It is noticeable that the in the past decade monopolistic situation has never existed in the Energy Trading and Risk Management (ETRM) market. No one product company has been able to sustain the top slot for the entire period spanning across geographies. We have seen a lot of ups and downs in the market more so after the post Enron era where sustenance became a big issue for the market players. Apart from synergy across the value chain, the other survival technique has been through mergers and acquisitions. In the past year or so we have seen SolArc acquiring Trinity Apex, Open Link acquiring IRM AG, SunGard Energy Solutions acquiring Energy Softworx, Ventyx acquiring Global Energy Decisions. All these mergers and acquisitions look towards synergy and quick growth through complimentary products and broader market reach, though it cannot be denied that some of them also look towards easing competition through buy outs.
The first level of synergetic relationship and the oldest one refers to that between a Product and Trading company. This is more of a parasitic relationship where the Product company does requirement based development for a Trading Company. When the same product and feature matures, Product company then floats it into the market thereby gaining from further product sale. The benefit for the Trading company is two folds. First, the development cost is relatively low. Secondly, the Trading company gets customized features and sometimes becomes first in the market to do so, thereby getting the cutting edge as far as IT is concerned. The general concern or risk area would be the loss of time and money in iterative development. Many times, since the Trading company is also not sure of the features, the development effort might not yield the desired result or it might even take more than the estimated time frame.
Second level of relationship exists between a System Integrator (IT Services) and Trading Companies. System Integrators carry out the work of bringing in tandem the trading software and the peripheral systems namely the risk management, scheduling, accounting system, etc. Apart from these activities, the other key role System Integrator carries out is the customized development, enhancement and support activities for the Trading company. These enhancement and support can be related to the peripheral systems or the trading software. System integrators role assumes more importance when all the peripheral products are made in different software language. This setup is also suited in cases where the product company is unable to support the product or if the trading product has been an in-house development. Trading company benefits in case of long term relationship at a lower Time & Money rate in case the effort is not known and small development work keep on coming up. Trading company might also get a select development team from System Integrators on a retainership basis. This gives the System Integrators an assured source of revenue and helps Trading company to focus on what they are best at i.e. Trading.
Here, I would like to quote an example of Vedaris, a UK based company in Energy Trading Software business. In case of Vedaris, when the company shut down due to bankruptcy, Trading Companies who had bought the product earlier had to support the product by themselves. Some of the Trading companies got Vedaris employees to support the product and some even decided to replace the product, but at a cost. These unforeseen circumstances can be avoided with the help of System Integrators.
Third level of relationship exists between the Product company and System Integrators (SI). The Product companies leverage the geographical spread of SI’s to benefit in implementation, maintenance, support and enhancement. Sometime these System Integrators also play a crucial role in creating business leads. Synergy also helps the small Product companies to cater to a much wider geographical market and large customers without enhancing their team strength and investing in physical infrastructure. This helps them in maintaining a lean team for lean phase in business cycle. System Integrators get products training in advance so that the implementation and integration time is less and seamless support and maintenance can be carried out. System Integrators in some cases also act as value added sales agent. It is generally seen that the System Integrators plays the role of implementer as well as system integrator whereas the support is retained by the product company as it serves as recurring income source. One of the risk factor which generally exists comes from one System Integrator supporting many product companies and having a non-disclosure agreement with each one of them. Though it generally acts well and has not been seen as a deterrent to the alliances, but the risk always exists. In this case we should also remember that the same risk also exists when an employee leaves a Product company or a System Integrator and joins a different Product company. The observation is that SI’s like Wipro, Infosys, Tata Consultancy Services, Satyam, etc. have or would like to have relationships with product companies like OpenLink, SunGard, Triple Point, TradeCapture, etc.
Relationship between the Product companies and ERP companies have been picking up for the past couple of years. This helps in faster implementation of Trading products at client sites. Prior integration of ETRM products with ERP gives products companies a cutting edge for marketing their products. Lesser time to implement and proven integration capabilities, gives Trading companies the required cushion. Sometimes merging of Upstream and Downstream energy business to trading business is necessary for success. This is achieved through integration of Trading with ERP products. SAP has been seen to be the leader in the energy domain and most of the product company either claim or strive to achieve seamless integration with SAP products. Similar integration can also be looked for with the peripheral systems, if different in a Trading Company. For example, some of the Trading company have external risk management, scheduling, delivery management as well as accounting software. Integration capabilities with these peripheral systems will also help Product Company boost their sales.
Synergy between consultancies and product companies are not very common in the market. Mainly because of no consolidated demand or turnkey project from Trading companies looking for one shot single implementation bid of ETRM product. Clubbing of process improvement and product implementation might require such alliance in future. Also the fear of larger pie going to the consultancy company also keeps such alliance at bay. Nowadays companies like Accenture doubling up as consultant and system integrator might result in synergies in this space. Companies like Infosys and Wipro who currently work as System Integration but are working back towards establishing a consultancy arm, which might later result in better synergy.
Last but not the least, some of the Product companies also have long standing relationship with Hardware providers. Together they claim to focus on seamless installation and enhanced performance in a tried and tested environment. Some of the Trading Companies tend to award turnkey projects to consulting companies. Under such projects, consulting companies look for a collaborative bid where they can get product companies, hardware companies, systems integrators under one single bid.
Though there have been claims of many alliances across all the services, there has not been a single long standing successful relationship for any one company. New regulations and proposed standards have been driving the demand for ETRM products in maturing markets. Whereas, data integration and process consolidation have been the driving factors for matured markets. With another trough of ETRM software business cycle or with demand from large companies for single seamless software, we might see many such alliances being worked out and hope to see couple of success this time.