Friday Rant: SAP — Pull the Trigger on Ariba

Over the past five years, there have probably been half a dozen times when SAP or Oracle has been rumored to be in serious talks to buy Ariba. For a lot of relatively superficial deal reasons, an Ariba deal could make sense for both organizations -- Ariba represents one of the largest remaining business application vendors (Oracle has acquired most of them already), they've made the switch to a recurring revenue model, they present a solid, global installed base and they continue to take away potential revenue from both platform vendors in deals. Sure, you might argue that the Ariba global services organization (GSO), the former FreeMarkets sourcing team, might be a bit of the odd man out inside an enterprise software giant, but both SAP and Oracle also realize the need for supporting on-demand services in a SaaS context not to mention the need to pluck revenue away from the SIs and ops consultants in any way they can in the downturn.

But now more than ever, an SAP / Ariba deal makes a lot of sense from a solution perspective (I won't get into the financial component of such a transaction in this post). I know SAP is notoriously slow on the deal trigger relative to its US-based competitor, but if they had to make an acquisition happen, I'm sure they could push it through the corporate Bundestag just as fast as Nancy Pelosi can fly halfway around the world -- or to visit her constituents -- on a taxpayer-funded G5 (don’t get me started or diverted on that subject). But seriously, there are a number of reasons that I believe are gelling together for SAP to finally get serious and do something regarding Ariba. Consider both SAP's recent past behavior as well as their current challenges as I shape this argument.

First, the long awaited SRM 7.0 release is still, well, long awaited. SAP has been extremely quiet with the media, analysts and bloggers in talking about it. But I know for a fact that the final product is not exactly featuring all of the components they originally envisioned. Moreover, it would appear from a handful of sources that SAP has not even recommended companies hold off purchases of SRM 5.0 at the moment to wait for the availability of SRM 7.0. Perhaps that says something about their confidence in the new release right there. Moreover, it's become increasingly clear in my view that SAP has fallen behind parity with Oracle in all of its procurement-related applications once R12.1 comes to market, except for spend visibility (and potentially elements of contract management). Taking out Ariba would address all of these areas and then some -- and finally give them a core procurement application they can confidentially take to their customers.

But there is more than just a bail-out-the-e-Procurement-ship rationale for the deal. Both SAP and Oracle have largely ceded the downstream electronic invoice presentment and payment (EIPP) and supply finance markets to dozens of other competitors, including Ariba. Ariba would not only give them a solution in this area, it would allow them to deliver a full suite of network-based capabilities, something Oracle has always seemed to grasp a bit better than their German peer (though they, too, have not fully executed on the vision for network-based enablement and solutions). Along similar lines, Ariba would give SAP an answer in the supplier enablement, content search and catalog/content management arenas -- three distinct areas where SAP customers continue to turn to third parties (e.g., Perfect Commerce, Vinimaya, jCatalog, etc.) despite the ability of their own MDM application.

Finally, I believe the rationale for SAP to finally pull the trigger on an Ariba deal is timing. If this downturn lasts more than another quarter or two, SAP's other business application and core ERP areas will likely see tough times ahead, potentially pulling down the entire organization with it. Procurement and cost reduction is selling today. It's the one bright spot -- maybe not a spot that's gleaming, but still a bright spot, relatively speaking -- in the entire business applications arena. In addition, SAP has already proven to its management team that they are able to buy and integrate point solutions (e.g., Frictionless and Analytics, Inc.) in the SRM and procurement areas. Ariba would not just be the icing on the cake on top of these deals. It would be the cake itself.

Disclosures: I do not hold any direct or indirect investments in either SAP or Ariba. Both SAP and Ariba are clients of my firm, Azul Partners, and Ariba is an Associate Sponsor of Spend Matters.

- Jason Busch

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