If you’re not yet a subscriber to CommodityAlert, you can sign up here.

The number of times I have seen the phrase “the science is proven” when it relates to the potential impact of manmade CO2 on the Earth’s climate astonishes me. For some, the very fact that I even termed this a “debate”
above will be enough—however, do please keep reading. But let us look at whether, in fact, the science is proven and we may find that idea that the “science is proven” or, even that the majority of scientists agree, is simply not true.

The Philosophy of Science

Science, as I was taught by the professor of Geological Sciences at the University of Strathclyde as I started my Ph.D., is about creating a working hypothesis that explains all of the observable facts. This working hypothesis must be presented for peer review by the community of scientists who will attempt to find flaws in it. If no flaws are immediately found, the hypothesis may be accepted as the best hypothesis available until such time as it fails to explain a new observation. At which time, it may be amended or scrapped in favor of a new hypothesis. In this way, science and scientists are progressively working towards the ultimate hypothesis but they may never actually know if they got there. There is no such thing as a proven hypothesis. There are just accepted (temporarily) hypotheses. We all know examples of this from our schooldays such as Newton’s laws and how those were eventually modified and replaced by Einstein and others’ improved theorems. We may even have read recently how scientists may have discovered particles that appear to break Einstein’s laws.

In other words, a hypothesis is never actually “proven” and by suggesting that this is so demonstrates a misunderstanding of what science actually is and how it is properly performed.

The problem with the global warming debate is that I (or anyone) can rightly say that they observe the effects of climate change on the world. “I see it with my own eyes.” This statement is true—we do observe climate change all around us—but how this then must mean that man made CO2 is responsible is, I would argue, based on a leap of faith. The Earth’s climate isn’t static, it changes through time both globally and regionally. Such changes may be observed in our lifetime as well as the geological record (Figure 1). From a scientific perspective, over the course of our short lives about the only factual thing we can prove relative to climate is what we already know to occur—that the Earth’s climate changes.

The Key Question Then is, “Why?”

Logical reasoning suggests that, if the Earth’s climate has always changed through time (more than four billion years of it), then we must look for the mechanisms behind those changes through that entire period of time. In other words, if nothing new is occurring now, then the answer to what drives climate change must be some broad set of systemic Earth processes. We even have some ideas about what these processes are. They include things like continental configuration, ocean currents, cloud formation and cover, solar activity, and much more. It’s a very complex set of processes that are not entirely understood (i.e., the science of climate is, in fact, a long way from being “proven”).

Why, then, the focus on CO2? A gas that occupies such a minimal proportion (parts per million) of the planet’s atmosphere that logical thought would immediately discount the idea that minor fluctuations of the stuff could cause much of an issue on a global scale. We also know that in the distant past the Earth’s atmosphere contained significantly more CO2 without much of a discernable impact on temperature (Figure 1). In fact, today, our atmosphere is actually CO2 impoverished by comparison to the geologic past.

For me, it intuitively feels wrong that C02, a gas for which Mother Earth appears to have many processes to regulate it (so-called carbon sinks) could possibly be the sole culprit? And while some may react strongly to me having this doubt, please keep in mind it is doubt that helps to drive better science. We must never stop asking ourselves, “Do we have this right?
What can we do to continue to gather objective data and analysis?” This is the basis of good science.

Politics and Belief

The potential problem, as I see it, is that the question of climate change has become politicized to the point where criticisms or even critiques of analysis or data are met with an immediate dismissal or fierce opposition.
Climate science has become anything but science with believers on both sides of the debate who seek to block the publication via peer review of opposing views, attempt to discredit each other both professionally and personally, and resort to the utilization of fear making sound bites delivered via the global media. Research funding isn’t readily available to those who seek to probe the currently accepted hypotheses.

A good example of this is the recent findings by The European Organization for Nuclear Research (CERN) published in Nature¹ magazine.
CERN has called for climate models to be changed in the light of its findings calling the findings rightly “politically sensitive.” Why? because the research shows rather definitively that cosmic rays do seed clouds in the atmosphere which impacts climate change and this requires computer climate models to be overhauled. In the press briefing from CERN regarding the experiment, they said,

“Based on the first results from CLOUD, it is clear that the treatment of aerosol formation in climate models will need to be substantially revised, since all models assume that nucleation is caused by these vapours and water alone. It is now urgent to identify the additional nucleating vapours, and whether their sources are mainly natural or from human activities.”²

CERN built a stainless steel chamber to as accurately possible recreate the Earth’s atmosphere to test the idea that clouds may be the primary driver of global climate as opposed to CO2. It, therefore, tested the relative importance of one aspect of the factors involved in climate change outlined above. In this chamber, 63 CERN scientists from 17 European and American institutes demonstrated that cosmic rays promote the formation of molecules which grow in Earth’s atmosphere and seed clouds, making it cloudier and cooler. While it may not disprove the idea that CO2 is responsible, it casts further doubt on that theory.

But the real story here is just how politically complex it was for CERN to fund and conduct this experiment. In an intriguing article written by Lawrence Solomon for the Financial Post, we learn the truth behind this experiment. I quote verbatim.

“The hypothesis that cosmic rays and the sun hold the key to the global warming debate has been Enemy No. 1 to the global warming establishment ever since it was first proposed by two scientists from the Danish Space Research Institute, at a 1996 scientific conference in the U.K. Within one day, the chairman of the Intergovernmental Panel on Climate Change, Bert Bolin, denounced the theory, saying, “I find the move from this pair scientifically extremely naive and irresponsible.” He then set about discrediting the theory, any journalist that gave the theory credence, and most of all the Danes presenting the theory – they soon found themselves vilified, marginalized and starved of funding, despite their impeccable scientific credentials.

The mobilization to rally the press against the Danes worked brilliantly, with one notable exception. Nigel Calder, a former editor of The New Scientist who attended that 1996 conference, would not be cowed. Himself a physicist, Mr. Calder became convinced of the merits of the argument and a year later, following a lecture he gave at a CERN conference, so too did Jasper Kirkby, a CERN scientist in attendance. Mr. Kirkby then convinced the CERN bureaucracy of the theory’s importance and developed a plan to create a cloud chamber—he called it CLOUD, for “Cosmics Leaving OUtdoor Droplets.”

But Mr. Kirkby made the same tactical error that the Danes had – not realizing how politicized the global warming issue was, he candidly shared his views with the scientific community.

“The theory will probably be able to account for somewhere between a half and the whole of the increase in the Earth’s temperature that we have seen in the last century,” Mr. Kirkby told the scientific press in 1998, explaining that global warming may be part of a natural cycle in the Earth’s temperature.

The global warming establishment sprang into action, pressured the Western governments that control CERN, and almost immediately succeeded in suspending CLOUD. It took Mr. Kirkby almost a decade of negotiation with his superiors, and who knows how many compromises and unspoken commitments, to convince the CERN bureaucracy to allow the project to proceed. And years more to create the cloud chamber and convincingly validate the Danes’
groundbreaking theory.

