Mercell Holding & e-Procurement Marketplaces | In Practise

Mercell Holding & e-Procurement Marketplaces

Former Director at Vortal Connecting Business

Learning outcomes

  • Procurement software stickiness
  • How customers can switch providers
  • Why Vortal has such high market share
  • Growth opportunities and market size
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Executive Bio

Former Director at Vortal Connecting Business

The executive has over 20 years experience in the procurement software industry. He has worked both on the private and public buying side and with suppliers and understands the dynamics of procurement software.Read more

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Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

I would love to understand more about your knowledge of Mercell and the procurement industry?

As you see from my LinkedIn, I have worked in procurement since I left university; first at Vortal for 17 years, then at SAP and now IBM. Vortal was first in the private market with EConstroi, a marketplace to construction companies in the public sector in Portugal. At Vortal, I managed all the teams on both the private market supplier and buyer sides. After 2008, I accumulated the management of the public sector, in terms of the buyer entities until 2010, 2011, after which we started a new market on the same platform as EConstroi but for corporate buyers and energy and utility companies, whichever buyers were making purchases. The main revenue for Vortal at that time was from the supplier's side, with annual subscriptions to use the platform. The private market is different because if suppliers want to respond to RFPs or RFEs, they have many available subscriptions. The public sector was slightly different because, for normal RFPs, they never had to pay, but once Vortal and other competitors created products and functionalities which added value, suppliers had to pay. That differs from other software vendors I worked at like SAP Ariba, which is only direct to the private sector. Ariba is not qualified for the public sector and their main revenue is from the buyer's side.

Vortal gets revenue from both, but mainly from the supplier side. At IBM, I continue to work in procurement services, more on the partner side of implementation of solutions, like Ariba and others, and also with IBM Solutions and SAP and cognitive procurement and AI, RFPA solutions from IBM. That is more or less what I have done over the past 20 years.

How competitive an industry is public sector procurement? Are there many players doing this or does it depend on the geography?

In Portugal, when Vortal started, they were the main competitor because they worked with government legislators and had 80% to 90% of the market. The new companies who entered decreased prices to gain some market share from Vortal. When I left Vortal five or six years ago, they had 60% of the market. The government made EConstroi stop because they were doing things wrong, so Vortal gained market share from them. They also purchased Saphety, whose main business was electronic invoicing for public tenders.

The main area of growth for Vortal was to expand the concept to other countries. Spain was first and did not go as expected due to each region having their own specific laws and way of working. After Spain, they went to Czech Republic, Germany, Switzerland and Latin America. They are expanding the concept to other countries to gain market share, while the business model continues on the supply side because of buyer competition and decreases in price. They began developing platforms inside and specific to governments.

They do that in Germany, Austria and Latin America. They customize the platform according to the laws of each country. The competition is growing but Vortal has an advantage with their experience in working early with European governments.

You mentioned Vortal's market share went down; is this an easy product to switch away from or is it a sticky product?

No, it is simple to change platform because they offer the same functionality. Vortal follows the law strictly but other competitors develop easier and cheaper platforms. Vortal is still the main competitor in Portugal and continues to grow in many other countries. They purchased Saphety and merged both softwares because they are very similar in that they accomplish government requests. It is simple to develop a new platform if you have the money, structure and resources, as long as you follow the law of that country.

Why do Vortal still have 60% market share if it is relatively easy to compete?

They equate their prices with the competition, but are still more expensive. They have a lot of experience in terms of processes, and companies like to work with them. Vortal has an external partner who follows suppliers and buyers in terms of implementation. Vortal have very good influence with the Portuguese government because there are people who work in the entity companies that work closely with them. Vortal also follow all the rules in terms of public contractors.

If Vortal's prices are similar to competitors, companies will not change. A big differentiating factor is that Vortal have already created the main network of suppliers from EConstroi construction companies. Most suppliers are common to others, so it is quick and easy for buyers to start using the software.

How hard is it to build up a network of these suppliers?

The private market was more difficult 20 years ago when I started at Vortal. We had in person meetings with all the suppliers to convince them to enter. Once buyers join the network, it becomes advantageous for suppliers to enter. Vortal built an efficient process to sell to suppliers by convincing them everything was free.

That is not true because only the basic subscription is free. They do not have to pay to enter and receive an answer to a buyer RFP, but after that they create many billable products which by law are unclear if they have to be free. 50,000 suppliers, then 100,000, then one or two million, multiplied by small deals, equates to a substantially large revenue.

If Vortal significantly increased prices to buyers and sellers, would they keep most of their customer base or would they lose a significant portion?

No, they would lose. They tried to do that once and lost many companies when the competition offered lower prices with similar functionalities and they were forced to stop. They have to grow with scale, in terms of geographies, countries and products. They also have to develop new products. When I was at Vortal they had 300,000 to 400,000 suppliers, but are now probably over one million, most of whom pay nothing. They could potentially charge them €50 to €100 each, which multiplied by one million, equates to a fortune. They cannot increase prices because their customers will move to the other competitors.

How do they get more suppliers to pay?

By bringing more buyers. Vortal have markets outside of public sector, so suppliers who enter to answer to public entities can also target construction or energy companies. An example is NOS, whose parent is Sonae, and are the second biggest communications player in Portugal. NOS use the corporate platform and when they launch an RFP; the public sector suppliers can also answer that RFP if they pay.

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