle) or Marketo, which is public at a valuation of 11x sales.  Small, local businesses may use Yodle which filed to go public and whose prospectus I reviewed here.  “Goldilocks”, in the form of Hubspot, which targets the mid-market (10-2000 employees) has also filed to go public.  After a few week delay, I have been able to review their prospectus.

For several reasons, I’m happy to say that unlike Upland, this prospectus was a joy to read:

1.   Hubspot makes it very clear what they do and how they do it, with simple to understand graphics.  This simplicity is important for scaling among mid-market companies who are not likely to have many full-time marketing people:



2.  Hubspot keeps the product line and pricing simple , with three seemingly well-tailored offerings.  (“Goldilocks” in their versioning too!)  Again, a critical element for scaling.

3.  Unlike many SaaS companies that are going public, Hubspot transparently provides key SaaS metrics.  Hubspot indicates that for the latest three months ended June 2014, their subscription dollar rate of retention is 90.3%, but more important, they also show that it has been rising nicely.  Hubspot also pegs its CAC at about $12k, unfortunately this figure has been rising as well.  Hubspot will have to prove they can stem this growth in CAC.  Hubspot’s ARR is about $9k, and is also rising nicely.

4.  Hubspot has built an impressive ecosystem for penetrating the mid- market.  Critical elements of this ecosystem are 1900 agency partners:


I’d want to talk to agencies and clients to be sure everything is as good as it looks, but Hubspot certainly seems to have the right positioning for the mid-market.   I normally try to avoid the mid-market, as the cost to serve can be high, while the revenue is often not commensurate.  Hubspot may be unlocking the keys to this market.

The Hubspot IPO will likely be very hot and will have a valuation not too different from Marketo.  As a reformed value investor, I will be unlikely to partake, but it will be fun to watch.  I’m rooting for them.

IPO Window Wide Open Again for Enterprise Software

After a little breather, at least two B2B software plays–besides Alibaba– have filed to go public.  In this post, I’ll cover Upland Software and in the future, I’ll cover Hubspot, yet another marketing automation vendor.


Upland was “founded in 2010 to deliver cloud-based enterprise work management applications to organizations of all sizes.”  (Well, that narrows it down a bit.)  Upland has “achieved significant growth since their inception, substantially all of which has been as a result of their acquisition strategy”  The prospectus list six acquisitions in 2012 and 2013:

  • PowerSteering:  cloud-based program and portfolio management
  • Tenrox:  professional services workforce management
  • EPM Live:  project management collaboration software
  • Filebound:  workflow and content management
  • ComSci:  IT Financial management
  • Clickability:  Content Management

These products are all loosely joined under the Upland brand, by adding “by Upland” to each product name.

The company has managed to acquire companies fast enough to reach 1200 customers, $32 million in revenue in the first six months of 2014 and a net loss of about $15 million during the same period.


I tried to find something to get really excited about here, but I’m having problems. Admittedly, I am biased against software companies that grow almost entirely through acquisition, even though I know this can be a quite profitable strategy for the shareholders.  So take my comments with a grain of salt:

On the positive side:

  • Upland has a really nice website.
  • Uplands’s products compete in some broadly applicable, growing, markets: project management, IT financial management, time sheets, and content management.
  • Upland provides one common SaaS metric: on a dollar basis, Upland retained 90% of customers in fiscal 2013.
  • 1200 customers in nothing to sneeze at, including a few blue-chip names.  Also no customer accounts for more than 3% of revenue.

On the negative side:

1.  These are broad, tough markets with multiple buyers from different functions–not easy sells. Upland’s product portfolio manages to compete with everyone from Microsoft to Adobe to Deltek to VMware.  How will Upland differentiate itself?  By product? By vertical? By market?  As a suite (not easy with acquired products)?

2.  Upland’s marketing is necessarily generic.  Here are some claims from their website:

  • From the next 25 years to the next 25 seconds.  Strategy meets execution with a new generation of cloud-based enterprise work management software
  • Run smoothly. Change quickly. Achieve more.  Upland’s family of cloud-based enterprise work management software helps every team in your organization do their best work
  • From modernizing healthcare records to personalizing a global web experience and hundreds of ways in between.
  • Our family of products helps teams run their operations smoothly, adapt to change quickly and achieve more every day. We do this by automating the flow of work, connecting people through technology and creating visibility across all aspects of the organization

It sounds nice, but is it Dropbox, Sharepoint, Google docs, ERP?  Even e-mail makes these claims.  Again, what will help Upland stand out from the crowd?

3.  90% client retention on a dollar basis is the only typical SaaS metric datapoint provided and it is fine, but not great for enterprise software, especially on a dollar basis.  (To be fair, though, it is a new company with not a lot of time to up sell new products.)

