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 acquiring company, Baltimore-based PublicBuy.Net, confirmed reports of the buy-out.
Tom Maskell, president of PublicBuy.Net, said Simplexis is “transferring [its] assets” to his company, which will continue to provide service to all school organizations currently signed with Simplexis.
“Customers will have access to the full range of services including the opportunity to integrate with current back-end systems, streamline the purchasing process and dramatically reduce the time between the placement of an order and the product shipment,” he said.
That was 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 in early November. “After Thanksgiving we’re planning to start training our staff to use [the Simplexis system].”
But shortly after notification of the merger, Bill Parkinson, Mentor’s assistant treasurer, stated his support for the Simplexis buy-out.
“My impression is that [the acquisition] will make the company and the product that much stronger, and the district won’t see any problems with this,” he said. “Vendors get bought all the time.”
PublicBuy.Net executives are also enthusiastic about the merger.
“[The deal] allows us to offer greater flexibility in working with a wider range of customers, from state-level executive branches and municipal governments to school districts across the country,” said Maskell.
While the deal may have come as a surprise to the school districts using Simplexis, 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 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). ICG had reportedly started putting pressure on the company to show revenues sooner than plannedor else close up shop. The investment company wanted to cut its losses and return the $10 million that remained in the bank to its investors.
ICG’s representatives on Simplexis’s board of directors reportedly tried to liquidate the company, but 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 Simplexis did not make it to 2002.
At the time he was interviewed, Singh said there were about a dozen districts that had implemented the company’s system fully and trained their staffs to use it.
Singh is no longer employed at Simplexis. Of the former senior staff, only Vipin Chawla made the switch to PublicBuy.Net, where he continues to hold the position of chief technology officer.
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 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.
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.
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 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.
“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.
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.