On the earnings call last week, the subject of the Ariba supplier network continued to take up much of the conversation and financial analyst question and answer period (click here for part one of this series, which provides a general overview of the quarterly performance). Yet I believe that it's far too early to make any judgment calls about whether or not the price increase will have a positive or negative impact on the overall growth of the network -- or whether it will simply be a wash. What I think is more exciting (and certain) from a customer perspective is the integration of Discovery (see posts here and here) with Ariba Sourcing and the free RFX environment as part of the network business model. In this regard on the call, Bob Calderoni, Ariba's CEO, provided an update on Discovery where he reiterated the current product (which is available for free) is a "just a beta version." The actual release will be available in the Spring 2011 time frame.
Bob noted that today, about "1,000 suppliers per week" are registering for Discovery. Moreover, "the number of RFXs are doubled where they were the same period last year" and " the dollar value is approximately double to where it was and we continue to see every time there is a posting on Ariba Discovery, there is somewhere between ten to 15 supplier responses on each posting". As I've noted previously, the long-term business model here is most likely to mirror MFG.com and others that provide similar services by charging suppliers to access and bid of RFPs. Yet the eventual real volume driver for Discovery will not be the free RFP postings – it will when Ariba can enable users of its paid sourcing products (and possibly other platforms) to search for suppliers and publish RFPs to both current and potential supply bases, including those registered on Discovery.
On the call, Bob shared that Ariba has between "90,000 to 100,000 sourcing events per year going on inside our sourcing product and we point that to the network, that's 100,000 sourcing events." With Discovery, "If there are ten to fifteen supplier responses on each and every one of those, we estimate we could generate somewhere north of a million inquiries." Of course whether suppliers end up paying overtime to access these business opportunities is another question entirely (and one that is very complicated to analyze given both the challenges and successes of past examples), but without question, the value proposition of both supplier search and RFP matching is very much there for buying organizations.
From a broader perspective looking at Ariba and the supplier network concept in general, I believe that the greater the potential to create new value for suppliers outside of transactional efficiency, visibility and potential early payment (for a discount, of course), the greater the likelihood of creating a model that allows for an integrated informational network effect that will become self sustaining, rather than a simple network tollbooth that is easily compared with competitive models. If Ariba succeeds with Discovery, it will force other supplier network providers to enhance their value propositions (or sharpen their pricing pencils even more) while also pushing other sourcing and supplier management vendors down the path of interfacing with Ariba or competitive directories for supplier search, discovery and RFP publishing.