Thursday morning, project44 announced a large acquisition in the visibility space, Ocean Insights. Ocean Insights is a German company that focuses on visibility in the global container space. This is the latest deal for project44 and one that greatly enhances its scale.
This deal struck me as a pivotal moment in the visibility space. Project44 has clearly developed scale that cements the firm as the dominant player in the emerging space.
Ocean Insights got its start two years before project44 and was bootstrapped by the founder, according to Pitchbook. The company developed a dominant market position in international cargo, partially because of its geographical headquarters in Germany. With this liquidity event in a sale to project44, the founders have become very wealthy. While neither p44 nor Ocean Insights would share the purchase price, the whisper number is above $162 million. Not bad for nine years of work, especially with few outside investors to take care of.
Scale matters in visibility. Shippers will prefer to use the firm that has the most connected and ubiquitous network. A few years ago, I heard Jett McCandless, the founder and CEO of project44, describe his firm as the “connective tissue of logistics networks,” in much the same way that Visa is for the global payments infrastructure. People carry a card with the Visa logo because it is universally accepted, the rules are consistent across its network and the experience is predictable.
This analogy resonated with me because I spent nine years in payments. My payments firm, TransCard, was a leading processor of Visa-, Mastercard- and Discover-branded debit card payment products. We provided the software and infrastructure that connected to the credit card firms’ networks, enabling banks and issuers to offer their customers a debit card.
Before I entered the payments industry, I assumed that all of the processing work was done by the card brands, but I found out that they served as a gateway and transaction regulator more than anything. The ability to connect a bank’s software system to a merchant processor was almost exclusively about the routing technology and less about processing the transaction. The hard work of processing was left to companies like TransCard.
For simply connecting the world, Visa would take a tiny bit of each transaction, leaving the majority of the merchant fees in the hands of the merchant processor, bank and issuers. But at scale, routing transactions becomes a massively profitable enterprise.
The biggest reason that Visa and Mastercard are so valuable is that they are nearly impossible to disrupt. Their scale and ubiquitous acceptance make it less desirable for a bank or card issuer to work with a secondary brand. They both have nearly universal card acceptance, and very few merchants would accept only one but not the other. (Costco and Sam’s come to mind as exceptions.)
At one point, TransCard was one of Discover Network’s largest third-party processing issuers. The card brand had nearly the same level of acceptance — something like 97%. While 3% doesn’t seem like much, it was deadly to Discover. No one wants to carry a card from a secondary network. Acceptance matters. I can carry a single Mastercard or Visa debit card and have confidence that it is accepted nearly every single time. For Discover, it was accepted most of the time, but on occasion merchants wouldn’t take it.
Discover fought like hell to change the perception and created campaigns to educate the public that it had almost the same set of merchants as the other guys. The problem was its cards seemed to be rejected when it mattered most. In fact, once in Chicago (Discover’s hometown), I went to lunch with our Discover representative, who was trying to dissuade me from moving our book of business to Mastercard. For an hour, he showed me graphs and stats about its near-universal acceptance and plans to address the gap over the next decade. When the bill came, he proudly pulled out his Discover card and was dejected when the waiter told him, “We don’t accept Discover here.” I ended up picking up the tab on my Mastercard, which soon after got our book of business.
What does this have to do with supply chain visibility? If Jett’s analogy turns out to be correct and project44 is the Visa of the industrial world, then having the greatest acceptance and connectivity will be a major differentiating factor. As companies look to connect their supply chains with partners, then the more companies you are connected with, the more valuable it becomes. Since the visibility providers get a tiny toll for facilitating connectivity, having larger acceptance and more direct integrations means more control, flexibility and transparency of your global supply chain.
Don’t count out FourKites either. It has large scale and is growing quickly too. There is room for two dominant supply chain visibility network leaders. FourKites is highly respected in the market and has a dynamic and aggressive leader. And if p44 is Visa, the industry needs a Mastercard.
But beyond the two, there is everyone else. And if I learned anything from my decade in payments, there is a lot of money to be made by integrating your technology into the established networks and using their infrastructure to scale your own offerings.
And as the old saying goes, every company ends up as a media firm or finance company. I would expect that p44 and FourKites will introduce payments as part of their networks in the near future.