SAP and Ariba Procurement Customers: Hints at a Directional Solution Focus and Recommendations to Take Advantage of Acquisition and Post-Merger Uncertainty

Earlier this week, Ariba sent a note to customers that Spend Matters obtained. We feature it verbatim below.

May 22, 2012

Dear Ariba Customer:

I’m contacting you to share some exciting news about Ariba that will benefit you, our valued customer. Consistent with our strategy to provide innovative business commerce applications and network solutions to enable businesses like yours to discover, connect, and collaborate more efficiently with trading partners around the globe, we have entered into an agreement to be acquired by SAP.

The combination of SAP and Ariba will marry a market leader in enterprise application software with a leader in cloud commerce applications and global trading networks. The union will enhance collaborative commerce within and between companies and accelerate results for your business.

As you know, the Ariba Network connects many of the world’s largest buying organizations to over 730,000 sellers around the globe – driving benefits through increased efficiencies and insights for all participants. Our open network model will continue to empower businesses of all sizes to connect and collaborate with new and existing trading partners – regardless of their application infrastructure provider or delivery model.

In joining forces with SAP, we can increase the value of the Ariba Network, accelerate our application innovation, and expand benefits that we deliver to you and your trading partners.

Upon completion of the transaction, which is subject to customary regulatory review and closing conditions, Ariba will operate as an independent business of SAP. That means we’ll remain focused on our vision to enable better business commerce. We will continue to innovate on the Ariba applications and network solutions that you’ve come to rely upon, and provide ongoing support to help you maximize and enhance your return on investment.

In the coming months, we’ll be sharing more information on this exciting development and what you can expect in the future. As always, we remain dedicated to your satisfaction and the success of your business and look forward to continuing to provide you with the technology, expertise and services you need to achieve your most strategic goals.

Sincerely,

Kevin Costello

President

In this letter, we pick up on a few key phrases and lines, including: “Our open network model will continue to empower businesses of all sizes to connect and collaborate with new and existing trading partners – regardless of their application infrastructure provider or delivery model” and “In joining forces with SAP, we can increase the value of the Ariba Network, accelerate our application innovation, and expand benefits that we deliver to you and your trading partners.”

The first excerpted statement is important for Ariba and SAP customers to understand. If the transaction closes, Ariba and SAP together not only plan to expand on the network vision that Ariba has focused on in recent years, but also plan to enable their own (and potentially other) applications, both SaaS and installed, to connect to it. The fact that SAP and Ariba are already calling out that applications (e.g., eProcurement, P2P, Buyer and SRM), electronic invoicing/invoice automation, supplier management, etc.) will be delivered in a flexible manner and will not just be hosted in the cloud should appease customers that were worried about making an initial move or transition to a model they weren’t entirely comfortable with. It’s likely that the combination of SAP and Ariba will bring a range of source-to-pay deployment options (multi-tenant SaaS, single-tenant SaaS, installed, hybrid, hybrid with value-added services such as spend refreshes, etc.).

We believe that the second line we call your attention to represents the essence of where the ultimate post-merger integration planning and development of a combined SAP/Ariba will be headed. Specifically, both organizations are placing their biggest bets on building out enhanced network capability that will sit in between organizations to deliver new types of value to buyers and suppliers. For buyers, we believe this may take the form of new types of supplier information tools, risk management capabilities, benchmarking and predictive intelligence (think a HANA-driven SAP Supplier InfoNet on steroids combined with transactional connectivity and core supplier management wrapped in one).

For suppliers, there could be many benefits of such a model as well. These might include integrated working capital tools that cross customer and network bounds (imagine a combination of Taulia, which incidentally should be on the immediate shopping list for SAP/Ariba now, with built-in financing partners pre-integrated into the network and pre-approved, low-APR rates based on the buying organization’s credit rating). In addition, supplier-focused network capability might include the ability to leverage the shared infrastructure to develop and deliver enhanced solutions including plumbing for vendor managed inventory (VMI), just-in-time (JIT), leveraged buying/buying aggregation, hedging/commodity management and other capabilities.

This vision is one that is likely to increasingly come in conflict with similar services that Amazon, GXS, IBM and potentially others have the potential to develop as well. Yet the fulfillment of this vision and subsequent competition is likely many years down the road, and will in part depending on enabling the Ariba network architecture to support true many-to-many connectivity that puts at the core the ability of buyers to also be sellers – or an intermediary – at the same time. 

In the meantime, it’s important to stay grounded. For this reason, we recommend current SAP and Ariba procurement customers and prospects consider the following approaches in the coming months before and after deal close:

  • Negotiating shorter-term contracts until post-merger product rationalization and enhancement paths become clear and using as leverage competing providers to achieve desired outcomes
  • Entering into pilot and/or proof-of-concept agreements wherever possible to test the new product waters (e.g., in spend analysis area) potentially with multiple parties
  • Working with partners currently and previously integrated into SAP solutions (e.g., Hubwoo, OpenText) to understand how they will/can continue to support SAP solutions going forward, either through SAP directly or through other means
  • Working closely to partner with SAP in specific areas where a product rationalization path towards a planned SAP solution has already been decided (working with SAP to help influence new UI designs for SRM, encourage specific mobile capabilities based on desired iOS needs, etc.)
  • Remaining open to – or at least examining – the many targeted marketing offers, including potentially aggressive discounting and value-added services such as data migration and implementation, that SAP and Ariba competitors are sure to introduce and toss-in with their offers in the coming months
  • Developing alternative options to increase negotiation leverage and flexibility in cases where exposure levels to new fees and programs may increase, directly or indirectly (e.g., Ariba Buyer CD customers evaluating transactional and network connectivity options should consider providers including Vinimaya, WALLMEDIEN, Hubwoo, OB10, TradeShift and others to examine alternatives to avoid SAP/Ariba lock-in, including supplier fee uncertainty, and have a back-up plan while increasing their BATNA – best alternative to negotiated agreement)
  • Identifying preferred services and implementation partners with an independent voice to provide guidance. For example, organizations looking for an independent systems (and hosted systems) guidance and implementation voice should turn to Deloitte, Accenture, Archstone or PWC over an IBM, CapGemini, Inf
    osys, Genpact and others which have preferred programs or hosted platforms in place with specific vendors already or might own their own assets that cloud — no pun intended — their objectivity in issuing truly unbiased solution recommendations

On Tuesday, when Spend Matters PRO publishing resumes after the Memorial Day weekend, we will take a detour from our coverage of SAP to explore other areas of interest to our subscribers. But we hope you’ve found our initial coverage this week of SAP’s bid for Ariba to be at a level which has been valuable and unique in the market.

 

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