“Ariba Doesn’t Have Customers, It Has Prisoners”

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.

- Jason Busch

Voices (41)

  1. Henry:

    Jason, You noticed the price increase per transaction since 2010, but you failed to mention that Ariba eliminated the exception previously provided to our MWBE suppliers and lowered the qualification criteria to be a "chargeable" supplier. The lowering of the criteria is what drove the increase in supplier fees and any growth posted by Ariba during this time.
    The beauty of this for Ariba was that they previously had few competitors with truly competitive solutions and a better model for supplier enablement and participation. Because that has changed, SAP may be surprised to find out that they bought at the peak.

    1. Choco:

      hi~ im want to know what is the business model for this corporation (Freemarkets online), im doing some research for this company, and im lil bit confused with the business model, and lastly what is the problem with this company ? hopefully you can reply me. thanks a bunch

  2. Christian Lanng:

    Hi Jason,

    I’m glad you picked up on the fact that we are competitive, for me competition is always two dimensions value offered and price point. On the buyer side you can always argue about a certain price in relation to the value the buyer get, what tools they need and how there process is, but the end result we most often see is that none of that matters if their suppliers don’t use the chosen solution.

    On the supplier side, I’ve never met a SINGLE supplier who were willing to stand-up and say, yes it has value for us to pay 15.5 basis points to send an invoice, no matter their invoice mix, volume or size. I’ve met plenty though that say they will do it because their buyer have forced them to. That’s not a customer, but a prisoner.

    That is why we reverse the model, offering free transactions to suppliers increase the uptake the buyer gets and the business-case for both sides, it’s win-win.


  3. e-Sourcing:

    Great point Christian and keep putting up a good fight.

    The "supplier pays" model is hugely flawed in our view as well. It hinders adoption and it is akin to blackmail (give us money else you won’t get paid!). If both parties received tangible value from the product, then it would be fair to make both pay, otherwise just the one side should.

    Inevitably, if we were a supplier on such systems, I would increase my pricing to account for the invoice fee. So, who is paying then? The buyer. Twice.

    In fact, this is exactly what we have done when we registered for one such catalogue here in the UK, as that demanded a 1% fee per transactions.

    Now we both become prisoners to the system!

    1. Brian:

      As a supplier to many customers, when we see predatory fees, we certainly build that into a pricing model on a go-forward basis.

      In terms of visibility into Ariba as a SMB, it depends on what parts have been deployed for the customer. Most customers what a cheap entry point and so visibility for the supplier is quite limiting. It has certainly not replaced the emails and phone calls.

      Additionally, I see too many procurement folks buy into Ariba without thinking about streamlining their business processes. We had one example in Las Vegas where a few changes to their process vastly improved their procurement process and reduced their business costs by over $15 million. It’s really important to get this stuff done upfront and then you can tender to multiple procurement vendors in an apples-to-apples comparison; that is you’ll understand the big picture for both yourselves and your suppliers.

  4. Jason Busch:

    Coming to Ariba’s defense (since no one else will) … few quick thoughts.

    1) The price of visibility into invoice status and payment date is valuable for a small business (trust me on this one — especially trying to get year end receivables from clients paid!) We can assign something to this.

    2) If a customer is not using a capability from someone like a Taulia or OB10 which provides discounting and/or various early payment capability types, then at least Ariba has an option for suppliers whether a buyer "opts in" by having an internally managed program.

    3) Suppliers can bill back customers for fees. They’re doing it already in various cases we’ve seen, usually indirectly over a period of time. As long as procurement teams know this will happen, they can budget accordingly without a larger upfront or initial monthly commitment to Ariba. Think of it as more of a string of balloon payments on a lease overtime (to keep costs down upfront). If there is a prisoner in this case, it is the buyer. But they put themselves in jail by admission and design by supporting the fee structure in the first place.