Yet this spectacular success will be largely unrecognized by the general public for years—this column will be the first that most readers have heard of it—because CERN remains too afraid of offending its government masters to admit its success. Weeks ago, CERN formerly decided to muzzle Mr.
Kirby and other members of his team to avoid “the highly political arena of the climate change debate,” telling them “to present the results clearly but not interpret them” and to downplay the results by “mak[ing] clear that cosmic radiation is only one of many parameters.” The CERN study and press release is written in bureaucratese and the version of Mr. Kirkby’s study that appears in the print edition of Nature censored the most eye-popping graph—only those who know where to look in an online supplement will see the striking potency of cosmic rays in creating the conditions for seeding clouds.”

Continue to Test the Hypothesis

The implication that man made CO2 is causing temperature increases and that it will result in calamitous impacts for mankind has many far-reaching consequences. Regulation of CO2 emissions impacts each and every one of us and specifically our industry, including potentially higher taxes or costs and ultimately changes in lifestyle. Given that, we should be careful to be sure that these fundamental shifts in lifestyle and business processes are founded on proper science and debate. Other well-supported explanations for the observed changes in climate are emerging and they should not be rejected out of hand, but met with careful critique. The scientific method requires it.

¹ www.nature.com/nature/journal/v476/n7361/full/nature10343.html

²http://press.web.cern.ch/press/PressReleases/Releases2011/downloads/CLOUD_SI_press-briefing_29JUL11.pdf

The announcement last week that OpenLink Financial (OLF), one of the world’s largest CTRM solutions providers, had entered into an agreement to acquire their sometime rival (depending on the industry segment) SolArc has created quite a stir in the market. Though we’ve seen a couple of CTRM vendors change hands at the investor level in the last couple of months, including Hellman and Friedman buying into OLF, this new announcement reflects the largest acquisition of one vendor by another in this space for many years, and is a combining of two of the top five CTRM solution providers.

The announcement is less than a couple of weeks old and, as one might expect, there are a number of elements to this deal that must still be worked out. Nonetheless, I did have the opportunity to engage in a bit of Q&A with the leaders of both companies, Kevin Hesselbirg, CEO of OLF, and Brad Anderson, the founder and CEO of SolArc, to get their thoughts about what prompted the acquisition, the value of the deal for their clients, and whatever thoughts they could share about the future direction of the combined company.

Patrick Reames (PR): When is the acquisition expected to close?

Kevin Hesselbirg: We expect our acquisition of SolArc to close by the end of 2011, subject to legal and other regulatory approvals.

PR: What do you see as the primary synergies that can be expected from this combination of companies?

Mr. Hesselbirg: OpenLink and SolArc both share a culture and philosophy focused on delivering high quality, market leading solutions, which are customer driven; we are both focused on creating value for our customers.

Combining the shared values and talents of our organizations will enhance our ability to meet market trends including the convergence of physical and financial traded markets, and continue to develop leading solutions, such as our SmartETRM platform. This platform is designed to allow market participants to manage their operational and financial risk and the associated complexities of physical delivery and settlement from a single vendor.

Brad Anderson: The greatest benefit of the two companies combined will be the ability to provide our respective current and prospective customers an unparalleled, single-vendor solution for all of their commodity trading and risk management needs.

Combining the best-in-class capabilities of both companies’ products will provide customers enhanced functionality with a lower total cost of ownership.

PR: What were the primary drivers for your company in pursuing this acquisition?

Mr. Hesselbirg: Ultimately, it is our main focus to meet client needs with a more comprehensive solution and to leverage the IP of each entity as a combined unit. The additional value of SolArc as a complementary provider furthers our commitment to our customer base. The trusted vendor reputation of both companies and newly combined offering enables us to extend the footprint at existing customers, and improve overall customer satisfaction.

Furthering that, the unparalleled R&D investment of both organizations will allow us to accelerate time to market on emerging industry concerns and important new markets, benefitting both our clients and the marketplace.

Mr. Anderson: We have always focused on driving value to our customers. We believe delivering long-term customer value is the key to long-term success. The most effective and efficient path to additional value creation was to partner with a complementary provider such as OpenLink.

SolArc’s leadership position in bulk commodity physical management is the perfect match to OpenLink’s market-leading position. This value is best represented by our mutual customers.

Together, we will be better able to leverage the R&D dollars the other has already spent. This creates value for the customer and the two companies combined.

PR: What’s the leading value proposition for your company’s customers?

Mr. Hesselbirg: As a combined entity we will have an unprecedented overview of the overall market needs and will be able to maintain a global industry level conversation with the true market leaders-our customers. We will be in an ideal position to deliver value and innovation to improve operational efficiencies while reducing risk and meeting the evolving regulatory and market changes of our combined clients.

The combined entity will also position us to invest more R&D dollars than anybody else, which will enable us to continue to transform market requirements, emerging trends, and strategies into viable, valuable, best-of-breed solutions for our clients.

Mr. Anderson: We have a number of mutual customers already. These customers will benefit from better collaboration with the two companies combined, reduce vendor relationships, and simplify systems architecture with greater overall functionality.

Additionally, a customer currently benefiting from one company’s products will have the opportunity to leverage the other company’s products and their capabilities. For example, many of SolArc’s customers have significant operations in the electric power markets which SolArc does not support. OpenLink has a market-leading solution for power. Customers will benefit from the complementary nature of our offerings.

PR: Will SolArc’s RightAngle continue as a standalone product offering in the future?

Mr. Hesselbirg: While we cannot comment on future product direction at this time due to regulatory issues, we are committed to the existing roadmaps of both companies’ products.

Mr. Anderson: Yes. We are committed the existing roadmaps of both companies products. We are anticipating the delivery of our RightAngle S12 release in 2012.

PR: OpenLink and SolArc have competed for opportunities and do share capabilities (such as crude trading and physical logistics)—will there be an attempt to reconcile those capabilities/products in order to create a single CTRM product offering?

Mr. Hesselbirg: Historically we have competed on very few opportunities. We consider the merger to be extremely complimentary to both companies because we have different expertise in different areas.

Both companies/products provide best-of-breed solutions for their respective customers’ needs. Historically, we’ve each served distinct customer needs. Again, though, we cannot make forward statements about product at this time.

Mr. Anderson: There are no current plans in place for merging the products.

PR: What role will Brad Anderson play in the combined organization?

Mr. Hesselbirg: Brad will become a valuable member of the OpenLink Management Team and continue to oversee RightAngle product strategy and customer relationships.

Mr. Anderson: I’m looking forward to taking a very active role as a member of the OpenLink management team and continuing provide guidance and direction with regard to product strategies for the SolArc product lines.

PR: Will there be an immediate combining of offices/functions between the two companies?

Mr. Hesselbirg: Our priorities are to work on customer and product issues first and foremost. We have an integration team in place who will be working through issues to determine the most efficient and effective way to deliver our products and services to the marketplace.

PR: With OLF’s most recent acquisitions, the acquired companies have remained somewhat independent—is there an expectation that SolArc will continue to operate in a similar manner?

