Epylon Eyes Piece of Procurement Spending Pie

San Francisco start-up Epylon.com Corp. next year will launch an ambitious procurement site aiming for a piece of the $859 billion spent annually by local, state and federal governments on products and services.

Starting with California’s private and public education market in March, Epylon.com will position itself as a one-stop shop for school business officials, county superintendents, educators and purchasing managers to research, compare and contrast, get specifications and buy products from pre-approved vendors.

“Our intent, from an ideal point of view, would be to be part of the fabric of the school purchasing system community nationally, and to do that we need to become part of the infrastructure … so we’re part of how every agency does its business,” said Kelly Blanton, Epylon’s chairman and former California superintendent of schools for Kern County.

The U. S. procurement market for kindergarten-to-university education is an estimated $144 billion – nearly as big as the domestic chemical, auto or airline categories. But budgetary pressure is forcing institutions to shave costs.

“What we bring to them is an opportunity to put dollars back into the classroom without cutting back on the responsibilities for young and growing organizations,” Blanton said.

The service has the potential to bring order to a market that’s fragmented on both the buyers’ and sellers’ sides, said Dan Garretson, senior analyst at Forrester Research, Cambridge, MA.

“So, there’s huge opportunities to consolidate that buying, but then also for suppliers to have access to a full range of buyers and Epylon will provide a kind of central hub for that buying,” said Garretson.

Seventy school districts, mostly in California, have participated in Epylon’s Development Partners Program, which helped the company shape its service. Twenty-five institutions from these districts have agreed to beta-test Epylon.

“This represents close to 1,500 schools and well over $2 billion in annual purchasing that will be migrated to the Web,” said Stephen J. George, president/CEO of Epylon. “So, when we talk about 25 institutions, in our world that’s a lot.”

Early-bird suppliers who have signed up include Ingram Micro, the world’s largest computer supplier, for hardware and software; J. L. Hammett, the No. 2 U. S. school supplies company, for instructional supplies, and carpets-to-furniture supplier Virco Corp., for repairs and capital. Deals with other retailers are in the works.

Driving potential buying traffic is key in the run-up to Epylon’s formal debut. Chief among these initiatives are a co-branded purchase card; a frequent buyer program; Web-based work flow process to record account transactions and online reporting services; ads in Internet and trade print media; and talks and sponsorships at trade shows and school-district caucuses.

Epylon.com will also send direct mail to names on education association lists, launch message boards to spawn community interaction and hire people from within the education world to build brand credibility and boost networking, the company said.

The company also plans an affiliate program aiming for cross-sells and up-sells. “What we’ll do is build a module that has all of our categories within it and we’ll populate each one of our suppliers with that program,” said Darr Aley, Epylon's executive vice president of business and corporate development.

Epylon will take a transaction fee from suppliers. The service is free to buyers.

There’s little room for complacency, however. According to Forrester analyst Garretson, existing procurement software providers like CommerceOne and Ariba offer similar services and can quickly expand into online territory by tailoring their system to work for government.

“If those suppliers could make a larger base, then they could move into Epylon’s environment,” Garretson said. “Overall, [Epylon’s] is a good business model, though their revenue stream doesn’t directly align with where they’re adding value. That ultimately may not be a problem, but it’s an issue they’ll have to be careful about.”

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