Analyzing Ariba’s Quarter (Part 3): Acquisitions and Growth

Right around the time of its quarterly earnings news, Ariba also announced it had also closed its acquisition of Quadrem (See coverage here and here) less than three months from the announcement date last November. Spend Matters considers the Quadrem acquisition a smart move not only because of the revenue arbitrage factor (i.e., taking Quadrem's lower valuation shared services revenue and repositioning it as network/cloud revenue as part of Ariba) but also because of the vertical/industry expertise Ariba gained from the deal. On its recent earnings call, Ariba continued to hint that other acquisitions might be in the cards as well. They did note, however, that there were "no immediate plans" for any announcements. Still, Ariba did suggest on the call that the "first priority" in future acquisitions would be to use its balance sheet cash to acquire potential vendors. We've mentioned many providers in the past that we believe would be a good fit with Ariba and won't spend further time analyzing that area now. It's our best guess that we'll see another acquisition announcement sometime this quarter or early next.

In terms of organic growth, our intelligence suggests that Ariba is actively attempting to build a channel partner, technology partner and BPO ecosystem. On the BPO front, Spend Matters believes these efforts are genuine, and we are aware of numerous potential partners that Ariba has approached in recent quarters. Still, Ariba will have an uphill battle when it comes to unseating Emptoris at BPO providers such as Accenture and IBM from a sourcing standpoint, and it's likely that both large and boutique BPOs alike will need to remain more neutral and accommodating in the P2P area given unique customer requirements in each engagement. BPOs have overwhelmingly gone down a best-of-breed approach in the spend analysis area to date, and Ariba has not captured a material portion of this market to date (contract management, supplier information management and supplier performance management don't have material traction within many BPOs at the moment from a technology enablement perspective).

Commercially, Ariba continues to price itself at all ends of the market depending on how competitive it believes a particular deal to be. This goes for both the up and downstream areas. Spend Matters recommends that all potential Ariba customers make it known early in the sales process that they plan to introduce competition into the process, and for Ariba to put forth its best pricing early on. This situation might help Ariba as well, considering that if many organizations knew the floor of what Ariba charges in certain cases today, then they would be less inclined to consider alternative solution options, even if they presented a better fit than Ariba's specific capabilities given even unique customer requirements. From a price guidance perspective, organizations should be aware that it is possible to obtain the entire Ariba SaaS suite, depending on a variety of factors including competition and the size of the organization, for materially less than what they might believe (it's our experience that if Ariba wants a deal, they will not be underbid). However, companies should factor in supplier network fees into the price equation in the downstream area as well.

- Jason Busch

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