Yesterday morning, I offered some initial thoughts on Ariba's middle market reseller announcement and the challenges of penetrating a segment of the market that is notoriously difficult -- not to mention the new task of working with and building a reseller channel. Today, I'd like to continue this analysis by discussing some of the competitive dynamics at play when it comes to Spend Management adoption and sales in the middle market. Please excuse my non-linear thinking in this post. I've got a bunch of things to get on paper, and I would rather cover them all rather than logically jump from point to point.
First, by going the reseller route, Ariba is pursuing a channel approach that for other vendors, has sometimes resulted in conflict with their own direct sales organization. Yesterday, I had the chance to speak with the executive leading Ariba’s channel and reseller charge, Eli Kalil, and we went over in detail the plan he and his team have developed to insure this does not happen.
Without giving away all the details of what I learned, I feel it's unlikely that Ariba will experience channel conflict with their new resellers. Ariba's reseller investment and planning is important because because at the larger end of the middle market revenue range, if ERP history is any indication, it is common for vendors to find themselves in situations where they're forced to defer to its channel -- or seriously tick them off -- when both an inside sales effort and a reseller’s initiative unearth the same lead. In contrast to approaches where vendors give up their own direct sales (like Microsoft has), situations where a solution provider is selling direct and working through resellers into the same base is always fraught with the potential for conflict.
My second observation is that reaching the middle market is extremely difficult when it comes to selling anything other than a simple solution that requires little or no configuration (like an e-sourcing suite). Perhaps that's why Ariba plans to ramp to "between 10 to 15 reseller partners by the end of 2008,” according to Kalil. By starting with just two, "we are walking before we run," he told me. Still , in my view, this is a "runners game" where all that matters is the numbers. More partners and greater reseller investments should equal more deals. That's why this fairly quick ramp-up makes sense to me. As does the investment in reseller training and support that it sounds like they're also making based on what I heard. All of this is necessary because of the challenge of penetrating beneath the Global 2000.
For many providers, the middle market is not even a concerted focus. Emptoris, perhaps Ariba's largest competitor outside of the ERP providers, sees opportunity in the $500M to $1.5B segment of the mid-market, but at this time is not focused on sourcing opportunities at the low-end of the middle market (less than $500M), from a direct sales perspective. According to Ammiel Kamon, Emptoris' SVP of Marketing, when it comes to the lower end of the middle market scale, it might not even make sense to pursue the opportunity (from a traditional software or paid SaaS perspective): "In the case of Sourcing," Kamon notes, "an MFG type of [free] solution may be much more appropriate for companies in the $50M or lower middle market range ... it will show them more value and be much more adoptable, then what a [traditional vendor might have to offer]."
In the past, Emptoris has opted to work through a number of its exchange and marketplace partners to reach the higher end of the middle market and has also taken a direct sales approach. They've also customized their "Basic" level solutions by wrapping enabling services which "are targeted at smaller companies or divisions of companies that want to start simple." And for middle market customers who become more advanced, they can upgrade to the Professional and Enterprise editions which offer greater capability and are available on the same code base and have the same UI to simplify an upgrade. In Ariba's defense, they too have similar upgradable solutions for advanced companies seeking greater capabilities.
My third and final tangent when it comes to reaching and serving the needs of the middle market is the importance of realizing what matters versus what does not to prospects. To get a sense of what middle market companies value, check out Coupa's customer testimonials. Pretty simple needs, eh? The middle market ain't rocket science (and middle market companies are also not willing to pay to go to the moon, let alone into orbit). Clearly, Ariba and other traditional vendors will need to simplify and change their message to appeal to the basic needs of companies that, for the most part, just care about maintaining stock, getting suppliers paid and not getting into an accounting or compliance scandal through nefarious purchases or sourcing decisions. In other words, in many middle market companies -- especially smaller ones -- procurement transformation really is still about bailing out the backwater rather than achieving results that change the name of the game.
- Jason Busch