Prediction: SAP and Ariba Will Terminate the Current Network Fee Structure By 2015

Closing out Spend Matters PRO week, we feature a prediction from a three-part series covering the future of the Ariba supplier network under SAP's ownership and guidance (Spend Matters PRO subscribers can access the series here: Part 1, Part 2, and Part 3). Here's the PRO call: SAP and Ariba will terminate the current network fee structure that charges a percentage of transactional value to suppliers by 2015 and replace it with flat connectivity charges (either annual subscriptions for basic connectivity or per-document pricing). Curious to learn more about the thought process behind this prediction? We hope you find the snippet below piques your interest in Spend Matters PRO.

[Under SAP] Supplier-focused business models will be given equal or greater weight – A major element of Ariba's turnaround, furthered by the acquisition of Quadrem, was shifting the cost equation from buyers to suppliers for transactional procurement activity. By making suppliers pay more for transactional network fees, Ariba could effectively charge less for buyers and still maintain an attractive gross margin that was in line with smaller, best of breed competitors (like Coupa, that would often cost more than Ariba in subscription-fees after changing the business model).

Spend Matters believes that SAP fully understands the potential for network pricing where suppliers continue to pick up a material portion of the overall cost equation for a P2P deal (and ultimately broader procurement network enablement). SAP told Spend Matters that they have no immediate plans to alter Ariba's network pricing fee structure. Whether or not percentage-of-transaction based supplier fees remain as a core component of the SAP/Ariba business network model, it is likely that SAP and Ariba will add new supplier fees into the network equation for value-added capabilities delivered to suppliers (e.g., sales/marketing leads, benchmarking, early payment financing, data management). It is our belief, however, that these fees are likely to be looked upon favorably by suppliers keen on growing their businesses through network connectivity.

Spend Matters Prediction: As we said earlier, SAP and Ariba will terminate the current network fee structure that charges a percentage of transactional value to suppliers by 2015 and replace it with flat connectivity charges (either annual subscriptions for basic connectivity or per-document pricing). Within this timeframe, SAP will also introduce a range of new capabilities on the network for buyers and suppliers where supplier-generated fees are likely to continue to form a significant portion of network revenues going forward (but without the supplier and buyer heartburn that Ariba's transaction-value based price increases generated in the past).

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- Jason Busch

Voices (3)

  1. P2PGuy:

    If they wait until 2015 they will need to significantly discount their current model in deals where they are competing against the new guys like TradeShift. If they wait until 2015 to change their model they will be irrelevant at that point. They are in a tough situation because a major reason SAP bought them was for their network revenue and to take a risk on a new model will prevent them from doing anything soon. It’s a shame because they are one of leaders in this space. The SAP acquisition will be their downfall in the long run.

  2. Jason Busch:

    The coverage is good for the space, but please. The next Amazon is Amazon, not SAP. If SAP thinks it bought anything but a highly successful S2P venture with a more open next generation XML EDI network tied to it, then they should Amazon Prime a refund check to the shareholders who are paying for it … fulfillment, distribution, warehousing, financing, etc. — these are not things SAP or Ariba individually know anything about outside of software to support it. My bet is Amazon or a Grainger all the way, not SAP, if this is the vision without further expertise brought in through acquisition in managing the physical and financial supply chain.

  3. kris colby:

    Good article on SAP/Ariba plans in Sunday NYTimes.

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