Software is an interesting product because it is so different than most other “goods” we buy. The incremental price of producing copies as you grow your customer base is next-to-nothing. So, why does software for the enterprise cost so much?

Decades ago, the investment required to build the software was akin to R&D you now see pharma companies throwing down on new drug therapies with potential. So, a piece of the high-priced puzzle was to pay for the sometimes multi-year and always multi-million dollar investment required to bring a product to market.

Decades ago, without the internet as a common substitute for in-person meetings, large direct sales forces would “hunt” big businesses like “big game”. These salespeople would enjoy earnings of 200-300 to sometimes 400K or more.

Decades ago, before the rise and dominance of online advertising, marketing expenditures required to generate brand awareness resulted in yet-more high-priced spending - sometimes running into the tens of millions for a single campaign.

On top of all that, a firm’s products and technology would be so complex that employees could rarely be productive in under 6 months, regardless of their role (selling or developing). And because these firms rarely inspired a passionate employee population turnover was rampant, resulting in ongoing high-priced unproductive resources.

Unfortunately, too many old, stodgy enterprise software firms are still running their businesses as they did decades ago. They build product every few years, sell it through high-priced salespeople, take out full page ads in the New York Times & then ask their poor customers to foot the bill for their inefficiency. But not Coupa! We rail against the inefficient business models of the past and fully leverage modern technology and business practices to deliver economical solutions to our customers. It’s one of the reasons why we feel we are helping shape the future of enterprise software.

Our development tools - using Ruby on Rails - are simple and efficient, resulting in over 7 major releases in under a year. No other vendor in the Procurement space even comes close.

Our business model - relying on commercial open source - reduces costs and risks further by offering transparent access and free usage of key components of Coupa products.

Our sales approach - where prospects have direct access to the software, to free trials, to guided demos via Webex, keep costs low and value high.

And our marketing - using online advertising and a variety of other tools, redefines how to build brand awareness in a modern way.

We’re certainly not alone in running our business using these methods - there are a variety of other firms on the same journey. But we are alone in pursuing these strategies in the Procurement space - which is why we are fast becoming the most popular e-Procurement solution provider on the market.

-d

Yesterday I presented at a Dow Jones Venture Wire event called “Enterprise Innovations.” It provided a good chance to reflect on Coupa’s quick rise to leading provider of e-procurement solutions for the mid-market.

The event was held at the Sofitel in Redwood Shores. A nice venue for the venture community, wall street, and a bunch of CEO’s to network and reflect on current trends.

The biggest challenge I faced was a choice at last night’s cocktail reception: sit at the “Open Source” table, the “Enterprise 2.0″ table, or the “Software” table. Instead of choosing, I roamed. I also wondered where the SaaS table was!

-d

Most software companies, especially early on, do a good job of listening to their customers. In fact, in newer spaces, a kind of “Silicon Valley Rule” is often adopted. The software company partners with 3 or 4 big customers to build out their custom requirements into a new “standard” product - then hope it’s something you can resell. What next? “Rinse and repeat.”

What makes this model work, at least for some & at least for a time, is that each customer provides enough revenue to make the inevitable customization & introduction of complexity “worth it”.

The downside (and downfall) comes when the company’s flagship product, which once seemed so fresh and exciting, becomes unwieldy and complicated. Customer-driven development, in effect, has driven implementation costs up and ease of use down. In the end you have bloatware - ugly, uninspiring, and, while functionally rich, nearly impossible to use.

At Coupa, we wanted to avoid this trap. Now and into the future we compete and win on simplicity, speed, and affordability. We are throwing out the Silicon Valley Rule of “rinse and repeat”.

There is no other way to achieve our goal of popularizing e-Procurement - and bringing our software’s benefits to thousands of organizations around the world. We remain intensely customer-centric - but recognize the importance of valuing simplicity over endless choice.

It’s a balancing act, and one we are working very hard to get right. Our business model, one where our very affordable pricing ensures no one customer has undue influence over the product, keeps us on the straight and narrow.

-dave