During Ariba's remarks on their call with Wall Street analysts announcing the Procuri deal last week, I counted the word "middle-market" in their presentation and Q/A at least half a dozen times. Clearly, Ariba is putting quite a bit of stock in pursuing this market opportunity. Personally, having had significant experience working with and talking to middle market procurement organizations in the past few years, I can tell you first hand that Ariba -- and everyone else for that matter -- is going to have a tough hurdle to overcome if they want to achieve their goals. Why is the middle market challenging? They're the classic software reasons: long sales cycles with smaller rewards, limited budgets, and customers who demand just as much from their solutions providers as larger organizations. But they're also unique reasons to procurement that make the middle market especially difficult to pursue.
Namely, middle market procurement organizations often are looked upon as highly tactical functions. In fact, in many middle market companies, procurement reports up through two or three layers before getting to the true executive ranks. This means budgets are typically small -- unless you can go in above the heads of the typical practitioner -- and it's easy to get a run around in the sales process (just try selling "Helga" or "Marge", a self-proclaimed "expert negotiator" but "buyer" in title, anything that is not budgeted). And if you add on top of this that middle market deals are built largely on relationships -- rather than sales calls -- then it becomes even clearer that penetrating this segment can be rough regardless of how good your value proposition is.
Will Ariba succeed in realizing its middle market ambitions with Procuri? Only time will tell, but personally, I think there are easier ways to make higher margin dollars in the Spend Management solution world. I do hope, however, that they -- along with other vendors with similar middle market ambitions -- prove me wrong. As a side-note, there was some irony to the timing of this announcement, given that it coincided with SAP's launch of their new middle market solution (more news on that next week).