SAP/Crossgate Targets Ariba in Crosshairs: Will the Best-Run Businesses Run on the SAP Network?

Earlier this week, SAP announced it was acquiring Crossgate, a key piece of the supplier network puzzle that the ERP giant is trying to piece together in an attempt to dominate the space between buyers and suppliers rather than just delivering workflow, compliance and decision support applications to purchasing managers and frontline buyers that sit behind the enterprise firewall. In many ways, the announcement represents a surprising shot across the bow of the Ariba network boat, but it's unclear whether or not the move will accelerate the pace at which SAP is getting large Ariba customers to defect in both the eProcurement and invoicing areas. Later today, we'll investigate this specific topic in more detail, so check back.

Regarding the subject at hand, in the past two years, Ariba has done a stellar job of convincing Wall Street that network business models that connect buyers and suppliers in a one-to-many fashion to complete corporate buying and selling transactions are worthy of exemplary valuations. But in reality, supplier networks -- including the Ariba network -- are exceptionally valuable to users, not shareholders, many of whom don't understand the business model that makes up the paper they're holding.

We've written hundreds of thousands of words about this topic over the years. However, the challenge for Ariba is that the core model for transactional connectivity alone is not defensible; especially in a market a provider believes it has more pricing power than its customers believe (which explains why Ariba is accelerating its move into the supplier discovery space, among other areas). In reality, there isn't really a secret sauce that prevents others from building competitive models and undercutting existing market price points, at least when it comes to P2P connectivity (for PO, invoice, ASN and related document exchange). This is precisely what SAP has done in announcing the acquisition of Crossgate on Tuesday.

In positioning the deal, SAP has taken a lot of the same language Ariba uses. To wit, "Crossgate enables companies to fully integrate and network with trading partners, clients and suppliers, allowing electronic data exchange with any business partner regardless of their technical capability. As a result of this acquisition, SAP will enable networking at the enterprise level, providing an easy way for trading partners to collaborate, share data and automate processes that link customers and suppliers for streamlined B2B e-commerce." Sounds a bit Sunnyvale -- or would that be Alpheretta-esque? You betcha.

But one thing is missing in the announcement. And that's Hubwoo, the other integral piece of the SAP supplier network offering (you can read about the specifics of the three- (now two) way combined solution here, here, and here). Later today, we'll explore how this announcement will impact the Hubwoo/SAP relationship, offering perspectives from both providers. But without question, even if it causes no tension for the partners, it will certainly help to eventually create a more differentiated market network offering with native hooks into SAP for both direct and indirect spend and global buyer/supplier connectivity, which on the e-invoicing side, requires a massive amount of localization for tax laws and compliance.

How will this offering stack up in the market on a functional level? I previously wrote, "If you dig into the functional promises of the SAP network that combines Hubwoo and Crossgate, the similarities between the ASN become even more clear -- and even go beyond, to some extent, what Ariba has integrated today as part of core network functionality rather than in an application area. Consider that SAP is bundling a supplier self-registration capability into the network that allows buying organizations to manage campaigns, find and invite suppliers and monitor the status of suppliers. Suppliers have the ability to register, providing detailed profile information as well as interface with ongoing transactional requirements and status updates."

"On the Order to Invoice side, the network offering lets buyers 'enforce process rules' through a similar workflow configuration to Ariba and other network tools plus the ability for suppliers to manage transactions in a single hub from order to invoice. For event management, the network offering includes a range of capabilities including alerting, document tracking and dispute management/remediation. Underlying the event management framework and architecture are browser-based and email alerting capabilities, document tracking and additional workflow/process definitions that users can configure or customize."

In short, as I previously opined, with the offering that incorporates Crossgate as a core component, "SAP is no doubt creating a network offering that balances market-parity functional network capability and a level of integration into native back-end systems with a broad supplier reach that is designed to directly challenge Ariba for network supremacy in the P2P market." And now with Crossgate soon to be under SAP's firm control, it's likely the battle for network victory will accelerate. That is, unless SAP decides to push the "game over" button, and pay a premium for another vendor we all know.

Stay tuned for continuing coverage of the SAP/Crossgate announcement later today and next week.

An earlier version of this post had mentioned "the SAP/Hubwoo announcement later today and next week". This was in error. The corrected text is above.

Jason Busch

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