Some weeks back I ran across an interesting open source company while I was surfing through various IT related blogs. I’ll typically stumble across or hear about at least one or two new open source efforts per week just during the course of reading, surfing/browsing, talking to others involved with the IT industry. However, when I happened upon Coupa, for the first time in a while I couldn’t name one other open source participant in their market (eProcurement). With my curiosity piqued, I contacted the Coupa team and set up an [email] interview with the company’s President & Co-Founder, Dave Stephens. Despite his hectic schedule, Dave was kind enough to provide me with a group of high-quality, information packed answers. Read the entire interview below:

Q: Can you tell us a little bit about yourself and your background?

I worked at Oracle in the Procurement Applications group for just under 10 years. I joined as an Engineer in February of 1996. By 2002 I was running the organization as Vice President. Within 3 years, despite the .com bust, we were growing the business 7 times faster than the market. It was a blast.

Prior to Oracle I worked at a small engineering consultancy, implementing quality and process control systems for manufacturers. I hold a B.S. in Chemical Engineering from UC Berkeley. On a personal note, aside from a 4-year stint in Houston, I am a California guy.

Q: How did the idea for Coupa form, and when did you decide to form a company around the original idea?

After Oracle’s acquisition of Peoplesoft I was asked to lead Oracle’s CRM Applications group. This was pre-Siebel of course. In that role I studied companies like Salesforce and Sugar. And Sugar’s business model really got me thinking about the potential of open source to break into enterprise applications.

Meanwhile I was growing pretty frustrated with the pace of innovation and progress at Oracle. I caught the start-up bug and left in November of 2005 without a very clear idea of what I would do. I knew I wanted to build an ERP software business that would delight its customers and innovate quickly – and that was about it.

Naturally, Procurement was the area within ERP I had the most depth of experience in and passion for. Plus, I thought it was being underserved. Most best-of-breed vendors were still "hunting elephants" and relying on business plans that called for $1MM average deal sizes. They weren’t better-faster-cheaper plays – they were advanced functionality, niche plays. And it wasn’t working.

So I started working on a business plan for a Procurement play where we’d not only have a highly differentiated product but we’d also provide the lowest TCO. And open source was integral in making the whole thing work.

By February of 2006 we were ready to found Coupa and be off to the races. And the rest is history.

Q: Under which license is Coupa distributed?

The open source edition of Coupa eProcurement is distributed under the LGPL license. This gives the open source community a chance to bundle and package the solution as a part of a bigger offering, yet still provides Coupa some protection from larger commercial interests. We definitely didn’t want to be in a position where one of the big guys could say "hey look, Coupa’s better, let’s just use it for free & bundle it in with our stuff."

I’ve heard pretty good arguments in favor of GPL, LGPL, and MPL. In our case we believed LGPL was the best fit.

We also offer an enterprise edition of Coupa eProcurement. It is available with a commercial subscription license which includes support. The enterprise edition includes some additional capabilities suitable for larger enterprise deployments. Our edition guide is available here: http://www.coupa.com/editions.html

Q: For those who may not be very familiar, can you provide a brief breakdown of what procurement actually is, as well as its importance?

Enterprises use procurement systems to more centrally manage the buying of goods and services needed to run the business. A rule of thumb is that these systems, when implemented correctly, can save you around 15% of your annual spend. A part of the savings is "hard savings" – i.e. reduced prices paid or cost avoidance. Another piece is "soft savings" in that these systems can dramatically improve operating efficiency. They also tend to reduce the risk of fraud and other forms of corporate abuse.

In terms of scope, the end-to-end Procurement process starts with identification of need, usually in the form of a requisition. From there you may need to issue an RFP (Request for Proposal), which is answered with a Supplier Quote, turned into a Contract, issued as a PO, and on and on until the enterprise issues payment to the vendor. Of course there is a lot of complexity in each of the transactional steps.

The focus of our initial efforts is on eProcurement. The eProcurement concept, introduced in the late 90′s, centers around a browser-based self-service buying portal for all the employees in an enterprise. Employees have easy access to corporate contracts, and the system takes care of things like pre-approval, auto-generation of Purchase Orders, and communication with suppliers.

Q: How much feedback have you received about the need for an open source alternative to enterprise procurement offerings?

Well, I don’t think people came screaming to us saying "you have to provide an open source Procurement system." Instead, what we heard was a lot of concern about the pace of innovation of incumbent solutions. Why was it taking 3-4 years for basic enhancement requests? And we heard a lot of griping about $800,000 annual support payments.

We also saw a lot of companies that were just unwilling to risk putting in a Procurement system based on the current TCO.

So we thought about how we could approach the market differently. We wanted to try and broaden access to Procurement systems and at the same time forge a faster pace of innovation. Open source seemed the right answer for us.

Q: What are some of the main issues with traditional enterprise procurement software today? How does Coupa, as an open source solution, address them?

First off, there’s the TCO problem. Systems cost too much to buy, and even more to own and operate. And so by developing our software on a 100% open source stack, by leveraging open source components, we keep our customers’ costs down. This is primarily a technology argument though, and so it’s only interesting and compelling up to a point.