  5. Senthil:

    Point # 3 is more important as always the total cost across the supply chain matters at the end of the day. Shifting the cost to the buyer side from Supplier side would increase the total cost of the product or service in considerable cases. Most of the places suppliers’ overheads and costs are less compared to that of the buying side and buyer is more than ok to optimize the cost even if the supplier adds up the so called “Supplier fee” in the total cost. Also suppliers’ operate with volatile margins and bargain better to bring down the price and are more aggressive than the buying community who are in the other side of the table. This over a time decreases the total cost across the supply chain and results in reduced product / service cost. There are competitors for Ariba and nothing wrong to admit that though! But we need to see how many of them are sustainable, stable, innovative, financially well managed and offer the net value on the table at the end of the day providing an end to end solution to the customers. All the competitors’ benchmark product is Ariba and that shows the product credibility, leave alone the pricing mix which is where the competitors can target and crib about as they can’t point their fingers at anything else.

  6. Christian Lanng:

    "Shifting the cost to the buyer side from Supplier side would increase the total cost of the product or service in considerable cases."

    That assumes that charging suppliers 0.15 basis points for sending some kilobytes of data is anywhere the real cost of an transaction, but it’s not. That’s the flaw of this model, the existing vendors all try to tell everyone it’s a zerosum game and if cost go out of the supplier side it has to be added to the buyer side, that is only true for them because they have inflated the prices to begin with due to a lock-in on the supplier population. We can easily remove the supplier side cost because it has never been factored into our model to begin with, never promised to our investors and not a real operational cost.

    I think you are right on the second point though, this is not going to be about price, but technology and product. An area where we have already proven that we have been setting a strong pace of innovation for the last two years, with products like CloudScan, Tradeshift Apps, and automated large scale on-boarding we have won deals, not on price, but the strength of our product and against Ariba in most cases, for us it’s always about the total value we provide to our customers.

  7. U.K.:

    I wonder if this procedure complies with European competition law.
    Well, I guess it must, yet having my customer dictate which system to use – at my own cost – just does not sound right.
    If both parties benefit from the deal (i.e. significant process improvements and/or cost saving) it might be fine; in any other case it still sounds like blackmail to me.

  8. Gary Stevenson:

    Whilst eProcurement is a specialist area, Cloud-based offerings are reducing the cost and commitment required to run an efficient and effective procurement process. As more and more organisations and departments use eProcurement, users will increasingly fall outside of the realm of procurement professionals. This is where the real win is and it means that the flexibility and usability will be crucial. It also means that systems that enable organisations to learn and improve their process rather than just upload and download documents will deliver the best value.

  9. Andrea Gimbar:

    As stated earlier, the supplier is the prisoner, since they have no choice in the matter. The customer willingly signed up for the Ariba service. We charge back the fees to the 2 customer that have forced us to use Ariba to enter an invoice. The sad part of all this is the Ariba system is inefficient. We had an invoice that was overdue, requiring numerous correspondence with the buyer, requisitioner and A/P (who is India, by the way) to push the invoice for payment. When the invoice was finally paid, the Ariba system still showed the invoice was received but not scheduled for payment yet! The left hand doesn’t even know what the right hand is doing! What a waste of money for our 2 customers, who have contracted with this pathetic system. There is no way it is cost effective for the customer.

  10. Michael Oelrich:

    “As a convenience to our customers, we automatically sign you up for our premier service package unless you respond to this email within 30 days.” I resent having to use their service at all – I’m one of the prisoners. But when they try and scam me out of an additional $500 every single year, my blood boils. They carefully hide the cancel button for the premier service deep in the bowels of their web page.

  11. Mike Peterson:

    One of our longstanding customers decided to use the Ariba Network system to handle their invoice submission system. Prior to joining this network we sent them an invoice for services we provided them and they sent us a check. Besides creating and submitting an invoice to them for payment we now have to also resubmit this information on the Ariba Network. What’s worse is that Ariba now considers us a customer and charges us a quarterly fee based on the total dollar amount of invoices that have been entered on their system. If we don’t pay Ariba this quarterly fee then we will not get paid. I’m sure that Ariba is collecting a fee from both companies even though it’s only providing a service to our client. Our company feels as though it’s a prisoner of this Ariba system. Are we the only ones that get absolutely no benefit from this system but are nonetheless subjection to this quarterly extortion. And to make matters worse, they have a collection department that’s quick to come after you for payment even after funds have been withdrawn from your account. Has anyone in our position figured out a way to avoid paying these “fees” and still get payment for services provided to Ariba’s customers?

  12. D. Phelan:

    As an Ariba ‘Prisoner’ I despise having to effectively ‘pay to get paid’.

