LIVE Dispatch: Ariba Unveils End-to-End On-Demand Footprint

Many of you have probably seen Ariba's press release already, announcing a new set of On-Demand capabilities throughout its application set. Last year, Ariba (Nasdaq: ARBA) first announced its foray into On-Demand when it unveiled On-Demand Sourcing and Visibility capabilities. Now, Ariba is introducing On-Demand versions of its eProcurement (Procure-to-Pay), EIPP (Electronic Invoice, Presentment, and Payment), Contract Management, and Travel and Expense Management applications. All of these will be delivered in a hosted, multi-tenant environment (except for customers who select the "enterprise" version of the package, which essentially is a single, hosted instance of the installed application).

For me, the most important aspect of this announcement is that Ariba is releasing almost its entire core eProcurement suite including Buyer, Invoice, Settlement, and Analysis as a single "Procure-to-Pay" On-Demand offering. This would have been seen as a crazy move five years ago, back when larger, bundled deals for these installed products flirted in the eight figure territory.

But in today's climate, the announcement strikes me as a move that Ariba has conceded the majority of installed Buyer-like deals to the ERP providers, who continue to grow their SRM revenue by focusing on selling installed eProcurement capability (I learned at the event that Ariba expects that their core software license business will drop to $20 million in revenue per year and stay flat -- a number representing under a dozen deals a year, in my book). Even though most industry analysts will argue that Ariba still has superior functionality relative to SAP and Oracle, when it comes to e-Procurement, 70-80% feature / function coverage is proving more than enough for the late majority procurement organizations that want to install software. This is why SAP's and Oracle's core license revenue for SRM is growing at a double digit pace, while Ariba's license revenue is declining. And it's also why Ariba has invested significantly in building a partnership with SAP to sell their supplier network (ASN) and other capabilities such as EIPP to this installed base (more on this next week, as I head to the other coast to check out SAP Sapphire).

But I digress. My quick analysis of this announcement is that it will help Ariba reinvigorate its old eProcurement business, creating significant growth opportunity by helping the vendor sell On-Demand capabilities in areas where ERP is pretty much going to end up owning a good portion of the installed market over the next decade. And it's not just a question of pushing hosted supplier connectivity or sourcing -- areas where Ariba remains highly differentiated relative to the ERP players. Rather, this is about offering a true alternative to installed ERP SRM (both in the middle-market and in the Global 2000).

Ariba will not have much competition in this On-Demand market from an eProcurement and EIPP vantage point, except for Ketera, who has served the core procurement space with hosted solutions for years. If I were Ketera, I would look at this expected announcement as a strong wake up call to the fact that Ariba is going to be in more and more on-demand eProcurement deals. But this may in fact play into Ketera's favor, if Ariba expands the overall market pie by spending more to evangelize the On-Demand model, and Ketera is invited to the table for new opportunities which might otherwise not have been there in the past. Ketera has also been known to be aggresive on price points across their product suite and might attempt to undercut Ariba's new On-Demand pricing, presenting a cheaper, but strong alternative to customers.

Outside of the core eProcurement arena, I believe that it will be a boon to Ariba's commercial organization to have an On-Demand version of EIPP under their trench coat to push on the street (that is, if they can get an audience with the right set of prospects). Before digging into why, let's first look at what EIPP actually is. According to the announcement, "Ariba Electronic Invoice Presentment and Payment provides robust invoice routing, reconciliation and payment processing for buyers while also giving suppliers real-time visibility into the buyer’s invoice and payment approval process" via the Ariba Supplier Network ... The end results are faster, more efficient processing and easy sharing across departments, significantly lower transactional costs, higher rates of negotiated and early-pay discount capture and improved internal controls."

Personally, I believe that On-Demand EIPP has the potential to help Ariba cross over to a financial audience in addition to selling to their core procurement customer set. And many of these CFO / controller types who are buyers of EIPP would love to deal with a single solutions provider, rather than having to rely on IT (who they often view as a bottleneck and cost center). The news that Ariba Travel and Expense and Contract Management are now available in an On-Demand environment is certainly important as well, though not as critical to the future of the vendor as On-Demand eProcurement and EIPP in my book.

In summary, this announcement is a big deal. But the success of these new On-Demand products will depend entirely on sales execution. And that's still a question mark, in my book.

Jason Busch

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