Mr. Hesselbirg: OpenLink’s philosophy has been to handle these situations as mergers, being respectful of the employees, the innovation, and the products that helped create each company’s success. This model results in a higher level of independence for the acquired company, which has previously not been the norm in the industry.

As with previous transactions, we will invest significantly after the acquisition. This strategy has allowed our previous acquisitions to grow dramatically.

PR: How well do the products (RightAngle and Endur) mesh technologically?

Mr. Hesselbirg: At this time, due to regulatory and legal obligations we have not been able to review each other platforms at the detailed level. However, both solution suites are built with technologies that facilitate interoperability, and we share customers who utilize the market leading qualities of both solutions already.

Mr. Anderson: Both products are built on technologies that allow for interoperability between platforms. We have many mutual customers that “meshed” our products together, and we expect to work closely with them to leverage their experience and reduce their support burden over time.

PR: This deal appears to be of most benefit to each company’s banking clients—what are the benefits to the combined companies’ non-banking clients?

Mr. Hesselbirg: Any of our customers engaging in both physical and financial trading activity merging logistics functionality, will benefit.

We will continue to strive to improve our capabilities through the conversion of shared vision into delivered solutions; fulfilling our clients’ increasingly complex and evolving market needs—in the markets and industries we serve. This includes Banks as well as energy and agricultural companies.

Mr. Anderson: While our banking customers will see obvious benefits, we actually have more common customers outside of banking than we do within banking. Energy and agricultural customers will benefit in the much the same way as our banking customers.

PR: What is the overlap in client bases between the two companies?

Mr. Anderson: The overlap in client base is slight, approximately less than 15% of SolArc’s current customer base and less than 5% when compared to the entire customer base of the to be combined entity.

PR: Does this acquisition expand OLF’s market reach outside of the top tier of the market, an area in which OLF has traditionally been most successful?

Mr. Hesselbirg: All of our customers are using our sophisticated solutions in extremely complex and evolving markets.

OpenLink has never viewed our go to market approach based upon a particular tier, but rather a level of sophistication to meet their business needs. We consider all of our clients to be top tier regardless of traditional metrics for determining tier such as market capitalization or revenue.

PR: Is there advantage in this acquisition in terms of OLF’s pursuit of the agricultural markets?

Mr. Hesselbirg: Both OpenLink and SolArc have been increasingly focused on improving solutions in the agricultural marketplace:

• SolArc being a first mover in the wider commercial industrial section (e.g., airlines, CPG, Manufacturing) which includes agriculture
• OpenLink having the largest number of customers in this space, through dbc (OLF’s supply chain/CTRM solution for grain producers, traders and wholesale consumers).

Therefore, neither one of us would view this combination as a change in strategy to address this important industry group.

PR: SolArc has been a market leader in innovating data/transaction visualization. Is there an expectation those capabilities will be leveraged into Endur and the other OLF products?

Mr. Anderson: Absolutely; we expect that SolArc’s experience and leadership position in the area of data visualization and usability will mature more aggressively in the combined company.

PR: Are there any anticipated synergies between RightAngle and the IRM products?

Mr. Hesselbirg: Due to regulatory and legal obligations, we’re not able to discuss product specific questions at the detailed level at this time; however, both solution suites are built with technologies that facilitate interoperability, and we share customers who utilize the market leading qualities of both solutions already.

PR: Does this acquisition move OLF closer toward a public offering?

Mr. Hesselbirg: This acquisition is a new chapter at OpenLink with our new supportive owners. As demonstrated by our recently completed transaction event with Hellman & Friedman, OpenLink has never had a problem attracting investor interest in our growth platform and our vision for the marketplace.

An IPO is just a different variation of a financing vehicle and we would make a decision on that step if it made sense to so do it. At this point in time, we have no plans to pursue new capital investors.

CommodityPoint’s View of This Transaction

With limited client overlap, there should be little pressure from the combined company’s customer base to merge the Endur and RightAngle product lines, allowing OLF to continue to operate SolArc as a somewhat independent entity, much as they have with the IRM and dbcSmart acquisitions. While on the surface this strategy would seem not to create great operational efficiencies, experience has shown that attempting to force-fit and merge acquired E/CTRM technologies into a singular product line has rarely, if ever, yielded significant positive benefit; in fact, such strategies generally lead to increased customer dissatisfaction and significant loss of clients for the merged entity.

In our view, the greatest benefit of this acquisition will be a sharing of knowledge and experience between the two companies. Each has a long history in this market and has developed market leading capabilities—OLF in the areas of multi-commodity trading, risk management and analytics, and SolArc in the area of bulk commodity trading and logistics. The ability to leverage capabilities and resources across the two platforms should ultimately create ever improving offerings from both, enabling the combined company to win new clients that individually they might have otherwise lost to their competition.

Mike Muse: We started Woodlands Solutions because we kept hearing from energy companies that they weren’t able to find an ETRM solution that fit both their requirements and their budget leading many of them to continue on with their internal solutions, often not much more than a collection of spreadsheets.

Having essentially spent our entire professional careers working with ETRM solutions, my partner and I were confident that we could provide them with a solution that met both criteria. So, we started Woodlands Solutions with a mission of providing energy organizations with a cost-effective and feature-rich ETRM solution. And from the response to date, we believe we’re achieving that mission.

Dr. Vasey: You decided to focus on the natural gas side of the E/CTRM software market initially—why?

Mr. Muse: Well, when you’re building an ETRM system from the ground up, there is quite a lot to get done. And, although our vision for Phoenix from the beginning was, and is, full support of all energy commodities, we knew from our discussions with various shops that gas marketers felt particularly priced out of the ETRM market. In addition, we knew from our prior experience starting up an ETRM software company that some of the other vendors might try to block us in the market if they perceived us as a threat, so being seen by them as a gas only system was useful, as well.

With that said, because of the way Phoenix is architected , it doesn’t really matter which commodities are being traded. As you saw in our recent demo, users are able to define the commodities they trade, as well as their associated trading attributes. So, even our first customer could have captured other energy commodities. Still, because we took a very structured approach to the development of Phoenix there were gaps in earlier versions with respect to specific energy commodities. For example, the price shaping functionality wasn’t in the system until version 3, so power customers would have struggled with anything other than simple block deals. But version 5, which was released at the end of 2010, is fully capable of supporting the other energy commodities.

Dr. Vasey: Your approach to designing Phoenix appears to us to be rather unique, utilizing a data warehouse-centric architecture (cube concept). Can you describe what the “cube concept” is, how it’s architected and why you took that particular approach?

Mr. Muse: For us, the cube approach is the culmination of many years of work trying to address our customers’ reporting needs. As CommodityPoint’s research has repeatedly shown, the inability to get data out of ETRM systems is a top complaint among ETRM customers. We believe this is caused not just by variations in the types of customers using ETRM systems, but more directly by variations in how a given system was implemented at the various customers. Each customer will implement a system slightly differently, using fields and functionality differently from other customers on the same system. Having lived this for many years, we believed what was really needed was a data warehouse of position data, something that allowed users to create ad hoc reports to answer unforeseen questions regardless of how the system was configured.