  13. Thomas G:

    Our company also feels like a prisoners of the Ariba Network. We do some machine shop services for a major University that forced us to do business with them by way of the Ariba Network. Before Ariba, the University sent us a PO and we sent them back an invoice when finished. Now we have this “middleman” that does nothing but generate more non-productive work. So far I have gotten away from paying them by not finishing the signup for invoicing through them. I get the PO from Ariba which I confirm but then I still send the Invoice by snail mail to the University and we get paid by check. It may take a few days longer and is not direct deposited but we get the full amount. Otherwise we would have to raise our prices to make up for the Ariba Mafia cut for invoicing.

  14. Eric:

    Ariba offers little to no value for a one-person 1099 contractor, especially when that contractor has been 100% responsible for establishing the client relationship and securing the contract. To that one-person company who has full-time work at a stable client and no interest in seekign additional clients, Ariba simply serves as a billing system. And it is not a good system at that. It is clunky and overly convoluted. The user interface is average at best. A monthly bill can be created in a few seconds using Excel or similar. So Ariba adds either no value or negative value to the contractor. But as many have pointed out, if the client uses Ariba, then the contractor is a prisoner of Ariba and all of the mandatory fees. If you don’t pay, then you don’t get paid. It certainly is akin to extortion for many of us. Seems quite unethical. They are charging us just because they can, and we can’t do anything about it. Obviously they are well aware of their position of power and they take advantage of it.

  15. Stuart:

    As an industrial machinery supplier, our company has decided to add 3% to all parts pricing for one customer that have forced us into Ariba. Typically, parts sales represent about half of the customer’s annual spend with us (150K). I would assume that we are not alone in responding disproportionately to the cost. Nobody likes to be told dictated to in business relationships.

    1. Jay:

      That’s a good idea. I originally just passed the actual costs through to to my only client that uses Ariba. It would be better if I instead tacked on a flat 3% Ariba Tax. Why allow bad behavior to get by with “actual” damages. Adding a “punitive” component may help change behavior. Thanks Stuart. Everyone, lets agree on a standard 3% Ariba tax. Suppliers unite!

  16. Jay:

    I was recently notified by Ariba that our “free account” that we signed up (forced signup because one our clients adopted Ariba) now has been granted an opprtunity upgrade to a select account. This is another way of saying “pay us or don’t get paid”. These blackmail tactics are disgusting. I will be adding an “Ariba Tax” to all future invoices to this client. I seriously hope Ariba goes belly up.

    1. Vignan:

      “Ariba Tax”…I love this!

      1. Jay:

        I thought I would report that I did follow through on this. I now add separate line items: Ariba’s “Network Select Fee”, their “Network Transaction Fee”, and a line item that accounts for the time I waste following the Ariba process. I think this is important for my client to know explicitly what they are paying for rather than to hide it as an increase in my general time & expense line item. Otherwise, my client’s accounting department may believe that they have cut costs, when what they’ve really done is shift it to the department that is using my services. As a separate line item the “Ariba Tax” can me more easily allocated to the finance department to deal with in their budget. My client’s department head actually likes that approach. You should try it too. Transparency is good.

  17. Chris:

    Been imprisoned on Ariba for 5 years. Every year my cost to use the network has doubled and I too only have 1 customer whom I put my invoices into their account system so I can be paid. This business model should be illegal. I’ll be writing my state attorney general office.

  18. Clare:

    We have just one customer who uses the Ariba network. I can’t make head nor tail of it. Anyway, I have notified our customer, today, that we will not accept future orders through the Ariba network. Luckily the value of the invoices are small and the customer has another purchasing outlet which is simple and costs nothing. All we want to do is send our customer our own invoice, in the format we want. Simple. Totally resent being blackmailed into registering with a company whose system is complicated and just not needed or wanted. Grrrr……

    1. Jay:

      Hello Clare,
      Why not just take on a 3% “Ariba Tax” to everything they order. Do it as a separate line item. You’ll make more money of off it and they’ll see how much this accounting tool is really costing them.

      1. Clare:

        That idea has merits Jay! I have been reading Ariba’s ‘Frequently Asked Questions’ pages and it states that the fees we are charged is to cover the networks running costs. And that ‘our customer’ does not accept these maintenance charges either directly or indirectly. But I get your point.

