Ariba and Procuri: Kicking off 2008 Together

Yesterday, I had the chance to catch up with Alex Moissis, Ariba's new VP of Solutions Marketing, and Tim Minahan, Ariba's new CMO, to discuss the closing of the Procuri acquisition. At this early point, the combined company already appears to be hitting the ground running. I'll admit that I'm a bit surprised at the extent to which the Procuri organization and at least a few members of the Procuri executive team are being integrated into the Ariba organization (much of which now reports into Kevin Costello who has taken on the role of President). When the acquisition was first announced, I had expected that once closed, it would look much more financial in nature. But now it's clear to me that since the signing of the MOU or LOI a couple of months back, that both teams undertook a serious amount of analysis in the time since the initial news broke.

There's clearly a lot of fresh thinking going on within Ariba of late which I think contributed to the integration approach and the high level road map that they shared with me. I think a good part of this comes from the addition of folks like Tim and Alex, not to mention the elevation of Kent Parker to the role of COO. One thing that I'm impressed by is the consideration that the new organization is giving to the non-software aspects of Spend Management solutions, especially in an On Demand environment. My guess is that we'll see Ariba begin to really monetize its own knowledge infrastructure outside of traditional services -- something it and FreeMarkets never did very well in the past -- through running with Procuri's lower-cost services, content and expertise delivery models such as the Best Practices Center (a good offering despite its clichéd name).

At this point, there's not much news available on the specific product integration roadmap. Procuri 8.0 will release in January, and Ariba is planning to stick with its same release schedule for 9s5 and 9r1 (the On Demand and installed versions, respectively) in February and June of next year. Eventually, Ariba plans to deliver a unified Ariba/Procuri solution set at some point within the next 18-24 months. I suspect we'll know more by February of 2008 as to what features will make its way into this integrated platform, but until 2009, we should count on Ariba continuing to sell and develop both their own solutions and Procuri's (with two separate development organizations, at least for now).

From a spend visibility perspective, this means that Ariba will continue to support both their own Spend Visibility solution and Procuri TotalSpend. In regards to the sourcing and contract management products, both Ariba's platforms and TotalSource and TotalContracts will also continue to be supported for the foreseeable future. And from a supplier management perspective, Ariba will support and develop the ASN, their supplier performance management products and Procuri's TotalSupplier offering. In my view, the integration of the supplier management solution set -- including Ariba's and Procuri's supplier databases from the sourcing world -- could be quite interesting indeed if they pull it off.

One of the biggest surprises of the deal given Ariba’s strong eProcurement penetration -- not to mention their installed base in other areas -- and Procuri's sourcing and contract management customer count is the only 3% customer overlap that exists between the organizations. As a combined company, Ariba serves over 900 customers. This includes half of the Fortune 500. Altogether, they have over 600 sourcing customers and nearly half as many in the contract management area. In other words, there's a significant up-sell and cross-sell opportunity for Ariba that it will only be able to improve when it introduces a detailed solution integration road map. It will be critical for Ariba to move fast, however, as I've spoken with a couple of competitors who are already seeing traction from targeting the Ariba/Procuri installed base.

I suspect that a side benefit of Procuri's historic operating model -- which was based on a subscription model that focused on simplicity and ease of access/use -- will be a new Ariba that looks more like the old Procuri and less like a traditional enterprise software vendor. It's important to note that this is more of a cultural shift than a technology or process one. One of the reasons Procuri tended to be well liked by customers and had a retention rate above 90% was that companies -- for the most part -- really liked to do business with them.

At traditional enterprise software providers, the quality of customer service and management is often highly variable between accounts (as it was at Ariba). Something I've learned over the years is that there is little consistency on the account side as companies get larger. As an example, I once had a conversation with a customer who could not stop praising the Ariba team before moving on to another the same day listening about how the Ariba account team "just did not get it". This is not atypical, in fact, and is something all larger software and solution vendors face. By putting Procuri's SVP of Sales, Jeff Wilson, into a senior role, Ariba no doubt realized they had much to learn about not only about serving customers consistently at reasonable price points but also what the middle market demands in the sales and account management process.

I look forward to learning more in Q1 next year about the detailed solution integration road map once it becomes available. Certainly, Ariba can't move too quickly, lest Emptoris, Iasta, SAP and other providers focused on the same market begin to take greater advantage of a combined product information vacuum in the large Ariba/Procuri installed base.

Jason Busch

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