So, when we were designing Phoenix, we actually designed it as a series of sub-systems. There’s a deal capture sub-system, a market data sub-system, and there is a position sub-system, or what we call the Phoenix Core. The Core is in reality a data mart, or a one application data warehouse, that serves as the heart of the system. However, unlike many data warehouses, the data in the Core is live and kept up to date by the integrated distributed processing engine. This is invaluable, as it ensures that the various business functions are all seeing the same information and thus negates the need for reconciliations between those functions.

For our customers, it’s sometimes easiest to think of the Core as a giant spreadsheet with each row in the spreadsheet containing position attributes as well as values and sensitivities. A single deal may result in many “rows” in the spreadsheet. The values and sensitivities columns in this “spreadsheet” are additive across any of the position attributes in the “spreadsheet.” Moreover, the position attributes include pretty much everything related to the position, including custom fields. As a result, users can quickly create and share ad hoc views of their positions. In addition, users can take a snapshot of the Core at any time and report across those snapshots and the live version of the Core, allowing users to view how their standard and ad hoc positions have moved over time. And of course, all of the tools users need to create and share these reports or to visualize their position data are included within Phoenix.

Dr. Vasey: How do you see Phoenix evolving in the future in terms of functional and commodity coverage?

Mr. Muse: Well, as I mentioned before, we took a very structured approach to developing Phoenix. So, of course, one of the very first things we did was to develop a detailed product road map of which features and functionality would be in each release. The release of version 5 at the end of last year represents the core of the application but our current roadmap goes out to version eleven so there is always more to do. With that said, now that the underlying infrastructure is essentially complete, we get to start focusing on the fun stuff —pushing the envelope with respect to features and functionality.

Dr. Vasey: Woodlands Solutions talks about the concept of “Affordable ETRM. ” Can you define that and explain why you think this is important today?

Mr. Muse: Well, as we were discussing a minute ago, in my previous roles I spent a lot of time in front of potential customers and heard many voice frustration at not being able to find an ETRM solution that met their requirements without costing them a small fortune. And the frustration is not just with the licensing costs. More often than not, these discussions also included a recounting of the latest ETRM implementation horror stories, like the customer that tried and failed three times to update one vendor’s solution to the latest version or the currently ongoing ETRM implementation project at a large energy company that is approaching the one billion dollar mark.

These horror stories, as well as the high licensing and maintenance costs, have led many energy companies to do nothing or to build out their existing internal solution—which again, is often not much more than a collection of spreadsheets. That’s problematic for them because they know that with tightening credit, new regulatory burdens, and other ongoing market changes, energy companies really do need an ETRM solution to help them manage their risks and improve their margins. Put simply, companies that can do more with less are going to have a huge advantage in any commodity marketing business.

So for us, “Affordable ETRM” means a solution which meets customers’ functional requirements but which is much less expensive to license, install, and maintain. Hence the tag line in our ads: “The functionality you need, a price you can afford.”

Dr. Vasey: How do you see the broader market evolving for E/CTRM software generally and what role would you like to see Woodlands Solutions play in that evolution?

Mr. Muse: Well, we’re hoping the top tier vendors will stay on the same path they’re on so that the second tier market will continue to grow in importance. And I’m not sure, given their constraints, that they have much choice. I think there’s already a dichotomy in the market to a certain extent, with large companies choosing from amongst the top tier vendors and small to mid-sized companies choosing between top and second tier vendors. We’re hopeful that will continue to accelerate as customers increasingly question whether the top tier vendor’s goals are aligned with their own. Take, for example, the switch from ETRM to CTRM. An LDC here in the United States or a mid-sized crude marketer in Canada knows that change in focus doesn’t really help them. So we’re hopeful that customers will recognize that some of the second tier vendors may be a better bet, and I think our recent sales to some larger, publicly traded companies is an encouraging sign that things are beginning to move more quickly in that direction.

Michael Muse Co-Founder and CEO Woodlands Solutions, LLC Mr. Muse has spent his entire professional career providing process and technology services to energy trading and marketing organizations. He received a BS in Accounting and a MS in Information Systems from Louisiana State University. He began his career with Andersen’s Financial and Commodity Risk Consulting practice, working with energy trading companies such as Coral, Aquila, Suez (formerly Tractebel), PG&E, and others on technology related projects. In 2000, Mr. Muse left to be a founding member of Woodlands Technology, a startup developing a next generation Energy Trading and Risk Management solution still marketed today. In 2004, a subsidiary of Siemens acquired the assets of Woodlands Technology as an expansion of their energy management portfolio after which Muse continued to serve in a product management capacity with direct responsibility for the ETRM product. In 2007, Ventyx acquired and consolidated the Siemens business unit and several others at which time Muse was promoted to Vice President and made responsible for the ETRM practice area. Muse left Ventyx in 2008 to create Woodlands Solutions with his partner, Steve Wall.

Note: Woodlands Solutions is a CommodityPoint client.

]]> http://www.ctrmblog.com/2011/10/an-interview-with-mike-muse-ceo-of-woodlands-solutions-on-affordable-etrm/feed/ 0 http://www.ctrmblog.com/2011/09/an-interview-with-mr-austin-morris-managing-partner-sungard-global-services/ http://www.ctrmblog.com/2011/09/an-interview-with-mr-austin-morris-managing-partner-sungard-global-services/#comments Fri, 23 Sep 2011 06:42:09 +0000 Gary M. Vasey http://www.ctrmblog.com/?p=1077 Recently, CommodityPoint published its research report, “Commodity Trading and Risk Management Consultants & Systems Integrators in Trading & Risk Management Market Research and Report, Part One—North America¹,” which looked at the consulting and systems integration landscape as it relates specifically to E/CTRM software in North America. One sponsor of that study was SunGard Global Services, and we recently discussed some of the report’s findings with Mr. Austin Morris, Global Managing Partner, Energy at SunGard Global services.

High Demand for Services

The study indicated a high-level of demand for services around E/CTRM software with some 65 percent of the respondents saying they would procure services in the next 12-24 months. “People don’t do these projects every day,” said Mr. Morris. “They are looking for someone who has done it before especially in more complex situations like electric power and/or multi-commodity or global implementations.”

Mr. Morris sees the global macroeconomic picture changing and driving more evaluations of E/CTRM software. “Regulatory change is driving a lot of this behavior, while we also see a trend towards building information management solutions where clients have multiple E/CTRM solutions installed and need to pull together a consolidated view of risk. Additionally, a lot of companies are upgrading legacy solutions that are perhaps 10-12 years old already. They are also taking the chance to improve their business processes so that they can use the E/CTRM software to more effectively support their business as opposed to using it only as an ‘after the fact’ accounting system.”

In petrochemicals, and also the commercial and industrial segments of the industry, Mr. Morris is seeing companies struggling with volatility of supply costs and an inability to pass those costs on to the consumer. This is resulting in the need to hedge and effectively manage their complex logistics and therefore to look at E/CTRM software solutions. However, he warned that these companies also need to carefully evaluate their processes and assess the risks of potentially qualifying as a swap dealer under Dodd-Frank definitions and regulations. Finally, he also sees a lot of emerging market demand where nationalized and government owned entities are also trying to become more aggressive in the market.

