Inspiring Stories 08 Jan 2020 Updated 05 Mar 2020 SourceSage: Data, platform building key for SourceSage Share: It's aiming to introduce price transparency into the murky world of B2B physical commodities trading. First published on The Business Times on 08 January 2020. It can feel as if the team at SourceSage set out to prove a premise that they deliberately stacked against themselves. Yet, SourceSage - founded in 2015 by a father-son team - has successfully navigated the stressful world of startups and venture capitalists - all with the added stress of familial dynamics - to introduce price transparency into the murky world of B2B physical commodities trading. The company is, in fact, already profitable, with over 100,000 users in more than 110 countries. Even as building platforms is now SourceSage's biggest source of revenue, the company's leadership is still actively deepening its expertise in the space of commodity trading. A surprising disruptor The decision to build the source code around the sage was hatched by Sim Jian Min while he was still in school. Watching his father's commodity trading business suffer from increased competition and tighter margins over the years, he thought it would be an interesting challenge to modernise the workflow. The Oxford engineering graduate has a keen interest in machine learning and data analytics and had even worked at the Agency for Science, Technology and Research (A*STAR) for a stint to sharpen his research skills. Now, all he had to do was convince his father. "We started with the first process, which is - could we introduce platforms, which is the source, and build that around the sage, which is essentially my dad, who is the domain expert," says Mr Sim, who is the CEO and co-founder. His father, John Sim, had invested close to 40 years in the commodities trading business and provided the requisite industry knowledge. Yet, the duo immediately met with roadblocks. The commodities trading industry is notoriously secretive. Business-to-business (B2B) deals in commodities, especially more niche ones such as oleochemicals, have always been done by calling up traders or brokers and asking for a price or else calling for a tender. Because of the lack of transparency, it is hard for people to determine the true market value of a certain product. "For the longest time, traders made money based on margins. This means that if we put a single price, people are going to be unhappy because who are you to set a single price? So we use a range of transacted prices based on different quantities," says Mr Sim. Photo credit: BT/Yen Ming Jiin "For the longest time, traders made money based on margins. This means that if we put a single price, people are going to be unhappy because who are you to set a single price? So we use a range of transacted prices based on different quantities," explains Mr Sim. Part of the reason for the lack of transparency within commodities trading is that product specifications are quite standardised which means producers have to rely on pricing and ability to delivery on quantity for market share. "So if let's say a producer was to sell at this price and we say that, oh, this guy is selling at this price, effectively we're telling his competitors this is his price you can undercut him. The industry is not like consumer markets where you have a big population of customers," says Mr Sim. While he speaks with ease about the ins and outs of the commodity trading industry now, this was all relatively foreign to Mr Sim when he first broached the business idea with his father. The concept of building a marketplace was precisely to match buyers to sellers. But Mr Sim's father cautioned that industry players would be unwilling to share their prices. "Our first version of the SourceSage commodity platform was built on data-as-a-service, which means we provide market information on palm oil and oleochemicals to the user. "At this point, even if you have artificial intelligence (AI), if you don't have the data points, you can't do analytics and you can't really provide any service," says Mr Sim. "So first, I had to convince my dad to reveal this information." He adds: "So the first iteration of our commodity platform was based on a family business' domain knowledge and information. We had no partners, nothing. When we went to the palm oil conference in Kuala Lumpur every year and tried to talk to people, they were very protective." Ultimately, it was thanks to Mr John Sim, who is himself a co-founder and investor, that SourceSage was able to tap his contacts at commodity giants such as Wilmar International, Unilever and Emery Oleochemicals and convinced them to join the platform. Today, the firm boasts clients such as Global Green Chemicals, one of the pioneer oleochemicals producers in Thailand, and L'Oreal. Its commodity exchange provides daily, historical and contract prices, as well as weekly analysis reports by experts. It has also become a full-fledged marketplace. But what is key for the firm is the data collection. Through the SourceSage platform, their technology collects bids and offers prices. These data points are anonymised and aggregated before they are put through the system to do detailed analysis. The data is ultimately verified by SourceSage's market research and trading team, which verifies the prices and information from previous stages with key producers, traders, brokers and end-customers on a daily basis. In addition to providing these data reports for customers, the company also generates revenue from SGX and Bloomberg through the sale of data. SourceSage has since done a deeper dive into this area. With help from Enterprise Singapore, the team has started developing its own prices for oleochemical and petrochemical commodities. Enterprise Singapore also supported the company's move to become IOSCO-compliant and to hire pricing specialists to increase their capabilities. The International Organisation of Securities Commissions is the global standard setter for securities markets regulation and being IOSCO-compliant provides assurance that the company follows best practices when it comes to developing price indices. But SourceSage envisions itself as being much more than just a commodity trading platform. After all, energy-price reporting agencies such as S&P Global Platts and Reed Business Information's ICIS are already well established in this field. In fact, the company's