The Buffet vs Bouillabaisse Effect of Logistics Software
Welcome to the 20th edition of The LogTech Letter, a weekly look at a particular aspect of the impact technology is having on the world of global and domestic logistics. Last week, I took a somewhat controversial position that global logistics is an inherently low-margin business, which will hamper software-as-a-service (SaaS) providers aiming to build multi-billion dollar recurring revenue businesses in the space. This week, I’ll explore what LogTech consumers should expect when they use platforms that have grown via acquisition.
As a reminder, this is the place to turn on Fridays for quick reflection on a dynamic, software category, or specific company that’s on my mind. You’ll also find a collection of links to stories, videos and podcasts from me, my colleagues at the Journal of Commerce, and other analysis I find interesting.
For those that don’t know me, I’m Eric Johnson, senior technology editor at the Journal of Commerce and JOC.com. I can be reached at eric.johnson@ihsmarkit.com or on Twitter at @LogTechEric.
I love analogies. It’s just how my brain works - sarcasm and analogies are my oxygen. And lately, I’ve been finding myself drawn to a very specific analogy that helps me explain how people should think about large logistics software suites.
I call it the Buffet vs Bouillabaisse Effect. Let me explain.
There are a range of software providers - some aimed at shippers, some at logistics providers - that grow through acquisition. It’s a natural progression for any technology company. You start out building a product that serves a particular purpose, realize that it has a customer base that hungrily appreciates it, and the next logical step is to grow. That growth can come via customer acquisition - this is the consolidation approach, where you buy a company that makes a similar product but gives you access to a broader book of business. Or it can come via adjacent product acquisition - a variation on the land and expand approach, where you buy companies that deepen your reach with existing customers and help you access new customer bases.
None of this is rocket science for anyone building a business. But let’s think about this acquisition approach from the consumer perspective. First, there’s the existing customers on both ends of the acquisition. The question for them, naturally, is how an acquisition will impact the use of a product upon which they ostensibly rely. More interesting to me are the potential customers, the ones who might be swayed by a broader set of functionality, and what acquisitions mean for them.
Let’s first consider the existing customers. If I’m hooked on a type of tortilla chips, and the company that makes those chips decides to acquire the world’s best maker of salsa, the chip maker can go a couple different ways to deepen its relationship with me. It can market the chips and salsa together, it can bundle the chips and salsa together for a lower price, or it could create a salsa-flavored chip that integrates the strength of both.
Maybe I love the chips as they are, and while I’m happy they offer great salsa now, I don’t want them to mess with the chips. Maybe the idea of an efficient way to combine the world’s best chips and the world’s best salsa is pretty attractive. I’m a busy man - I don’t have time to shop for and eat chips and salsa separately!
Now let’s consider the potential customers. They may have been hearing about how great these tortilla chips are, but never tasted them. Do they try the chips alone, the chips bundled with the salsa, or the salsa-flavored chips? So many options!
At this point, you’re wondering, I thought this was going to be an analogy about buffets and bouillabaisse, not chips and salsa? Either way, you’re probably hungry now. So let me get to Buffet vs. Bouillabaisse Effect. I think buying multi-functional logistics software, with loads of modules and individual products, is like going to a buffet versus ordering a bowl of bouillabaisse.
By that, I mean that consumers of a broad software suite can pile as many or as few individual components on their plate. Some of those components work well together - roast turkey and mashed potatoes. Others not so much - crab legs and lasagne. The beauty of the buffet is you can take what you want, as much of it as you want, and eat them together or separately. But you need to know, going in, that lasagne and crab legs aren’t necessarily going to play nice with one another.
This is a key thing for potential software consumers to understand. The wider the range of tools, the less likely it is they will be tightly integrated out of the box. That lack of integration is especially acute when the different products come via acquisition.
This should not offend any software vendors out there - integration is hard and the resources it takes to integrate different products often supersede the revenue benefit of doing so. In other words, if customers aren’t going to pay for a truly integrated product, why should a software provider expend precious time and money doing so? For instance, some of the biggest providers in the logistics technology space that have grown primarily by acquisition make no bones about the lack of integration between products. In fact, it may make little sense to integrate a fulfillment product designed for apparel shippers with a pricing product designed for forwarders.