Competitive Landscapes

The survey also showed that the E/CTRM vendors are also often looked upon as suppliers of services and Mr. Morris commented that, “This is an interesting dynamic in that we do often compete with the vendors for services. However, the reality is that the integrators and consultants are able to offer broader value-added solutions that the software vendors don’t focus on; integrators and consultants are exceptionally good at providing these,” he said, “particularly in multi-step, multi-year projects.” These types of offerings branch into multi-system systems integration, business process management, information management, and a variety of other capabilities that are typically required when doing a large-scale system replacement.

Mr. Morris continued by reinforcing SunGard Global Services’ deep domain expertise and strong drive towards providing managed services where they see a lot of interest in the market – particularly for those clients operating on multiple E/CTRM platforms. Managed services is the activity of providing level 1, 2 and/or 3 support and application management providing global teams to run and maintain those installed solutions.

Mr. Morris also sees SunGard Global Services as being well-differentiated from other consulting firms in the space. “Our depth of expertise and specific focus on the space means that we believe we are stronger than many of our competitors.”

Bias?

The study also suggested that the idea often mooted in the industry that there may be perceived bias on the part of consulting and integration companies for particular vendors was not strongly accepted. Mr. Morris believes that, “The client will hold the service provider accountable to make the right decisions and that means service providers should always make a recommendation to the client irrespective of the integrator’s bench or delivery capability. SunGard Global Services provides the data to support the recommendation and at the end of the day, it is still the client’s decision. In fact, we provide the empirical data to the client and our methodology and approach helps weigh the best fit for their business.”

Click Image to Enlarge

On the selection process, SunGard Global Services utilize a request for proposal (RFP) template which allows them to complete the project faster. The RFP template is edited to reflect the specific requirements of the client. They also have a strong working knowledge of the vendor landscape that allows them to weed out noise from vendors that really don’t qualify. Mr. Morris also pointed out that SunGard Global Services brings other documentation, templates and economic models to the table which can rapidly accelerate the overall process of selection citing an example of a four-week project to select a natural gas solution in which the RFP template already reflected some 70 percent of the client’s requirements.

On the implementation side, Mr. Morris believes that SunGard Global Service’s ability to bring strong global teams to bear on a project is a strength of the company, along with their development of a set of repeatable processes they can use to streamline activities like data conversion, testing, and so on. These represent best practices and help eliminate costly mistakes, he says.

Candidly, Mr. Morris admits that the SunGard name can sometimes impact the company because of a perception of bias with other parts of the company. There is no bias, he states firmly, and he believes that once clients take a long, hard look at the service provider landscape and SunGard Global Services, they will agree that there aren’t too many firms that can provide the expertise that they do. “We specialize in this area and we can go toe-to-toe with the competition in every geography or market.”

Note: SunGard Global Services is a CommodityPoint client.

¹ Available as a free download from www.ctrmblog.com and www.utilipoint.com

]]> http://www.ctrmblog.com/2011/09/an-interview-with-mr-austin-morris-managing-partner-sungard-global-services/feed/ 0 http://www.ctrmblog.com/2011/09/the-flex-contract/ http://www.ctrmblog.com/2011/09/the-flex-contract/#comments Mon, 19 Sep 2011 08:29:44 +0000 Gary M. Vasey http://www.ctrmblog.com/?p=1029 Recently, I learned about the so-called “Flex Contract” now offered in the United Kingdom (UK) energy industry by energy retailers and reached out to Simon Piercy, Commercial Director at UK-based Energy Trading and Risk Management (ETRM) software vendor, Contigo, to try to find out a bit more about this particular contract type, and what is required in an ETRM solution to cater for these contracts. Flex Contracts provide the ability to procure energy in a more flexible and informed way, and offer an alternative to a one-off contract price. The benefit of the contracts are seen to be greater choice over when to buy energy and the opportunity to make the most of market conditions.

Gary M. Vasey, Ph.D.: What is a Flex Contract and who uses them?

Simon Piercy: Flex Contracts are sold by Energy Retailers to larger Industrial and Commercial customers. The contracts themselves allow these purchasers to monitor the market and to time their purchases (or sales) in line with market conditions. Each contract will have different characteristics, but usually there will be a minimum of a 12-month term, limits for the number of purchases and/or sales during a month, and defaulting rules which apply where volume is not hedged by a particular date in the month. Typically the purchasers are allowed to make a number of volume transactions for each calendar month, at a time of their choosing. These contracts are usually for major energy users, who will have the time and resources to actively track and monitor the market, and understand the risks involved.

Dr. Vasey: Why are they offered?

Mr. Piercy: Energy consumers purchasing for large industrial sites, or a portfolio of commercial sites, will be spending a considerable amount on energy for their business. A typical non-flex sales contract will tie a consumer into a spot price for a significant period. If the energy market moves in either direction, the energy cost no longer reflects the market cost. A badly timed transaction may result in excess cost to the business. A flex contract allows the energy cost to more accurately reflect the market cost.

Dr. Vasey: What is the perceived advantage(s) of a Flex Contract?

Mr. Piercy: The main advantage to the purchaser is that they can monitor the wholesale market and choose when they transact their purchases for the following month. From a retailer’s perspective, it reduces their market risk as they are not engaging in long-term fixed-price contracts; effectively the retailer will back-off their customers purchasing directly into the spot market, reducing any exposure to market volatility.

Dr. Vasey: From an ETRM point of view, what are the issues in dealing with a Flex Contract?

Mr. Piercy: Most energy retailers do not actively trade their customer energy volumes through their retail department; they will usually require their trading department to transact the volumes on behalf of their customers. There is then an information chain between the customer, retail department and trading department to agree and manage both the energy volumes, and subsequently transacted prices.

The ETRM must be able to accurately handle the volumes, prices and portfolio position across this supply chain, and provide accurate information back to the consumer, retailer and trader.

Dr. Vasey: How is the Contigo system configured to handle them and how is this better than other solutions?

Mr. Piercy: enTrader is designed to work vertically across each energy sectors, not just wholesale and trading. Our design allows clients to track the energy volumes and prices throughout the lifecycle. The integrated portfolio management allows the different departments to slice and dice the portfolio information and accurately track and bill the end customer’s volumes, as well as providing reconciliation between trading and retail

enTrader’s extensive software API allows the flexibility to code additional market rules, without changing the underlying core application. For example, it can enforce bespoke rules to trade to clip sizes, maximum number of transactions per month, or to implement defaulting rules.

Dr. Vasey: Do you have clients using this functionality? If so, what can you tell us about their experiences?

Mr. Piercy: British Gas are using enTrader to manage their Flex portfolio for both Electricity and Gas commodities. The system has streamlined their Flex trading operations, and they have retired over 50 spreadsheets as part of the migration to enTrader.

