Are Ariba network fees costing them business? Certainly looks that way

Over at Spend Matters US, there have been a number of recent posts around the perennial topic of the Ariba Supplier Network and the charging mechanisms. It was triggered by this piece  from Jason Busch, following a meeting he had:

“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."

The discussion goes from there. As most people in the procurement business know, Ariba prices its products competitively to buyers because of the supplier fees the charge. As Jason says,

“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)”.

Now he goes on to explain the benefits suppliers obtain from being part of the Network. But the fact remains, there is a lock-in with a cost attached. In a follow up post, Jason analyses three scenarios in more detail to look at the costs for the supplier – more interesting material there as well.

But what will determine whether SAP / Ariba have to change their model won’t really be articles in Spend Matters – it will be the market and the competitive situation. Now it’s clear from my chats with decision makers, in a non-attributable manner, that Ariba are losing competitive situations with  network fees partly to blame.  In one recent discussion, I was told that reason was high on the list of factors that ruled Ariba out of a shortlist for a particular firm.

Here is Hyrum Kirton, vice president of procurement for Avalon Health Care, Inc. (not one of the folk I’ve spoken to, I should say). OK, this is from a recent  Coupa press release but it makes the point:

“We chose the Coupa platform specifically over Ariba and others like Ariba due to the supplier pay model ..... Our company needed a solution that was all-inclusive and would incentivize the company to use it as much as possible without the supplier or ourselves incurring any additional fees. We have successfully implemented the solution with some complex suppliers that supply health care-related items that in some cases are matters of life and death.”

I’ve also heard of a case where a very large firm has a lot of inter-company billing and invoices between different business units within the organisation; not unusual obviously for multi-nationals. They were told that the Ariba network fees would apply to these transactions as well as the third party invoices. Not something I could see many CPOs – or CFOs - agreeing to. The one in question certainly didn’t!

So, with pressure building from Tradeshift, Coupa, Wax Digital, Basware, Hubwoo... will SAP / Ariba respond and perhaps look at the structure of their fees ? An interesting question for 2013.

 

 

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