So the buyer has to go in eyes wide open - a vast product suite likely won’t be more than the sum of its parts. It is likely to be exactly the sum of its parts, unless the vendor can prove - to a buyer’s technical team - that it is indeed more than the sum of its parts. Given this reality, it might make more sense for a buyer to try a module or two before investing in an entire suite and finding it has a plate full of food that tastes great individually, but not as great together.
The flipside is the bouillabaisse, where a large number of ingredients are assembled in such a way they work harmoniously together. Where the components on their own aren’t as good as the whole. Sorry, but leeks in a bouillabaisse are so much better than leeks on their own.
This issue of buffets versus bouillabaisse is one to watch now, but more so in the future. There have never been so many niche technology providers in logistics as there are right now. Some will grow big enough to be acquirers themselves. Most that survive will be acquired. Consumers need to get their heads around the reality that the bigger a software company becomes, the more it acts like a buffet and the less it acts like a bouillabaisse.
Here’s a roundup of pieces on JOC.com the past two weeks from my colleagues and myself (note: there is a paywall):
The issue of intellectual property in the software world has always been tricky. What’s a defendable innovation? What is and isn’t in the public domain? There are hundreds of thousands of logistics technology patents, but how many are actually enforced and defended? Every once in a while, the issue crops up again as it did this week, when Blue Yonder sued Kinaxis over what it alleges is misuse of six of its patents over the past few years, infringements it claims has cost it $20 million in business over the past four years.
I write about digital quoting in the ocean freight industry a lot, and a new partnership between BlueX Trade (which has built quoting capability for Taiwan-based Evergreen Line and Yang Ming) and rate management maker Catapult seems significant. Relevant to the discussion above, Catapult was acquired by forwarding software provider Magaya earlier this year, in a move that seems designed to counter WiseTech Global’s acquisition of CargoSphere a few years back. Magaya working with BlueX, meanwhile, seems like a challenge to Descartes’ acquisition of Kontainers earlier this year. Buffets and bouillabaisse.
Tons of activity this past week in the small truckload carrier technology space. First, CloudTrucks announced a $20.5 million funding round. A day later, AscendTMS, which provides low-cost and free TMS options to carriers, announced an integration with the digital broker Convoy. And late last week, I wrote about Alyvs, a TMS provider for small carriers spun out of the freight broker Archerhub. The implications of all this activity are immense. If small carriers, who typically lack the resources to invest in any tools, have the ability to do so, they will be more viable, keeping much-needed capacity in the market. And, for shippers and brokers, digital access to all the small carrier capacity can only be of benefit in an increasingly chaotic market.
And here are some recent discussions, reports, and analysis I found interesting:
From a few months back, a really solid explainer on rolling funds. I chatted with a supply chain investor last week about whether they’ll make a more in logistics, and he thinks it’ll be limited.
cargo.one, an interesting air freight platform, has snagged $60 million in venture funding in the last five months. There have been a number of companies that have raised multiple rounds this year, a phenomenon that I think has to be related to serious COVID-related growth.
This report from McKinsey on global logistics pricing is worth a read.
🚨 TPM21 registration is live, and so is the agenda. We’ll have two days of #LogTech focused programming Feb 25-26, ahead of the main program, which kicks off March 1. Each week until TPM, I’ll be highlighting a tech-focused session we’ll be hosting.
This week, I’m shining a light on a session about the role technology can play in helping shipping decarbonization. I’ve written often this year about technologies developed by software providers and 3PLs to help shippers and logistics providers better calculate the carbon footprint impact of their supply chain. We’ll discuss whether these tools can help make a true difference in procurement and sourcing decisions. Joining me are Jessica Balsam of APL Logistics, Lisa Salit of Blue Yonder, and Pierre Garreau of SeaRoutes.
Disclaimer: This newsletter is in no way affiliated with The Journal of Commerce or IHS Markit, and any opinions are mine only.