About Simon Piercy Simon Piercy is a Commercial Director at Contigo, and is one of the founders of the company. His responsibilities in include pre-sales, sales, and financial control. As an energy industry practitioner himself, Mr. Piercy has been actively involved in the shaping of Contigo’s enTrader application suite to meet the demands of today’s energy business. Prior to founding Contigo, Mr. Piercy previously working at Powergen and E.ON, and has 16 years’ experience in energy software.

Note: Contigo is a client of CommodityPoint

]]> http://www.ctrmblog.com/2011/09/the-flex-contract/feed/ 0 http://www.ctrmblog.com/2011/09/the-race-for-market-share-in-ctrm-software-can-triple-point-catch-openlink/ http://www.ctrmblog.com/2011/09/the-race-for-market-share-in-ctrm-software-can-triple-point-catch-openlink/#comments Tue, 13 Sep 2011 06:28:54 +0000 Gary M. Vasey http://www.ctrmblog.com/?p=1014 As an analyst who has watched and participated in the E/CTRM Software space for 19-years, I am fascinated by the changes in the vendor landscape as the software category matures¹. Our published sizing of the Commodity Trading & Risk Management (CTRM) software market² recently helped us to establish estimated revenues attributable to CTRM software sales and associated services for all vendors in the broader CTRM space. It confirmed that two vendors; OpenLink and Triple Point, have opened a “gap” between themselves and the rest of the field. Today, we would estimate that OpenLink is the largest vendor on a revenue basis, but that both OpenLink and Triple Point have now grown into sizable global software companies with CTRM revenues in excess of $100 million and look set to fight it out for industry leadership over the next few years.

Triple Point, by our estimates, is growing at a faster pace than the overall market. We estimate the market growth rate to be around 11percent in 2011 and Triple Point’s growth to be more than twice that rate at around 26 percent. OpenLink is also growing steadily but its growth rate is much harder to establish as its revenues have historically been made up sales and associated services around its Endur (energy and commodities) and Findur (Corporate treasury, Finance and Capital Markets) software products. Attempting to determine the relative proportions of revenue streams from both product sets is admittedly essentially guesswork. OpenLink has also added functionality via a number of acquisitions and appears to be having success with its IRM mid-tier ETRM platform to supplement sales of Endur as well as the broader commodities space with its acquisition of dbc SMARTsoft.

However, if current market circumstances continue, there is the distinct possibility that Triple Point could challenge OpenLink’s leadership in terms of CTRM revenue in the next two-to-four years.

OpenLink’s traditional sale has been into the top tier of the industry with Endur, which is essentially a scripted application, offering a good deal of customization. Endur is a good option for companies requiring a more bespoke solution who don’t have the skills in-house for development and the success of this strategy can be attested to by OpenLink’s growth and leadership position. Triple Point’s platform is a more traditional packaged software application using a configurable (vs. customizable) approach, which also offers a lot of flexibility for its customers.

Triple Point and OpenLink are offering two somewhat different approaches to the market providing customers with options. In CommodityPoint’s view, this is good for both the customers and the vendors and there is and probably always will be room for both approaches (scripted versus packaged software) in this market.

CommodityPoint’s view that Triple Point may be catching up with OpenLink is based on our assessment of a number of indirect factors including:

• Tracking of relative brand strength and industry leadership perceptions over the last seven years through our Vendor Perception research;
• Our view of market structure and vendor penetration rates in the various segments and tiers of the industry;
• Our assessment of the available market for both vendors and the changing competitive landscapes within those target markets.

Additionally, CommodityPoint’s assessment of Triple Point’s growth is based on reviewing three key elements of its strategy—alignment with key partners, development of innovative solutions and the acquisition of best of breed companies to broaden its portfolio.

• Triple Point has developed both global and regional strategic relationships with many service providers in order to support its rapid growth. For example, Accenture has selected Triple Point as a global partner for Commodity Trading and Risk Management. In addition to service partners, Triple Point also has a strategic co-development relationship with SAP and currently offers two versions of its software in the form of Commodity XL and Commodity SL; the latter being built on SAP’s architecture and offering tight integration with SAP. In fact, Triple Point’s “special” relationship with SAP has a further benefit in the sense that the Commodity SL solution is marketed by SAP. Triple Point is often leveraged into deals that other vendors may not even have knowledge of. In our view, the SAP relationship has also exposed Triple Point to early trends in the market and provided it with customers who could assist in shaping new areas of functionality—particularly in the commercial and industrial (C&I) segment.
• Triple Point recently introduced an innovative Strategic Planning and Procurement (SPP) module that has functionality to help C&I companies manage raw material price volatility in the procurement process. C&I companies from the transportation, food & beverage and even consumer durable goods industries, have experienced price pressures on raw materials combined with an inability to pass along price rises to consumers of their finished products. With customers such as Unilever, Grupo Bimbo and General Mills, Triple Point has emerged as the leader in providing solutions to C&I companies. Another innovative product introduction by Triple Point is the merging of Business Intelligence with CTRM via its Commodity XL Management Dashboard to provide real-time decision making information to executives.

• Finally, Triple Point’s acquisition strategy has both helped it round out and broaden its offering as well as add that acquired functionality on a timely basis. In particular, its acquisition of ROME, INSSINC and Softmar have produced real dividends for the company allowing it to provide best-of-breed credit, regulatory, and shipping functionality, along with traditional ETRM functionality. These acquisitions, as well as enhancements to the Triple Point product suite, have helped it build a large footprint across all major commodity groups, industry segments and major areas of functionality. This, in turn, has allowed it to target a broader market than many of its natural competitors.

The Future

As software markets mature, it is usual for two to three leaders to emerge in the broader category and, although it is still early, CommodityPoint begins to see such a trend developing in CTRM. In fact, the E/CTRM software category has matured to the point where it is now an attractive and strategic software market and it would not be surprising to see a larger horizontal software company move into the space in the near future.

It’s been interesting to observe the growth of the various vendors over the last five-years during which time Triple Point has emerged from being one of the group to being a leader along with OpenLink in revenue terms. The next couple of years will be interesting, as we believe the two companies will battle it out for definitive market leadership.

Note: Both OpenLink and Triple Point are clients of CommodityPoint.

This article is a follow up to the recent IssueAlert article “The Big Six – The Changing E/CTRM Software Vendor Landscape” published on August 3rd, 2011.

² Commodity Trading and Risk Management Global CTRM Market Size 2010 – 2011 Market Research and Report.

]]> http://www.ctrmblog.com/2011/09/the-race-for-market-share-in-ctrm-software-can-triple-point-catch-openlink/feed/ 0 http://www.ctrmblog.com/2011/08/an-interview-with-eldon-klaasson-ceo-of-allegro-development-inc/ http://www.ctrmblog.com/2011/08/an-interview-with-eldon-klaasson-ceo-of-allegro-development-inc/#comments Fri, 26 Aug 2011 07:11:24 +0000 Gary M. Vasey http://www.ctrmblog.com/?p=804 Eldon Klaassen, CEO of Allegro Development, is one of a select group of entrepreneurs who can be credited with creating the ETRM and, broader CTRM, class of software. That group would also include the likes of Mike Montgomery (TransGas/TransEnergy), Dick Couron (DC Systems), Michael Smith (Ensyte Energy Software), Peter Armstrong (Triple Point), Rusty Braziel (Altra), Brad Anderson (SolArc) and perhaps one or two others. Only Eldon and two others on that list are still actively involved in steering the software category to maturity at the helm of their companies.

