Ariba's 21st Century GPO is Finally Here

Perhaps the most ironic thing about Ariba over the years was how the company got off to such an aggressive start initially, but later, after its major fall in the b2b .com bust, became much more conservative from a product development perspective. Among one of the offerings which had been talked about for literally years within Ariba -- this goes back to my time at FreeMarkets to give you a sense of when these discussions started -- was turning the Ariba Supplier Network (ASN) into essentially a stealth Group Purchasing Organization (GPO) model. In other words, take pre-populated catalogs with popular configurations and slightly discounted pricing from list and package them up to both middle market and large companies, making money on a shared revenue model with suppliers.

Well, I'm excited to report that this business model is finally here. Earlier today, Ariba announced just such an "Express Content" offering to the market. According to the announcement, "Through Ariba's Express Content catalogs, buyers can [gain] ... quick access to high quality suppliers who are already equipped to do business online. Leveraging the catalogs, they can drive rapid time to savings, high adoption, and compliance with negotiated contracts and purchasing policies." Initial categories include: Knowledge Products and Services, Office Identification Products & Displays, Office Equipment, Custom Office Products (Rubber Stamps, Nameplates, Badges and Banners), Electrical/ Electronics, Industrial Supplies and MRO, Print Products and Services, Cellular Accessories & Equipment, Office Supplies, Life Sciences and Chemicals, Pharmaceutical Products and Equipment, Computer Hardware/Networking, Software, Paper Goods & Packaging, Travel and Hotels, Promotional Goods (Apparel, Luggage, Personal Care), Facilities and Material Handling Services, Recreational Equipment and Accessories, Health Care Services, Transportation, Storage, Mail Services, and Temporary Workforce.

After talking with Ariba about the announcement, I learned that the standard pricing in the catalogs might often be better for categories which companies have not sourced in a while or never sourced strategically. However, the final price is "between the supplier and each individual buyer". From a supplier's perspective, the discount depends on if the buyer is a "net new" customer or not and the potential volume available to the supplier from each buying organization. Ariba will share in the revenue with suppliers like other GPOs based on the net new business that the suppliers generate through the program. The exact rates will vary by supplier based on volume.

Stay tuned for further analysis on what this announcement means to the market later this week. My gut impression is that this news is probably the most important development in the GPO space in quite a long time -- and will hopefully breathe life back into a business model which can be beneficial for both procurement organizations and suppliers for categories where it does not make sense to go through a sourcing process because of spend size or availability of resources. As a final aside, it's also worth calling out how this is potentially a much more significant announcement when it comes to the middle market than Ariba's acquisition of Procuri (which while interesting -- especially from a financial perspective -- brings less potential to transform at least part of middle market procurement than this news).

Jason Busch

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