Epylon Has High Hopes in E-Procurement Market

By William Welsh, Staff WriterWith the help of integrators such as Andersen Consulting and Deloitte Consulting, a young company is on its way to becoming a strong competitor in the rapidly expanding market for public-sector electronic procurement systems. Epylon Inc. of San Francisco, founded in 1999, cut its public-sector teeth last year by providing online buying for school systems. The company grew its business to include 1,200 school systems representing more than $7 billion in annual spending. After solidifying this business, Epylon decided to pursue state contracts for e-procurement in 2000, said Stephen George, Epylon's president and executive officer. "But as a new company, we had to get some strong partnerships to compete," he said.This year Epylon formed two key partnerships, one with New York-based Deloitte Consulting in the K-12 education market, and another with Andersen Consulting in the state market. Both Andersen and Deloitte took a minority ownership stake in Epylon as part of their partnership agreements.Through the Andersen partnership, the privately held Epylon, with just 160 employees, hopes to do battle with established players in the state government marketplace such as National Information Consortium Inc. of Overland Park, Kan., and American Management Systems Inc. of Fairfax, Va. Meanwhile, Epylon is about to receive its largest school contract yet. The Denver public school system, which has 70,000 students, is poised to award an e-procurement contract to Deloitte and Epylon pending the school board's approval in mid-November, said Craig Cook, the school system's chief operating officer. Competing against Epylon for the Denver contract were Simplexis Inc. of San Francisco and Way2Bid Inc. of Springfield, Mo., said Cook. At press time, Epylon and Simplexis also were waiting for a response to bids to provide an e-procurement system to the New York City public school system. In Denver, officials invited both Epylon and Simplexis back for further trials, but Simplexis withdrew its bid because the school system wants a transaction-based procurement system built at no cost to the schools."We can't deliver things that we feel aren't achievable without [charging] the cost associated with it," said Amar Singh, Simplexis' founder and chief executive officer. Most of the major school systems in the country and practically all of the states will be awarding contracts for electronic purchasing systems over the next three to four years, according to analysts and industry officials. Eighty-five percent of state governments will have online buying by 2004, according to Gartner/Dataquest of Stamford, Conn. Although vendors hosting self-funded state portals are struggling to make a return on their investment, this is not the case with online buying solutions, said Rishi Sood, a principal analyst with Gartner/ Dataquest.The 20 or 30 largest school districts in the country eventually will release requests for proposals for online procurement systems, said George, who noted that school systems such as Los Angeles and New York City buy about $1 billion worth of products and services each year.In the long run, the most competitive vendors in the e-procurement market will be those that can offer their clients the lowest transaction cost, said Rishi Sood, principal analyst with Gartner/Dataquest. "Right now, getting the first contract is important and not the matter of fees," he said.The creation of the Epylon-Andersen team signals increased competition for e-procurement contracts at the state level with established players, such as AMS and NIC. AMS has electronic procurement projects for Virginia and Washington, and NIC has the same type of projects for Colorado and Utah. AMS' Virginia project, announced Nov. 15, is the most recent win by any of the major players. Virginia awarded AMS a five-year contract with options for an additional 10 years. The contract is conservatively estimated at $25 million, according to AMS. In September, Epylon won a five-year contract for an e-procurement system in Michigan. Epylon is delivering MiBuy, which is in pilot production, as part of a team with Andersen and Ariba Inc. of Mountain View, Calif.In July, Andersen moved quickly to forge the alliance teaming with both Epylon and Ariba, whose purchasing software is also used by AMS for its Buysense solution. Andersen weighed its options carefully before aligning itself with Epylon, said Ken Mitchell, Andersen's managing partner of treasury and resource management industry for government education."We could have gone in by ourselves, created a new venture, or worked with someone who was already out there," said Mitchell. Andersen ultimately chose Epylon because of its strong management, sound business model and solid financial backing, said Mitchell. MiBuy is in the pilot stage with about five agencies and 10 suppliers. Among those agencies are the Michigan Department of Corrections, Secretary of State and State Police, said David Ansell, director of the Michigan Office of Purchasing. The state received proposals from Ariba, Commerce One Inc. and Oracle Corp., and eventually chose Ariba. Michigan initially chose Ariba for the software platform, and Ariba brought Andersen and Epylon into the no-cost project, said Ansell.An extended purchasing program in Michigan for Epylon and Virginia for AMS eventually might include all state agencies, local units of government, public schools, colleges, universities and nonprofit hospitals, said company officials. It is at this point ? when the contract changes into a statewide purchasing consortium ? that its maximum value to the vendor is realized, said Sood. "The trend is to have the state system in place and have everyone in the state-local governments, K-12, higher education-allowed to purchase through it and build group purchasing," said Sood. "This has yet to be seen."