  19. David Kramer:

    I’m definitely a prisoner to Ariba’s deceptive pricing. Our customer asked us to create an account with Ariba in order to be approved as a vendor. We went through the process and at no point was there any description of fees. 4 months after engaging with our customer and only after they issued their PO did we get an invoice from Ariba for $4k!!! We had created 4 invoice in 4 months through their system. Outrageous!! We of course will refuse to pay this or will pass this cost through to our customer who required us to use the system. But Ariba’s system is TERRIBLE, their customer service is AWFUL and their pricing is DECEPTIVE.

  20. Jon moor:

    Ariba is one way, I have seen most people who have registered don’t use the tool due to complex structure and they charge lot of money for stupid things which your ERP can anyhow do.

    The core module eSourcing does not work well, rest is just an ERP which you already might be using. So agreed Ariba does not work.

  21. Tony Fenn:

    A terrible system forced on me by my one customer. I’m a software developer and I must say this is one of the saddest pieces of software I’ve ever used. Extremely difficult to find anything. Why can it not show more than 14 days of invoices at a time? How useless is that ! I don’t bother to fill in anything but the essential bunch of rubbish to complete an invoice as most anything else is not accepted, with no feedback or guidance to why not. Luckily the Indian staff who support my customers use of Ariba either could care less that little detail is given or don’t know how to use it themselves. I have to chase most invoices by an email as they don’t get processed on time. I just got the ‘prisoner’ bill which had me searching for answers and I ended up here reading these comments. I will just charge to my customer as others do. I hope Ariba crashes and burns.

    1. Bryan Doyle:

      One of our customers has notified us that we have to become a prisoner as you say. I like the adding the cost back to the invoice but if that differs from their PO does this cause a problem because of the delta? Possibly delaying the payment?

  22. Jay:

    That would depend on your customer. Most customers have no issue with paying above the purchase order for items like sales tax and shipping costs. I would call the line item “Arriba tax” and see how it goes.

    Alternatively you can refuse the purchase order and have them add the Arriba tax line item before excepting it. In my case that is what I did. In my quote for services there was an Arriba tax line item.

    Have strength! make it clear that costs cannot be forced upon you!

  23. Vivek:

    If the customer is not on the Ariba cloud then I think Supplier have to register to Ariba’s network “ONLY” if the customer send order or receive invoice through Ariba’s network .
    Most of the ariba customers that I have seen have customized the product so that they dont need to use Ariba’s network anymore.
    Eg of few simple customizations.
    1. Sending orders directly to supplier through email.
    2. Sending orders by pushing the order to other existing ERP through which they might have some other mean of interacting with supplier.

    So based on the business model /infrastructure customer can change the process of sending orders and receiving invoices.

    If customer is not ready to customize the product accordingly then it is obvious for the supplier to charge the customer a bit extra.

  24. Jada:

    Our company was arm-twisted into doing business with Ariba when a large customer adopted the system. I was already familiar with their extortionist business model from a previous job though, so when I got the news, I was enraged. If we hadn’t needed this particular business, I might have told them to take a flying eff through a donut hole.

    As a small company in a niche industry, there is no benefit whatsoever for us in Ariba’s supplier “services.” We do not need or want a public catalog, and the bid solicitations we were getting were completely irrelevant to our business until I figured out how to turn them off completely. We have only one AR person who is already working at full capacity, and keying invoices into Ariba’s draconian SaaS program is a time-waster and completely disruptive to our billing process. When there is a problem with a PO or a payment, issues take more time to resolve than ever before, but to be fair, they appear equally frustrating for the nice internal AP people that we had great relationships with previously.

    I would love to charge an Ariba Tax, but in our tiny industry, there are only a few competitors. When you are a small producer like us, competing against a multinational behemoth (whose name you all would recognize,) sometimes the margins are razor thin, and winning the business is basically a game of “chicken” ending with a scrabble in the dirt over a handful of pennies. There’s no way I could bill this to them transparently and frankly, there isn’t room to absorb it in the pricing.