Beyond technology, there are substantial and systemic functional problems with traditional Procurement software. And so we’re tackling those. As an example, one big problem in the eProcurement area has always been employee compliance. Most of the horror stories I’ve heard start with a central Procurement group forcing an eProcurement system down the throats of their employees. Employees revolt and figure out how to end-around the system. As a result, enterprises never see the adoption they hoped for – ROI is way off target. The Procurement leader is depressed.

The bottom line is traditional solutions just aren’t making the process of buying easier for employees – instead it’s just one more burdensome chore. So we’ve taken a fresh approach. Coupa eProcurement empowers employees to improve the quality of the system content over time – instead of relying on a central group to "fix" bad data. It makes all the difference in the world. Suddenly employees can take action themselves and see an immediate improvement in how the system searches for goods and services. They can share best practices, how-to information, etc. And so we are effectively tapping into informal employee networks to help with the adoption & ensure ROI is on target. The employees are much happier, and the Procurement leader succeeds in his project. Everyone wins.

Q: What approach will the Coupa team take towards open source community building?

It’s early to be certain about this, but we see our community as consisting of 2 vital segments.

The first segment is our partners, generally OEM’s who may use and perhaps even re-brand our stuff and then sell as a part of a broader footprint, and ISV’s and VAR’s who are out there taking down deals and doing implementations. We’ve had just a great response from partners. And to be clear, these aren’t large firms like an Accenture (although they are welcome to join us!) – these are smaller, boutique firms who specialize in either open source or procurement. It’s a perfect match – they are looking for a lower cost avenue to serve their customers & we have no desire to build a direct sales force and get into a primary consulting role. Already, these guys are adding back ideas – integrations to include, different standards to support, a vertical feature here and there. So we intend to invest a lot of time building our channel, and then expect that channel to contribute back. It won’t be an overnight thing. It will be very gradual. But I have no doubt it will be quite successful.

The second segment of our community is the IT resources within our customer base. These guys have been in a horrible spot since "packaged enterprise software" arrived. They’ve been accountable to the business but haven’t had the access they’ve needed to deliver solutions that work. So now they are hearing there’s this option from Coupa that says "yep, you’re in charge and please tweak the code and join us and as partners we’ll make sure this works well for your business." The early response has been great. IT is saying "wow, this is a lot more fun than dealing with Oracle or SAP or Ariba – who too often say, yes, thanks for your enhancement request, we’ll get around to it in a few years if ever." It’s very clear to us that IT has been placed in this impossible position, defending the ridiculously slow pace of progress from their packaged software vendor in front of the business. And in so doing they’ve lost the confidence of the business, who become pretty eager to outsource IT entirely to get a different answer. Open source solutions innovate faster precisely because the entire methodology is based on the premise that IT folks know exactly what the business needs and want to see it supported by the vendor. And so we will invest in partnership with IT wherever possible too.

Q: What should we look for from Coupa through the end of 2006 and into the early parts of 2007?

We’ll do a 2nd preview release, going a little deeper into eProcurement and broadening out some. We have some other fun surprises in store for the market as well, but we’re not ready to talk about them yet.

Q: Is Coupa the only fully-fledged open source procurement solution available right now?

Not quite. We are the only open source eProcurement solution available, but there is a Sourcing system that was launched in 2005 on Sourceforge called TenderSystem. I think its origins tie back to South Africa. And that project seems to be humming along pretty well. I certainly wish those guys the best of luck.

Q: Can you offer a breakdown of Coupa’s technical architecture?

Coupa eProcurement is a Ruby on Rails application. Further, most of our open source edition will very soon be available as a rails engine plug-in for easy embedding into 3rd party solutions. We use a bunch of rails engines ourselves, as well as Ruby gems. One component we rely on is Ferret, the Ruby port of Lucene. Although Rails is a vendor neutral platform, we usually run our instances using Fedora, MySQL, and LightTPD.

Because we’re Ruby on Rails, we were forced to code things pretty efficiently – so it’s all MVC and pretty tight. The code line comparison to the Java apps I was responsible for at Oracle just isn’t believable. It’s somewhere between 1/10th to 1/100th for the same function. And we think that helps a whole lot with product quality, productivity, etc.

Q: Coupa features ERP integration API’s. Where else does Coupa integrate with other pieces of a typical enterprise software portfolio?

The Procurement function can require a good deal of integration with other systems, it just depends on the industry and on the categories of goods and services you are buying. Our primary targets are service industries, including but not limited to public sector, financial services, retail, and professional services firms. For these firms, at a minimum you are looking at an integration to backend GL and potentially Payables. Beyond that, sometimes you may want to tie into Project and budget management systems and HR systems. Luckily, most of this work is very straightforward and shareable across the customer base.

Q: What vision do you have for the product that is driving its development path?

The driving vision behind Coupa eProcurement is to offer a complete Requisition to Order system that employees love. We believe enterprises shouldn’t have to choose between empowering their employees and enforcing corporate buying policies. With Coupa eProcurement you can do both – and that’s why we think Coupa eProcurement may just be the first eProcurement system easier to use than to avoid.