webpage states it is a "plug-and-play platform which aims to allow companies to digitise and transform themselves into platforms and marketplaces", with integration to payments, financing and logistics gateways. Branching out Leveraging the know-how from its digital marketplace and data analytics platform, SourceSage diversified into building white-label technology solutions for other companies looking to build their own digital marketplaces early on. SourceSage in fact powers the 99%SME B2B platform; 99%SME is an e-commerce platform co-founded by DBS and Singtel in 2015, which aims to help SMEs adopt digital technology to grow their business. All this started when SourceSage participated in an idea hackathon organised by the DBS innovation team at DBS Asia X; the startup was later approached by the bank to build the B2B platform under the 99%SME initiative. According to a DBS blog post from March, the B2B platform is unique in that it grants SMEs access to supply chain connections, financing and payment solutions that are usually open to large corporates or MNCs. These are typically absent in many B2B marketplaces. Part of the allure of SourceSage's setup is its ability to modularise different aspects of its platform. Users are encouraged to white-label their own marketplace and utilise their own online template or work with SourceSage to customise a marketplace. "So we developed three targeted sectors that we are aiming at for marketplaces service - the commodity template, the SME template for financial institutions, as well as the logistics template," says Mr Sim. Another customer is DHL. "DHL uses our platform to aggregate what they want to buy from third-party marketplaces. So we provide that interface for them in a marketplace, or procurement-as-a-service, so that's the logistics aspect where we find a use-case," he adds. "It's quite a natural extension. In exchange for working with banks, we get insights into payments. We are able to partner Mastercard to become a Master Merchant. So we are able to build our own payment gateway for B2B." Building platforms for other companies is now SourceSage's biggest source of revenue. Coming together While their commodities trading business and the platforms business might sound like separate ventures, Mr Sim disagrees. His ultimate aim is to become a "platform of platforms". "In order for us to create a benchmark index ... we're actually trying our best to move away from generating data," says Mr Sim. "Data cannot be generated through just one platform, that's just not representative. Our strategy is more decentralised and distributed, which means that we want to create a platform where we co-share data and market the data and ultimately share revenue with a partner." It is not just in the area of data-sharing that Mr Sim envisions the company building partnerships. Rather than compete with well-established players such as Platts and ICIS, the company's hope is that these price-reporting agencies collect data via its platform. "Let's say we partner Platts or ICIS on petrochemical, then we can stop producing our petrochemical site in exchange for revenue share with them because our platform will be powering their price benchmark formation. That's another way to make money, probably more because with their brand, the scalability is there. And then if we link our partnership with licensed brokers into their platform, we can clear trades through their platform. "I think eventually, the ecosystem play will work out because everyone provides their fair share of contribution to the ecosystem. "ICIS or Platts can't do trade, but they have the brand for licensing data. We provide the platform for them. Straits Financial can provide the brokerage service and warehousing. SGX can provide the futures platform for people to clear on so they have a broker to take the customer from physical platform to the futures platform to clear, so everyone plays a different role in this platform-to-platform collaboration." Straits Financial Group is the brokering division of the CWT Group, a leading global provider of integrated commodity service, and one of SourceSage's partners. Mr Sim likens the ecosystem he is trying to create to the e-commerce platform, Shopify. What makes this platform so successful is that it offers online retailers a full suite of services, including payments, marketing, shipping and customer engagement tools. "People are looking for a holistic solution rather than standalones," says Mr Sim. Perhaps the best example of how integrated their business is lies in their internationalisation efforts. SourceSage recently set up an overseas marketing presence in Vietnam, seeing opportunities in the market as there are many commodity suppliers, traders and end-users there. The company had intended to bring these players onto its commodity trading platforms but while there, it also saw other opportunities to engage and serve the SME community. Enterprise Singapore in fact helped connect SourceSage with a Singaporean bank with operations in Vietnam, as well as providing support while it was setting up operations. Mr Sim also credits events such as Tech in Commods Day as useful platforms to make new connections. The inaugural Tech in Commods Day 2019 was held in November. The half-day event's aim was to help simplify the journey for commodity trading firms by bringing together and connecting industry players with a community of technology partners to help digitalise the entire trading value chain. "We had a booth and we met a lot of commodity companies there. We met one that we are following up with right now. It is a traditional oil trading family business based in Suntec," says Mr Sim. He also makes it clear that the company's mandate is not to try to become the "sage" in every vertical. "The way we scale is not by going to do everything ourselves. SourceSage stands for source code and sage. So we need to find a sage in each vertical. So we look for the sage in plastics, the sage in palm oil... Mitsui is the sage in plastic. This guy is the sage in palm oil. … So, our mandate is that we don't try to become the sage, or we don't build up the sage internally. We source for the sage in each vertical and partner them through giving up our name rights. We don't need you to call your platform SourceSage. It doesn't matter, we can be the back-end, we can be the OS layer. But we only negotiate based on data sharing."