With its latest quarterly earnings announcement from last week, Ariba appears to be on a roll. While I plan to examine some of the details from the call and the earnings report in more detail next week along with the yearly and quarterly performance of other providers (the Capgemini/IBX news from this week took priority on Spend Matters), I thought I'd put on my contrarian hat this Friday and offer up a few thoughts on what could still hold Ariba back from building additional momentum. Now, don't get me wrong; Ariba put on a good show with its numbers, and much of the trending was headed in the right direction. But any time I see the general market latch on to a binary (i.e., good/bad) view of a provider, I feel it's worth taking the subject off the pedestal and offering a more balanced viewpoint. So just as I defended Ariba's strengths when its earnings reports and forecasts did not delight investors, I'll offer for consideration a few points on areas in which Ariba still needs to focus to take its performance to the next level.
First, Ariba still needs to fully nail the SaaS P2P integration story for larger customers with complex, heterogeneous environments. If Ariba won't eventually punt all of its P2P business in in the $7.5+ billion customer range to Oracle and SAP, it's got to nail enterprise SaaS, including, most important, complicated systems and process integration. CD upgrades for legacy customers are a good interim step, but there will be no reason for large customers to stay on Ariba P2P relative to SAP and Oracle if Ariba doesn't develop a proven core competence and market reputation around enterprise SaaS. The network and associated services may prove essential as part of the value proposition for enterprise SaaS -- especially since Ariba has been largely unsuccessfully at selling its network and connectivity services into ERP P2P environments -- but the most critical element for this will clearly stem from integration and configuration proof points that companies can run a large, highly complicated, global purchasing environment with an even nastier looking back-end in a SaaS model.
Second, Ariba's pricing needs to remain as competitive as it has been over the past twelve months (and especially the past few quarters). Since 2008, Ariba has gone from being a frequent price laggard to a price leader. As market-consolidation fever becomes more contagious this year (and Ariba, as a result, finds itself with fewer competitors), Ariba should hold back the urge to raise prices to previous levels, and should instead focus on using aggressive price points to drive penetration of its broader solution set within customers.
Third, Ariba should build out or acquire leading services procurement capabilities in contingent labor to complement its other category strengths in that area. Concurrently, it should begin to invest much more heavily in channel development (i.e., MSP relationships) in this area, along with any product-capability expansions. In my view, acquisition is the way to go; this is a no-brainer expansion, and I continue to believe -- as I've said numerous times on this blog -- that Fieldglass is the most logical acquisition candidate. Ariba should also consider logical services procurement expansions in niche areas (e.g., print) if it wants to dominate the services procurement market, which, if it gets things right, is Ariba's for the taking.
Fourth, Ariba must overcome legacy PR issues stemming from lingering customer accusations around high and unnecessary costs. (To be fair, this is more bravado than reality today, especially with regard to legacy Buyer deals and sunsetting; our research suggests Ariba has, in most cases, shown decent flexibility around reasonable upgrade paths.) Still, from network fees that "tax" suppliers to customer views of arm-twisting around upgrades, Ariba has a PR battle it must fight -- and win. In broadcast journalism, pundits like to ask a simple question: Is your net impression positive or negative? When it comes to how firms view Ariba from the standpoint of legacy pricing and cost behavior, it's still negative, and some recent Ariba actions -- which we'll examine more in the coming weeks -- are perpetuating this net-negative impression.
Stay tuned for Part 2 of this rant next week, when we'll tackle what Ariba must do (from the perspective of channel relationships and professional services) to regain the confidence of potential outsourcing and consulting partners while also fully capitalizing on its own services and content assets. This will no doubt be a balancing act, but it's one that Ariba must get right.
(As an aside, I don't own Ariba stock. I can't -- it would be a conflict of interest given my involvement in both Spend Matters and my consulting activities. However, if I could buy the stock, now is the first time in years I'd jump back in, from a longer-term perspective, despite my quibbles and suggestions.)