How Much Do We Really Know About Energy Trading Software Solutions?
Millions of dollars are spent by multinational energy companies on solutions sold by software companies that are minnows by comparison. Decisions that affect our futures are made based on the software published by private company’s about which, very little is generally known. Now, UtiliPoint is conducting a three part ETRM Vendor and Market Review series of studies to get “under the covers” and provide a “one stop shop” for insights and analysis into the energy trading and risk management software space.
We all have a vested interest in the success of the energy trading industry. One only has to remember the resumes running in the streets in the spring of 2002, and the “for sale” signs in the yards of Houston homes to bring home what an impact this industry has on the economy as a whole. The timing of the trial of Skilling and Lay brings these painful memories to the front of our minds. Whether they are found guilty or not, the fact of the matter remains that many of our friends lost a great deal as a result of the crash precipitated by the fall of Enron.
A fact that concerns us and concerned one of us even when he was running a company that sold software to huge energy companies is that the software running the trade floor is published by a “grey” industry of small, private companies. For example, do we know how big the market for ETRM solutions is? We know that we don’t know today, but it is a serious issue that we need to consider. If the market is too small then the support and maintenance revenue won’t be there that to support the hugely complex software base required to support a trade floor. Without support and maintenance revenue, how does a software company invest in the next release? Are customers really going to pay a whole new license fee for the next release? If that is the expectation, then customers will shop around for other solutions. This can then lead to the yo-yo of acquisitions, and boom and bust cycles that we are all familiar with. Part One of the UtiliPoint ETRM Vendor and Market Review aims to answer the question of total market size for ETRM software solutions.
Part Two of the UtiliPoint ETRM Vendor and Market Review tackles the thorny issue of vendor and product comparisons. Anybody involved in the ETRM business needs to be well informed of the current comparisons of solutions. As a vendor you need to know how you stack up against the rest, and where you need to improve. As a buyer, you need to know which solutions should make your short list. If you currently have a solution installed, are you losing competitive advantage because of inadequate solutions based on string and sealing wax solutions cobbled together with technologies of five years ago? Going back to our concerns about the “grey” industry, any vendor and product comparison must consider the staying power of the vendor company. This can be tough with private companies, but being left with a product that is no longer supported by the company that wrote it can be an expensive mistake. We must understand the health and strength of the software vendors and their solutions.
The Third part of the UtiliPoint ETRM Vendor and Market Review addresses the market perception of the solutions. There is a book called The Wisdom of Crowds by
James Surowiecki. We copied an excerpt of the Publishers Weekly review on Amzon.com below:
“While our culture generally trusts experts and distrusts the wisdom of the masses, New Yorker business columnist Surowiecki argues that “under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them.”
The free market economy is very good at weeding out the winners from the losers. It can be argued that the best funded companies get to sway opinion better than the smaller companies who have a better mousetrap, but at the end of the day the better funded company is likely to win, even if their mouse trap is inferior. It is important to know which companies and solutions are perceived to be the leaders in their respective space. For example, which solution comes to mind first when we say trading exchange? Please don’t tell us Enron Online! How about a risk management solution? If you are about to buy a solution because they have great technology, but nobody has heard of them, you’d better be sure you do it with your eyes open. Geoffrey Moore wrote a book called Crossing the Chasm in which he describes the Technology Adoption Life Cycle of a technology solution.
Source: The Chasm Group
Visionaries are prepared to bet on a new solution, because they believe that it will provide them competitive advantage in some way. Pragmatists wouldn’t touch a bleeding edge solution with a ten foot pole they would rather stay with the tried and true.
Neither approach can be viewed as right or wrong, however you should know your approach, and then have a reference source to inform you whether you are straying too far from your preferred strategy.
UtiliPoint is in the position to undertake this research because we have already assembled some of the best data on these markets and solutions in the industry. Over the last 3-years, a number of our studies have helped characterize the state of ETRM solutions in North America and provide us with reliable input into this new round of research and analysis. For example, we have good data regarding software replacement rates, return on investment (ROI) and satisfaction metrics which will be used as an input in these studies. Despite that, the industry still lacks a comparison of vendor products and markets, knowledge of how large the market actually is and, an understanding of perceptions and buying habits. These studies will provide these data from a reliable source.
Recently, UtiliPoint also established the ETRM Community (www.etrmcommunity.com), the only free online source of ETRM information, analysis and insights available. In order to foster and encourage debate and questions, UtiliPoint recently added to the community a ‘blog’ http://www.etrmcommunity.com/site/modules/wordpress/ which is kept up to date on a daily basis with news, opinion, insights and discussion. We are in the process of publishing a book – “Trends in Energy Trading, Transaction & Risk Management – A Primer” that encapsulates a lot of our research and analysis today. The book will be released prior to the end of April, 2006 and may be purchased at Amazon.com and other websites. Finally, a new UtiliPoint webinar will deal with the topic of Trends in ETRM Software (see below for details).
OK. We’ll admit that the tone of this IA is a little salesy. However, in order to perform this valuable third-party research we need your assistance. We need your opinions and input both at the community website and by way of answering surveys. The more people that participate, the more we will all learn about our industry, its software solutions and the challenges we all face.
For more information on any of the three studies please contact Andrew Bruce or Gary Vasey for a study prospectus at 281 681 8020 or by email at abruce@utilipoint.com or gvasey@utilipoint.com.