Analyzing Ariba’s Fourth Quarter (Part 5)

See the following posts (1, 2, 3, 4) for the highlights from Ariba's quarterly performance. In this final post, I'll offer up my summary opinion and analysis on the quarter and Ariba's direction from market and customer perspectives:

First, the market-driven take:

  • Expect a number of acquisitions to help round out Ariba's own capabilities in the network area (including a plan to own more of their own capabilities rather than partnering, including supply chain finance and working capital management)
  • In our analysis, look for a continued abandonment of functional upstream leadership (sourcing, spend analysis, etc.) relative to best of breed vendors; this includes a movement away from delivering platforms that help manage the analysis and sourcing of direct materials relative to other specialists. Unless Ariba makes serious advances or acquisitions in these areas, they will continue to fall behind the market leaders
  • Expect price leadership in deals and look for Ariba to aggressively promote its P2P solutions to bank on what they self-describe as a "very high gross profit" annuities on the supplier side
  • Look for continued investment in sales and marketing, as Bob suggested on the call (note marketing in Ariba's case tends to focus more on demand generation around products than product marketing as engineering-led companies tend to look at the area)
  • Look for Ariba to increasingly deliver value through content and connectivity in its solutions (e.g., supplier discovery) rather than driving to a functional focus

What does this all mean to customers?

  • Look for Ariba to follow the path of in focusing as much on the network effect of the business as absolute functional capability
  • Despite the 10S2 release and claimed functional CD parity, push Ariba on the possibility of integration into different systems (and integration reference users) if considering Ariba for P2P and you've got a complex systems environment already (e.g., asset management, contingent procurement/VMS, multi-ERP, etc.)
  • Look to Ariba for price leadership in such upstream areas as sourcing, spend analysis, etc. (rather than functional leadership)
  • In the P2P area, understand the price increase of network fees for your supply base (not a generic analysis); the price increase can be negligible to significant, depending entirely on transaction volume and absolute dollar levels
  • Whether you use Ariba for sourcing or note, try out Ariba Discovery for supplier search and RFP matching; you have nothing to lose!
  • If you are a larger middle market or Fortune 1000 company, seek out the counsel of both industry analysts and implementation consultants if evaluating Ariba for P2P (the more opinions, the better) to better understand what exactly you're committing to and the total cost (and appropriate cost benchmarks); attempt to negotiate flexibility into contracts to allow for PO dispatch and invoice/related connectivity options including but not limited to Ariba.

Jason Busch

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