Rainmaker Systems Transforms its Business Model
Ken Nagy, CFA
Rainmaker Systems (RMKR), provides business-to-business (B2B) e-Commerce solutions. The Company’s solutions, which are offered on a global basis, drive online sales and renewal for products, subscriptions and training for large companies in the computer hardware, software and information services industries. Rainmaker’s three primary solutions (Transact, Renew and Educate) are designed to deliver maximum revenue in its client’s mid-market. The transformation of the business model from telesales to e-Commerce should drive margin expansion and growth.
B2B versus B2C
With the rise of the internet in the past decade it was a natural that online shopping would take a greater and greater piece of the consumer dollar. On-line shopping offers easy comparability of products from your own home. Consumers only need an on-line connection, a credit card and a place for the product to be delivered. This one size fits all “vending machine” model helped push the business to consumer (B2C) market place in the US from $40 billion in 2000 to $145 billion by 2009.
While often lumped together in the same breath as B2C, the Business to Business (B2B) e-commerce market place is a much different entity. Transactions can be complex involving several decision makers, channels, and complex technical specifications. That complexity often pushes the B2B buyers to consult a sales agent before committing several thousand dollars.
A successful B2B E-Commerce platform should include
- Multi-Channel Functionality
- Banded pricing
- Offer the ability to communicate with a sales agent
Opportunity
Rainmaker’s goal is to target the mid-market technology B2B segment, which is underserved and a bigger opportunity than B2C. The Software industry market is estimated at $250 billion. Consumer ‘app-stores’ are setting expectations for business buyers. They are researching on manufacturer's sites. Research shows 68% of B2B buyers get their product information from Manufacturer’s (suppliers) websites vs. 18% from offline events/ seminars.
The Transformation of the business model from the majority of sales coming from telesales to e-Commerce should transform the company’s margin and growth characteristics to that of a high margin/ high growth profile. Management has targeted a 70-30 mix with 70% coming from e-Commerce. e-commerce enjoys significantly higher margins, stickier revenues, and longer contracts (e-Commerce contracts typically 1 to 3 years, telesales contracts are typically 3 months to 1 year). The transformation will also serve to decrease Rainmaker’s reliance on a low number of clients for revenue.
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