Eldon founded Allegro in 1984 and he has an encyclopedic knowledge of the industry, as well as a clear vision of where E/CTRM software is headed. Anyone who knows him can speak of his continued enthusiasm, as well as his persistence. It was, therefore, a pleasure to spend some time with Eldon on the phone to hear his views on the software category and on Allegro generally.

In terms of market drivers, Eldon believes strongly that users’ expectations of E/CTRM software and vendors have gone up as the category has evolved and matured. He points to Allegro’s use of agile deployment as a factor in the company’s ability to continue to attract customers (Allegro has issued a steady stream of announcements regarding new customers this year). This approach involves deploying the software incrementally, delivering at every step of the way against business objectives such as better productivity for traders, better exposure to market price, and so on. Customers, he states, like this as it provides better business alignment, less disruption to the business and reduced risk. Allegro’s ability to utilize agile deployment is, in part, based on its software architecture. This combination allows customers to obtain value quickly and incrementally, he believes, and sees it as an important differentiator for Allegro.

Back in 2007, Allegro took on board a couple of investors—North Bridge Growth Equity and Tudor Ventures—to provide additional capital for growth. According to Eldon, this move has proved to be a good move, and the new board members have contributed to the company’s growth. The company also strengthened its management team in 2008 with the objective of being able to scale better as a business. “For the most part, we got this right,” Eldon told me candidly. Eldon coordinates this team while trying to get a good sense of where the market is going by talking to customers and helping set product direction.

Allegro continues to have a very direct focus on energy. “Most of the market is energy and we are seeing strong growth across energy markets,” reports Eldon. One industry segment that is growing rapidly is the consumer side of the industry. “Some of our customers wouldn’t be thought of as energy companies but, if you looked at their energy consumption, they are, in fact, big energy traders with a lot of the same risks and exposures.”

Naturally, this prompted a question around delivering ETRM on a software as a service (SaaS) basis as CommodityPoint’s study released last year suggested that this industry segment was one in which there was an appetite for SaaS. Eldon basically sees Allegro as being “agnostic” to delivery method saying the decision is with the customer and that Allegro has delivered solutions on customer servers, third-party servers and their own servers. However, “there is still a preference to keep ETRM behind the firewall,” and he viewed CommodityPoint’s 10% uptake for E/CTRM on SaaS as “about right. ”

Asked about the future of ETRM, Eldon returned to his focus on the customer. “Evolution not revolution as E/CTRM software needs to be more nimble and faster, easier to install and learn,” he said. “If you ask the customer what they want, it’s not functions X and Y but a desire for an easier experience in terms of learning how to use and implement the solution.”

Eldon sees ETRM as moving into a typical technology transition as customers are no longer willing to put up with an enormous burden to get the software implemented but rather want the process to be faster, smoother and easier. “We have made the transition from early adopters to customers that are much more demanding,” he says.

In essence, agile delivery and the right architecture are the keys to satisfying these criteria. “Allegro’s architecture allows it to also deliver tools to make extensibility simple in a way that, architecturally, doesn’t touch the core code,” he reports. “Allegro provides a basis on which to try to solve the whole problem as opposed to just the basics.”

As I write this article, Allegro has just announced that is has hired Dragana Pilpovic as Director of Quantitative Analytics. Pilpovic will lead the further development of option models, risk analytics, and functionality for portfolio and asset optimization, as well as work to help customers optimize their utilization of Allegro’s analytics capabilities. I suspect that this move is also related to what Eldon is hearing from customers around risk management tools in ETRM solutions and how so few ETRM vendors these days have a quant on staff.

Eldon Klaassen Chief Executive Officer Allegro Development

Eldon Klaassen is the CEO of Allegro Development, which he founded in 1984. Since the company’s inception, Mr. Klaassen has spearheaded the development of Allegro’s leading, multi-commodity energy trading and risk management solutions. The company’s leadership has been widely recognized, including the 2009 Energy Risk “Software House of the Year Award” and the 2008 Energy Business Awards “Gold Award for Excellence in Energy Technology.” Under Mr. Klaassen’s leadership, Allegro has delivered the most advanced technology, services, support and education to drive value and profitability for its global customer base. The Allegro 8 platform offers functionality across front, middle, and back offices for optimal decision making and improved business process efficiency. With comprehensive management of risk, physical logistics, settlement, and compliance on a single, integrated platform, Allegro provides the most innovative solution available in the ETRM

Note: Allegro Development is a CommodityPoint client.

1. It offers its clients a data server solution delivered on a SaaS basis that includes real time futures, news, FX, industry content, charting, prices, options calculator and more called AspectDSC (Decision Support Center). Perhaps the only other E/CTRM vendor offering a combination of price/market data and an E/CTRM solution would be SunGard (Kiodex), although Kiodex is focused more on paper than physical trading. AspectDSC covers Oil, Agriculture and Metals markets.

2. AspectCTRM is a SaaS-based solution for Commodity Trading and Risk Management. Due to its deployment on the cloud, Aspect Enterprise is able to deliver quickly and cost effectively as well as offer three versions for different types of users including Lite, Standard and Enterprise to cater for increasingly complex trading operations. AspectCTRM primarily covers liquid hydrocarbons and metals. However, coal, emissions and natural gas commodity verticals are covered, too. It’s worth noting that the deployment methodology is not just restricted to the cloud. There are also instances where AspectCTRM has been deployed within the firewalls of the client.

Aspect is, therefore, able to gain clients across a very wide market for its AspectDSC product which can, and often does, result in the client adopting its E/CTRM solution later, as well. By virtue of its delivery mechanism and ability to deliver Lite and full featured versions, it can also gain access to geographic markets and market segments that other vendors may find unattractive. In reality, that’s quite a differentiator.

To find out a bit more about Aspect, I spoke with President & CEO, Steve Hughes and Yagnesh Savania, Director of Sales for the EMEA region.

According to Hughes, Aspect’s CTRM business grew by 28 percent in 2010, well in excess of CommodityPoint’s estimate of overall market growth of 11percent, thus outpacing the market. It now operates in 85 countries, including some countries where other E/CTRM vendors have little or no presence, such as Russia, and various West African countries such as Nigeria and Ghana (See Figure 1).

Indeed, Aspect has done quite a good job expanding its footprint outside of the traditional “OILSpace” territory, and now has clients for coal, metals and biodiesel in its portfolio (Figure 2).

West Africa

I asked Hughes and Savania about the company’s remarkable success in West Africa, in particular. Aspect has been active there for over 10 years selling the AspectDSC product. “It’s key for clients in these territories to get data quickly at the right price,” Savania told me. With AspectDSC, there is no installation of hardware and software, and that makes it an attractive proposition which allowed Aspect to grow and develop relationships with customers and partners in the territory. In fact, according to Hughes, at a recent large conference/tradeshow in Africa, 43 percent of the attendees were Aspect clients. “Eventually, some of these clients came back and said let’s talk trading and risk management,” said Hughes.

