You can always count on the young (and hyper competitive) Christian Lanng (Tradeshift's CEO and co-founder) for a good one-liner on the competition. Earlier this week, I met Christian for a quick coffee in San Francisco to hear his perspective on the latest happenings in the US supplier network and e-invoicing market. About halfway through the conversation, he sprung the one-liner on me: "Ariba doesn't have customers, it has prisoners."
As someone who knows Ariba – products, customers, partners and a number of employees – at least somewhat well, I could have easily dismissed this statement based on the fact that procurement and AP organizations use Ariba's tools willingly. After all, they've paid for these procurement and accounts payable tools. Yet Christian has a point. And it's one that anyone who is in the market for (or currently using) Ariba SaaS technology should keep in mind.
Those in the market for purchasing and invoicing technology who have seen what Ariba offers are aware that it's rare that a best of breed provider can price aggressively, at what appears to be the bottom of the market. One of the knocks on Salesforce, for example, relative to other CRM tools and platforms, is that once you start adding users, capabilities and modules, the price increases dramatically.
Yet Ariba can be inexpensive – at least based on volume, users, etc. – relative to just about all of its competitors, including upstarts such as Tradeshift (e-invoicing/supplier network platform) and Coupa (eProcurement and many related modules), especially if it knows there is competition for a deal. In fact, we can't point to a single case where Ariba has lost a P2P deal on price (or at least price alone).
Ariba is able to price its modules so aggressively because of supplier fees. Ariba mandates its hosted P2P tool users also use the Ariba network for all connectivity with suppliers, even in cases where suppliers are connected to other networks that then connect to Ariba's in the same transaction stream (e.g., sending a PO via Ariba but invoicing via OB10).
Ariba's fees account for roughly 15.5 basis points (.115%) for vendors meeting certain volume levels. For those who have tracked Ariba's supplier network history, this represents a 55% price increase from the previous 10 basis point cost prior to September 2010 (e.g., a $10,000 invoice now incurs a $15.50 fee versus 10 bucks before).
What do suppliers get for this? Well, visibility for one. They also save a stamp – or the time to send an email online. And lets not forget they can also factor their receivables through the Ariba supplier network or take a buyer-led discount. No doubt, whether the value equation works for suppliers depends on their invoice and volume mix, cash needs and the like.
But for these suppliers, the Ariba network is not optional. It's mandatory if their customers are using Ariba's tools in a cloud environment. And compared with other fixed cost or free e-invoicing options, it's clear they're paying more than they need to. Or would need to if they had a choice in the matter. But are they prisoners, as Christian suggests?
Drop a line or post a comment. We're curious to know what you think.
Next Friday, we'll share the hypothetical case of three suppliers with different profiles (customer mix, volume mix, etc.) and offer our own thoughts on whether each one is a prisoner -- or not.