In my earlier posts, I discussed the likelihood of the e-invoicing market consolidating from its highly fragmented landscape of 400 vendors today down to a smaller concentration of 20 vendors over the next few years. As the market matures there will be insufficient new business to sustain such a high number and diverse range of vendors. Eventually, no e-invoicing vendors will remain as the technology is consumed into four larger business models (business process outsourcing, transaction banking, procure-to-pay applications and B2B integration). Cutthroat competition along with a price war will occur that results in rapid consolidation of the vendor landscape.
During the next few years e-invoicing will continue to experience double digit growth rates. The fastest uptake will be amongst public sector entities and multi-national corporations, which stand to gain the largest economic benefits with the migration away from paper. Once the “low hanging fruit” is picked over, there will be increased competition to win the next tier of adopters. However, the second tier will derive less financial benefit from a switch to e-invoicing. Cutthroat competition will emerge to win new business with the majority of vendors ultimately being unsuccessful. These vendors will be forced to merge or liquidate. A side-effect of the competition will be a price war that will dramatically reduce the cost of e-invoicing. The general price competition and market over-supply will result in a perceived commoditization of e-invoicing from corporate and public sector customers.
What EDI Pricing Can Teach Us about E-Invoicing
History provides some clues as to the pricing dynamics that are likely to occur as the market consolidates. Consider the traditional EDI model for e-invoicing which has been popular for over 20 years in the production value chain for automotive, electronics, manufacturing and retail. As the market consolidated and alternatives to traditional EDI emerged (web-portals, e-marketplaces) vendors experienced significant pricing declines. By my estimates EDI invoicing has experienced a price erosion of almost 90% over the past 10 years. In 2000, vendors could command a $0.30 for an e-invoice in many cases. However, in North America today, many large corporations pay as little as $0.03 per invoice.
There are already e-invoicing vendors which offer services for free to prospective buyers. Consider TradeShift and Maventa which offer free in-network exchange of invoices between buyers and suppliers in Northern Europe. The business model of these vendors is based upon customers paying a premium for external transactions outside of the network. I will provide more thoughts on free B2B e-commerce models in upcoming posts.
2 Responses to “The Coming Price War in E-Invoicing”
Thanks for the comment. I will be writing a follow up post on free e-invoicing and EDI vendors in December.
Dear Steve,
thank you for your sharp analysis.
I would like to know more about the business model of e-invoincing vendors like Tradeshift and Maventa.
Marco