The AspectCTRM product provides prices, forward curves, simple capture of physical trades and so on—all the basics required to migrate off of spreadsheets. Additionally, clients want to manage things like FX exposure and desire confidence that the data is correct.

Russia

Another country that Aspect has had success in is Russia. In fact, it has an office and development team there. The company cites a number of examples of its ability to do business in Russia including:

• Russian Oil Major TNK-BP—a trade management client since 2003, its primary focus is in and around both domestic and export trading, by the Black Sea and the “friendship” pipeline—AspectCTRM Enterprise Edition (EE) client, handles physical trades, most importantly covers “rail car trades” and is integrated to SAP;
• “European” trading company with vast assets in Russia, since 2009—Buying from Russian refiners and exporting to Europe—AspectCTRM Standard Edition (SE) client;
• Turkmenistan trading company, since 2009—barging from Turkmenistan to Azerbaijan and Georgia, managing risk (paper) from Geneva Office—AspectCTRM SE client;
• Russian trading company, since 2009—buy products in Russia to export, hedging out of Estonia—AspectCTRM Lite Edition (LE) client. Future project to integrate terminal data and rack sales into AspectCTRM Standard Edition, by upgrading from Lite;
• Moscow-based trading company, since 2010—buy products into Europe, export crude manage position – execute swaps and futures, log these into Aspect for true P&L and Exposure (bbls and $)—AspectCTRM LE client.

Aspect says that it sees little or no competition in Russia or the ex-Soviet States.

Summary

Aspect’s unique combination of products and platform appears to enable the company to enter markets and territories where there is little in terms of competition, and provide workable solutions and a reasonable cost and without significant investment in hardware and infrastructure. One product builds on the other easily and relatively seamlessly providing the company with stepwise up selling opportunities. In turn, this has allowed the company to grow faster than the market.

In many respects, Aspect is creating opportunity for the broader vendor landscape, too. They are helping shoe users into an affordable E/CTRM solution and in the process helping to create broader demand in the future. They are also helping to change the perception that E/CTRM software needs to be a big ticket item and innovating SaaS-based delivery in a market that historically has resisted change.

Note: Aspect Enterprise is a CommodityPoint client.

So What are the Six Largest E/CTRM Vendors Based on Annual Revenues These Days?
With the vast majority of E/CTRM vendors being private companies, it’s difficult to know for certain what any vendors revenues really are, therefore this list will certainly be open to some debate. Nonetheless, according to our latest estimates of global revenues for commodity trading and risk management, OpenLink Financial (OLF) is probably still sitting atop of the list weighing in with estimated revenues in excess of $225 million (of which a significant proportion is not related to E/CTRM, of course), but these days Triple Point isn’t that far behind, with estimated revenues of approximately $110 million. OLF and Triple Point have managed to open up a sizable gap between themselves and all of the other vendors in the space over the last few years. Triple Point’s growth rate, supported by several good acquisitions, as well as organic growth, has probably been stronger than all other vendors in the space over that period. OLF has also made some astute acquisitions, particularly those which have given it quite a strong presence in the agricultural commodity trading space, while Triple Point has been present on the metals side for several years with one of its early acquisitions. Both OLF and Triple Point can offer multiple commodity group coverage but both remain some distance from being able to cover all commodities in all markets.

SunGard Energy & Commodities is also one of the industry’s largest vendors by virtue of SunGard Energy’s large installed base (which was also acquired primarily via a number of earlier acquisitions of companies like Caminus, for example) and the addition of the SunGard Kiodex business when the two were rolled up into a single entity in 2010. SunGard Energy & Commodities has largely remained energy-centric as its more recent acquisitions, such as Energy Softworx, have been more about moving up and down the energy value chain. SunGard Kiodex has historically been more geared towards financial players but it too has had a more energy-focused past.

SolArc also ranks in the top six of revenue, thanks to several years of solid growth and more international business. SolArc can cater for non-energy commodities, as well as energy, but currently lacks an electric power aspect to its Right Angle product line. SolArc’s strategy has been quite interesting to watch, as it has targeted various industry segments and dominated them such as products marketing, coal and fuels in sectors such as the airline industry. Additionally though, SolArc is perhaps not yet well-known for this yet, it has for the last several years been—in our view—a leader in technological innovation developing products for visualization, migrating its application to .Net and delivering support for various handheld devices.

Another of the six largest companies by revenue is likely to be Allegro Development. Allegro has been around since before the beginning of ETRM/CTRM software as an identifiable software category and has certainly had some ups and downs along the way. But Allegro, too, has been a technology innovator with the first migration to .Net and deep modularization of its product. It has a broad footprint but it too is still somewhat energy-centric.

The top six E/CTRM vendors from our perspective in revenue terms are then OLF, Triple Point, SunGard Energy & Commodities, SolArc, Allegro and Brady PLC but CommodityPoint still tracks 74 other E/CTRM vendors in the space. As of 2011 there is still no outright winner as each vendor has different specialties so there is no “one size fits all” supplier out there. . The requirements for E/CTRM software are so complex and broad that no single vendor can provide a total solution meaning that multiple solutions often supplemented by homegrown custom functionality are still required.

Will This Change?
CommodityPoint doesn’t see much chance of E/CTRM being dominated by 2-3 vendors in the short to medium-term because the industry is still too volatile in terms of requirements and there is still a lot of evolution left. It’s a complex industry with a set of complex requirements and it will take some time before anyone vendor will be “best in class” across the entire space. The smaller vendors can survive quite nicely in such a market and the market offers opportunities for new start ups as well to fulfill highly specialized niche market needs.

We have noticed that other major software companies are involved, if only peripherally, including SAP and Oracle. SAP has a number of applications in areas like logistics for certain commodities and Oracle can also claim some ancillary ETRM capabilities in energy—but, is it yet a big enough market for such companies to show increased interest in? CommodityPoint’s 2011 Market Sizing Study report showed it is a sizeable a market of close to $500 million per annum in license opportunity alone.

Meanwhile, those with access to capital can, and will, continue to make acquisitions to grow. Since the start of the year iRely has acquired Summit Software and Constellation Software has acquired Agris. Many readers may not have heard of these companies, but just three years ago, very few of our readers might have known who Brady PLC was, either. The conclusion is that there remains plenty of time for the E/CTRM vendor play to work itself out and there remain plenty of smaller vendors to be acquired to change the entire scene.

Note: Vendor revenue estimates are based on CommodityPoint’s research and methodology for market sizing. The CommodityPoint 2011 CTRM Software Market Sizing report was kindly sponsored by Brady PLC and Eka.

Note: The term ‘by revenues’ used above refers to revenues gained via the licensing, support, maintenance and provision of certain consulting services around E/CTRM software. Other vendors may have larger revenues overall but much of that revenue stream originates from other software categories and/or services.

This content was issued as an IssueAlert newsletter article on 8/3/2011. If you would like to subscribe to that newsletter, please do so here.