The assets of Simplexis, a K-12 online purchasing company once chaired by former presidential candidate Lamar Alexander, are being acquired by an eProcurement company with no previous experience in the school field, eSchool News has learned.
A business document obtained from Simplexis by eSchool News says the firm is “closing its business.”
The Simplexis web site is still running, but no one at the company returned this reporter’s phone calls, and no company voice-mail system picked up.
Sources close to a pending transaction who wished to remain anonymous have confirmed that Simplexis soon will be “transferring [its] assets” to the other company, which reportedly will continue to provide service to all school organizations currently signed with Simplexis.
That’s news to the Mentor Village Exempted School District in Ohio, which signed a multiyear licensing agreement with Simplexis in June. “We have not heard of this,” said district spokeswoman Fran Russ. “After Thanksgiving we’re planning to start training our staff to use [the Simplexis purchasing system].”
Neither Simplexis nor the acquiring company has announced the deal, and both are reportedly operating under a policy of nondisclosure. The impending deal might be surprising to the school districts using the Simplexis system, but the acquisition probably comes as no surprise to industry analysts.
In the past year, most of the education-focused eProcurement sites have faced lean times as the internet economy has softened across the board, according to venture capitalists and industry experts.
In April, eSchool News reported that Simplexis was walking a thin line, though sources within the company denied any financial troubles. It seems Simplexis was caught in a difficult position because of the declining fortunes of its primary investor, Internet Commerce Group (ICG).
According to Simplexis, ICG started putting pressure on the school company to show revenues sooner than plannedor else close up shop. The investment company wanted to cut its losses and return the money that remained in the bankclose to $10 millionto its investors.
ICG’s representatives on Simplexis’s board of directors reportedly tried to liquidate the company, but they came up one vote short.
Simplexis officials have neither confirmed nor denied this report in the months since the story initially ran.
Simplexis’s founder and former chief executive, Amar Singh, told eSchool News in April, “Right now … we project we’ll start to make money in early 2002.”
But now it appears Simplexis will not make it to 2002. At the time he was interviewed, Singh said there were about a dozen districts using the company’s complete solution. That figure referred to districts that had implemented the company’s system fully and trained their staffs to use it. Simplexis is not the only eProcurement company that has disappeared.
In 1999, Ben Holsinger, education product manager at SHOP2gether.com, told eSchool News, “We started doing electronic procurement in the small-business market and had a number of education customers, but the system wasn’t quite right for schools. So we built a new system just for schools, using educators’ input.”
But SHOP2gether.com is another of companies that didn’t make it through the internet shake-up, changing its business model and downsizing so that the once web-based service now sells procurement software to schools.
The phenomenon is not surprising to industry analysts.
“It is not a matter of whether eProcurement will get a toehold, it is really a matter of revenue and business model,” said Lou Pugliese, entrepreneur in residence at Novak Biddle Venture Partners in McLean, Va.
Market analysts and venture capitalists agree that new investment opportunities for online purchasing have all but dried up, and even those companies with sufficient initial funding are having a hard time finding sustained financial backing.
According to Pugliese, the viability of an eProcurement company depends on how fast its business can scale inside of schools. He thinks schools will adopt web-based solutions more readily once they begin to see a monetary savings, but that might not happen before the venture capital runs out.
In fact, the entire business model might have been flawed from the start, at least according to some within the industry. The “transaction-based” model was one that most online purchasing companiesbacked by healthy doses of venture capitaladopted as their initial business strategy.
Basically, it meant that schools were allowed to use their services for free, while vendors paid a small transaction fee each time a school customer purchased their products through the eProcurement site. Most online purchasing companies have now abandoned that model as a primary source of income.
“A fundamental problem with companies that try to be the middleman is that competition drives price towards cost. What ends up happening is that the consumer saves money, but the middleman companies don’t make any money,” said Jack Biddle, general partner at Novak Biddle Venture Partners.
Like a number of other companies, Simplexis announced last year that it would start to charge school districts for implementation and use of the system, rather than rely solely on transaction fees.
“It should be easy for a district to share part of [its] savings with Simplexis,” Singh said in April. At the time, he said the company was receiving revenue from a combination of transaction fees and fees from schools.
Mentor Village Exempted School District
Novak Biddle Venture Partners