4.  For the six months ended June, 2014 R&D expense is more than 50% of revenue. Normally this might bode well for the future.   However, in this case, the majority of this expense consists of a large stock grant ($11M) to a non-executive director’s company, with whom the company has a technology service agreement. There are also a couple of other related-party transactions, though the company is instituting a new policy in this regard going forward.  Related-party transactions never look good and can be easily avoided, so I always wonder why people engage in them.


I’ve become so immersed in vertical software plays, or point solutions with very hard, specific ROI cases, that these broadly horizontal solutions no longer get my blood pumping.   As you can tell, this is one I will be passing on.  Upland feels as though it was hastily pulled together to take advantage of the attractiveness of all things enterprise cloud right now.  Perhaps because everything worthwhile I’ve ever worked on took a lot longer to come together, I’d like to selfishly believe that Upland cannot pull it off so quickly!

Brands Under Pressure

When I graduated college in the early 1980s the accepted wisdom from investment greats such as Peter Lynch and Warren Buffett and business school courses, was that branded consumer goods were a great investment.  Great brands were thought to build moats from competition, allow pricing leverage, build loyalty, and fulfill a yearning by newly emerging middle-income consumers for affordable luxury and quality.

Much this is certainly still true, but one of the secular shifts wrought by the Internet has been to put pressure on the value of many of the national brands.

I was reminded of the pressure on brands by three unrelated events during my recent vacation:

1.  I needed a replacement battery for my Samsung Galaxy 3.  Surprisingly, neither Sprint (my carrier) or Radio Shack offered these.  (This stocking policy may be one of the reasons both companies are doing so poorly.)  Instead, I went to Amazon Prime and promptly bought a replacement battery from a Chinese manufacturer I had never heard of, but that had great reviews on Amazon.  The company also had good prices, a clear description that made it easy to assure the battery would be compatible with my phone, and the product was available on Prime.  I purposely skipped over the Samsung-branded replacement battery, which ranked lower.

2.  When I went for ice cream with my Dad, the local place “Oink’s” was completely packed as it is every night.  (Oink’s has a lot of character and stellar reviews on Yelp, Google, Trip Advisor, etc).  Opting for something faster, we sought out the nearby Dairy Queen (the franchisor owned by Warren Buffett).  The Dairy Queen had been run out of business by Oink’s.  A second one nearby by was also shuttered.  (Thanks to G-d, a third one remains open, providing the occasionally needed ice cream cake and Blizzard.)

3.  Peter Lugli of the aforementioned brand friend and killer, Amazon, sent me a good article from the Economist, a magazine which erudite people like Peter apparently read.  (Not enough graphics for me.).

Taking great liberties with the article, it suggests three main possible components of brand value or equity.

1.  In a world filled with too many choices, a brand provides a level of mental availability (when coupled with physical presence) that makes it easier for us to make purchase decisions.  Brands are mental shortcuts/cues that help us make fewer decisions every day.

2.  Closely related to the above, brands signify consistency and quality relative to a world of unknown providers.

As my examples from vacation show, however, these forms of value are under assault from internet-based rich search and seemingly reliable ratings and reviews from Amazon, Yelp, TripAdvisor, Google, and other sites.  These two forms of brand equity are certainly being challenged broadly and consistently by the Internet, not to mention improved private label brands!

3.  A third element of brand equity is the loyalty engendered by brands that establish an emotional connection between themselves and consumers.  Used properly by brands, the Internet can enhance this emotional connection.  As the article points out, however, this emotional connection is fragile especially for service companies as consumer experience with the brand will outweigh the effects of marketing.  (For example, all of the airlines are well-branded, but our experience is so bad with all of them, the only loyalty we feel is generated by the mileage programs.)

There is one element of brand equity that the article does not mention, which is when our brand choice is highly visible to others.  Let’s call this the fashion element of brand choice.  Some consumers are very careful to manage the brands they wear or the places they frequent to manage their own “personal brand”.  The Internet will have very limited impact on this aspect of brand value–other than through encouraging the sale of knock-offs and grey market goods (Alibaba)!

Polo, Michael Kors, Starbucks, Lacoste, Under Armor, Whole Foods?, these brands and many more are perceived to say something about us to others.  Even the Starbucks cup we carry around may be perceived to say something about us to others versus that Dunkin’ Donuts cup– beyond how burnt we like our coffee.   The Internet will never kill this aspect of brand equity.

I’d suggest that these days if a product is not :

  • either addictive (e.g., caffeine, nicotine, salt and fat, sugar and fat, or Wheat Thins) or
  • one of these “externally exposed”  fashion brands or
  • sold increasingly to folks in emerging markets where an “internal” brand may function like an “external” one

the product’s brand equity may be eroding over time.  No need to panic, but it is time to think more carefully about the nature of a brand’s equity.  If brand equity is not emotional or fashion-driven, it will not be worthless, but it will be worth less.