    The last time I had to speak with an Ariba representative about another client who has adopted their system (I am resisting participation), I said I would like to receive something from them that explains to suppliers the benefits of doing business through them. Surely there are some marketing materials or white papers available that they use to convince unsuspecting victims to drink their Kool Aid. I requested 3 times and never heard back from them. Maybe someone else can explain this to me because making it easier for the Ariba client to purchase has not increased their volumes with our company. All I can see is that it’s costing us money, and in spite of Ariba’s fabulous value proposition, their client still posted a multi-billion dollar loss after announcing before fiscal 2015 that it planned to create long-term value by reducing admin expenses and improving supply chain efficiencies. Lulz.

    1. hansjkt:

      I do agree with all of you. Ariba is from the 1st internet boom around 1995. Their subscription model does not apply anymore with disruptors as Tradeshift, TBXONE, Basware and other b2b platform providers. The challenge is now that large corporate with a long tail of trading partners have to change their connectivity. In those time integration is still a challenge while nowadays ERP integration to their trading partners is “easy and fast. TBXONE and Tradeshift connecting users has a 100% FREE to use plans. Giving more value than what they provide now.

  25. hansjkt:

    Agree with many of you guys…Ariba is from the “first internet e-procurement platforms” tradeshift and many others like tbxone.com provides you no “handcuffs: to collaborate with ALL your trading partners. They are the disruptors of the current supply chain collaboration providers with state-of-the-art supply chain collaboration platforms and great business models. The challenge for corporates is integration but nowadays integration with ERP systems is not a challenge to make it happen anymore. tbxone and tradeshift are the “new kids on the block” with more agile business models without complexity of subscriptions!

  26. stevef:

    We were forced to sign up with Ariba for one project with one customer. After the project ended (at which point we had no more need for Ariba at all) we received an invoice from Ariba because we passed some kind of $50,000 threshold that nobody told us about. We now have a dilemma of either paying the fee for something we don’t want and don’t need, or refusing to pay and possibly getting blacklisted by Ariba for possible future work. I talked to their support group and they were no help at all. From now on, we’ll avoid their whole system.

    1. Jay:

      Just don’t pay it. When and if you have another client that needs to hire you, Ariba will have to bring you back on board. They can’t dictate who their subscribers can and can’t use. When you need to be reactivated, Ariba will undoubtedly require you pay, but in that case make SURE to charge your client the “Ariba Tax”. Make it worthwhile, try 5%.

  27. Ba Hung:

    Let’s put it this way: I’m a buyer with money to spend. I want to spend on goods and services from sellers of my choice. I am prepared to pay to the seller whatever is deemed reasonable and fits in with my spending capacity.

    Ariba Network is like a Shopping Mall (like Westfield) where I would go to shop for several reasons: 1) convenience (to buy all products and services from one place), 2) safe (no hawkers or unsolicited sellers); and 3) as a net outcome: value for money TO THE BUYERS, sellers’ cusotmers.

    On the other hand, the sellers (shop owners) can charge me whatever they like for the cost they are prepared to put up with. At the end of the day is a match in exchange for goods and services and ones who prepared to pay for just that.

    I’ve not heard of any Shopping Mall that would charge a customer (buyer) in entering for admission (or any other fees like parking).

    It’s a seller’s choice to pass any charges and costs onto its customers and it is the skills of a seller to be and maintain its competitiveness.

    Ariba is merely a platform of choice for many buyers and sellers to do business.

    Terms of trading between the buyers and sellers are just that!

    1. Jay:

      …Except that in malls, sellers decide on their own to locate there because it is rich in buyer traffic, and in the end serves to increase sales and profit.

      When you to apply this analogy to Ariba, you need enhance your story a bit. Picture a small shop owner located in a quaint village who sells products that ARE NOT BENEFITED BY FOOT TRAFFIC. He likes is little shop. Then a VERY LARGE buyer grabs the small shop owner by his collar, drags him against his will into the shopping mall, and throws him into a cramped dingy storefront. Then he is required to pay fees. He notes that NONE of the other shoppers in the mall EVER visit this shop. He still has to keep his shop in the village though because that’s how ALL OF HIS OTHER CLIENTS buy his service. The shop owner is sad because driving back and forth between his shops is a pain in the *** and it wastes his time. He has also started to gain weight because the mall food is high in calories. Ariba is bad, and fattening. The End.

  28. Tim Norris:

    I’m currently going through the Ariba process as a supplier, and can safely say it’s the worst piece of “technology” I have ever had the misfortune to use!

  29. Pawan:

    Interesting comments and helpful

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