A Key Takeaway from Descartes’ Global User Group Conference

Steve Banker and I attended the Descartes Global User Group Conference last week. The last time I attended this event was at least a couple of years ago and a lot has changed since, especially when you consider that the company has completed 14 acquisitions over the past four years. There were 220+ attendees at the conference, up significantly from last year, representing 120 customers, including Kraft, USIC, Hallmark, Myer, and customers from its Porthus and Imanet acquisitions.

Descartes aggregates its solutions into three categories: Supply Chain Execution (SCE), Mobile Resource Management (MRM), and Global Trade Compliance (GTC). Since there were only two of us, we couldn’t attend every session in these categories. But as I commented last Friday, the MRM sessions seemed to attract the most attention, including a keynote presentation by Kraft and a case study by USIC. We’ll discuss these case studies in future postings.

I came back from the conference with several key takeaways (e.g., MRM will drive the next wave of growth for Descartes), but today I want to focus on just one: Descartes’ vision and mission statements differentiate it from most other software vendors.

Here is how Art Mesher, Descartes’ CEO, described the company’s vision and mission statement in his presentation:

Descartes believes business networks will unite, and a virtual community of global trading partners will emerge. By uniting networks, a new business model, the State of Things United, will be created that enables sustainable change and allows every participant in the supply chain to make a positive contribution towards a better world.

Descartes is committed to uniting business in commerce

  • By uniting global business networks through cloud-based technologies;
  • By offering trade partners a uniform approach to connecting, communicating, and collaborating;
  • By providing accessibility to the necessary content to manage all processes involved.

Does this sound like a “software company” to you?

Yes, Descartes develops and provides software solutions, but it is not a software vendor in the traditional sense. What sets the company apart is its Global Logistics Network (GLN), which has more than 35,000 parties connected to it (manufacturers, retailers, logistics service providers, carriers, customs authorities, etc.) and the GLN is also networked with more than 50 other networks, including the recently-announced partnership with INTTRA. The GLN processes over a billion transactions per year, including:

  • Air HWB, Master Bills, and associated status messages: 100,000,000 per year
  • On-Demand Web Routing Hits: 2,500,000,000 per year
  • Customs Declarations: 32,000,000 per year

In many ways, Descartes exemplifies the “Supply Chain Operating Networks (SC-ON)” business model we first outlined back in 2003 (see “Revisiting Supply Chain Operating Networks”). At a high level, SC-ON is about the convergence of different technologies, processes, and business models. And this convergence is starting to accelerate.

For example, following its acquisition of Sun, Oracle changed its tagline to “Hardware and Software, Engineered to Work Together.” Here is what Oracle’s CEO, Larry Ellison, said at last month’s Oracle OpenWorld conference:

“Our strategy is to take a lot of separate pieces our customers used to buy as components and to deliver complete working systems. That will make our customers’ lives simpler. It is fast and cost effective.”

Ellison also referenced Apple’s success in designing software and hardware products together:

“Steve Jobs [Apple’s founder and CEO] is my best friend; I watch very closely what he does over at Apple. If you engineer the hardware and software, the overall product is better.”

I think Oracle is 2/3 right, especially when it comes to supply chain and logistics. It’s the coming together of software, hardware, and networks that will transform the way companies power their business processes. This convergence is evident elsewhere (see “IBM to Acquire Sterling Commerce: The Big Picture”) and is just one of several other convergence trends (e.g., the coming together of SCE, MRM, and GTC; the convergence of SaaS 2.0, Web 2.0, and BPO) that Descartes aims to exploit.

“Accelerating time-to-value” has become the mantra of all software vendors today, and Descartes is no exception. Can traditional software vendors deliver faster time-to-value than they have in the past? Absolutely, thanks in part to improvements in how software solutions are architected. But can software-as-a-service (SaaS) and network-based solutions deliver value even faster? I believe so—not only because I am, admittedly, biased towards this model, but also because that has been the experience of the many companies I have interviewed over the years that have taken the SaaS route.

The challenge for Descartes is that many people still don’t fully understand what it does. Art Mesher talks about “federated networks” and the “State of Things United” and “Standard Transactions Automating Multi-Party Processes.” If analysts like me have a hard time grasping some of these things, surely many prospective customers don’t get it either. Customers, especially shippers, still think in terms of software applications like TMS and WMS, not in terms of “uniting businesses in commerce.” I suspect Descartes gets left out of many shipper deals simply because companies don’t know the full breadth of its solutions. Even I had forgotten, for example, that Descartes has carrier-compliant parcel and small packaging shipping capabilities, as well as a “lite” WMS (both via its acquisition of Scancode in 2009).

Then again, considering Descartes has posted 23 consecutive quarters of profitability and broke the $100 million run rate for the first time in September ($25.2 million in Q2FY11), whatever market confusion may exist is working for them (or at least not hurting them). In fact, over the past five years, Descartes’ stock (DSGX) has outperformed its peers in the industry—and even Google! Not bad for a company that was on the brink of bankruptcy several years ago.

Descartes Stock Performance vs. Peers (Source: Yahoo; click to enlarge)

Art attributes the turnaround to the company’s shift from a “culture of selling” to a “culture of serving” (a phrase that I will borrow from now on) and taking a “customer-focused, results-based” approach to everything it does. But Descartes is far from perfect. Every technology company has unhappy customers, and Descartes is no exception. And its solutions are not all best in class. But if you agree with what I wrote back in February, that what companies really want to buy are outcomes, not software, then Descartes’ vision and mission statement are right on target.

(Note: Descartes is an ARC client)