Anaplan grows into a platform play - is that enough?
- Anaplan is on a roll at the moment with stellar growth and a unicorn valuation but it has to do much more than simply declare itself a platform play.
Anaplan, a CPM (corporate performance management)/EPM (enterprise performance management) software vendor, continues to evolve and grow. Their recent user conference, Anaplan Hub17, provided a number of insights and access to customers and partners. Here are the key take aways:
- For a product line that competes with a lot of planning/budgeting/forecasting/consolidation software vendors, a number of customers are using the solution for other business purposes. In a conversation I had with executives from a major luxury goods manufacturer, their firm is using Anaplan to manage their supply chain. Interestingly, this company wasn’t the only firm doing so. Apparently, the SCM (supply chain management) functionality in major ERP software isn’t up to the task. Customers want a tool to give them better visibility into the provenance of their raw materials, tracking the shipment’s progress, etc. Convenience store chain Circle K is implementing Anaplan for its fuel supply chain. Sonos, the wireless sound system manufacturer, is also using Anaplan to manage the supply chain of its 200 global suppliers across over 2000 product components. Interestingly, the business need for a better SCM solution is so great that Anaplan now sees 14% of new sales in SCM applications. SCM software does need better forecasting capabilities, generally, but just imagine how much better it gets when it utilizes big data and algorithms.
- Growth outside of the F&A (Finance and Accounting) area is something Anaplan is doing well and many competitors are still slow to embrace. In fact, one Anaplan vendor touts its CPA and financials pedigree to the exclusion of other functional or operational areas. Yes, many CPM/EPM vendors can incorporate operational, big and dark data into their forecasting capabilities but they don’t have offerings targeting these areas. Anaplan is encouraging its partners (e.g., Deloitte and Accenture) to build solutions into more vertical and horizontal areas.
- Growth exists in sales planning, too – I had a chance to speak at length with an executive from solution partner Voiant. Anaplan can be used for sales forecasting, commission planning/modeling, severance calculations and more. Call center applications may be quite valuable, too. The opportunity to use more machine learning in this area could be a real growth area for Anaplan.
- This moving from one functional area (i.e., F&A) to others represents the same “land and expand” strategy that ServiceNow has successfully used the last several years. ServiceNow started with ITSM (Information Technology Service Management) solutions but found that their platform and tools could be used in other functional areas. HR (Human Resources) was one of those initial success areas. ServiceNow was able to sell and land deals in IT departments but once there, other departments would notice improved service levels and the new IT tools. These operational improvements would be desired by other functional departments and so the ServiceNow solutions would spread beyond IT. Anaplan is clearly working this same game plan.
- But the market for traditional planning/forecasting tools is still vibrant. I spoke at length with an executive with a global beverage company and they’re using Anaplan in F&A. It seems that all of the old problems companies have with planning & budgeting are still there. I guess as long as there are companies with too many spreadsheets, too much systems diversity, etc., then F&A will need a great, global CPM/EPM tool.
- Not surprisingly, lifetime customer revenue/monthly recurring revenue has been growing. For a cloud SaaS solution provider, Anaplan’s revenue per customer is quite respectable. This is indicative of two things: the company continues to move upmarket into larger accounts, and, the company’s “land and expand” strategy is working. The company is cross-selling into different departments of the same customer. These add-on sales often come with little competition and lower selling costs.
- Margins look good, too. When strategic partners develop industry or functional variants of the product, the partners incur a lot of the sales and development costs that Anaplan might have borne. Instead, Anaplan is conserving its R&D budget for its platform and core functional development activities while partners pursue more finite product extensions.
Here are some quick statistics relative to Anaplan’s performance of late.
- Several large, marquee customers have recently signed up including American Airlines, Merck and Anheuser-Busch InBev.
- Total customer count is now over 660 representing approximately 130,000 users
- New sales offices opened in Japan and China
- Subscription revenue grew 75%+ year over year
- Total revenue now at $120 million
The road ahead
Anaplan is in that awkward teenage growth spurt stage of a software company’s lifecycle. It’s growing fast and feels like it is invincible. Customer enthusiasm for the products is great and this just buoys that feeling along. Here are potential challenges the company will need to manage:
- Platforms, especially digital ones, are everywhere. While attending Hub17, I received a briefing request from yet another serial entrepreneur I know well. Appears that he and others I know have been working, sub rosa, on a platform to guide firms into the digital era. I’m getting lots of these calls of late. Yes, platforms are great but how many will the market need and whose platform will reign supreme (with apologies to Iron Chef for that last bit)? Anaplan can’t afford to have just another platform – it must develop one that is the envy of all others. That’s a tall order.
- Platform conflicts will certainly occur in the market. Prospective customers who also have Salesforce may have Force.com. ServiceNow users will wonder why they need ServiceNow’s platform and Anaplan’s, too. These platform discussions could slow the sales process and start the kinds of religious wars that have plagued mankind for millennia.
- Some partners can be fickle. It’s great that partners are using the Anaplan tools to build some vertical solutions but beware. If these partners encounter a prospect that wants a solution built on a different platform, they’ll build it. How will Anaplan keep the loyalty/fealty it has with partners long-term?
- Not all partners are the same. Some of Anaplan’s partners are integrators that build industry knowledge into the base product and resell the solution. Other partners include major management consultancies. These consultants use Anaplan as a tool to model proposed recommendations and strategies to clients. If clients like the tool, they’ll subsequently license/subscribe it from Anaplan. Anaplan will want to keep both channels alive and vibrant.
- There are only 500 firms in the Fortune 500. While the company has enjoyed success in the Fortune 500 large enterprise space, it is a small club. Competitors (old and new) have secured a lot of that business already. Short-term, Anaplan will use its land and expand strategy to further its inroads into existing large customers. But, if Anaplan is to grow long-term, it must do so globally and/or move down-market. Global expansion seems fine to management but the company’s executives seemed to have little appetite for going down-market. Yes, the sales costs are similar to a large enterprise deal and the revenues are less, but, continued growth may require more novel ways to serve the mid-market. The company has a couple of years to figure this out. In the meantime, Host and Adaptive will continue to make inroads.
- More digital/IoT examples are needed. While I get the power of the platform story, I was left wanting. I wanted to hear more examples of firms using the Anaplan tools to pull in monstrous piles of sensor, unstructured and other big data sets to make better decisions and achieve better business outcomes. New Anaplan CEO Frank Calderoni indicated that Anaplan will pursue two development paths: evolving and transformative. The former will continue to expand the functionality of existing solutions in measured ways while the latter will drive more expansive changes.
These are heady times for Anaplan. They need to be heady in order to justify the company’s unicorn valuation. Short-term, the company should have little trouble making its growth and revenue targets. It’s already operating at a cash-flow neutral/positive manner.
I was impressed at the number of women in attendance and in speaking roles. As a frequent attendee and speaker at financial accounting venues, it was nice to be at one not dominated by men.
Competition, especially from large, growing financial accounting and ERP vendors could intensify in the near term. Oracle will likely cross-sell its Hyperion solutions to NetSuite customers. Workday will ramp up its sales of its own budgeting tool. And, let’s not forget that Host Analytics, Adaptive Insights and others aren’t going to go away either.
Should be an interesting story to watch unfold.