LIVE Dispatch: Where is Ariba's Consulting Growth?

Personally, I believe that Ariba (Nasdaq: ARBA) has put together a top notch team when it comes to sourcing and supply chain management consulting services. The old legacy FreeMarkets consulting organization -- which was solid in its own right -- is now outnumbered by very experienced Andersen Consulting and AT Kearney alums, many of whom I got to meet at LIVE. The expertise and global experience of the team -- not to mention Ariba's LCCS capabilities -- seem uniformly high relative to the average Big 5 sourcing teams that I know of (see my recent "Barney" entry on the subject). But given the strength of this team, it was disheartening to learn at LIVE that Ariba's overall services revenue is flat. Personally, I believe there's no excuse for this.

Why? First, I've heard through the rumor mill that Ariba's day rates for sourcing and supply chain management consulting are less than AT Kearney and other similar high-end firms, yet the skill set of Ariba's practitioners is in the same class. Second, boutique firms are growing significantly this year and are collectively generating significant revenue. For example, Thom Mcleod, an ex-AT Kearney partner who used to run FreeMarket's consulting organization, now runs a fast growing boutique consultancy called Tenzing Consulting. If Thom had stayed with FreeMarkets and built his firm as part of this organization, Ariba's numbers would have come in closer to the higher end of guidance last quarter -- or maybe even beaten it (I'm not sure Tenzing's exact revenue). Other boutique firms such as Censeo Consulting (which is now up to 15 people and run by FreeMarkets alum Raj Sharma), Denali Consulting, Synaptic Decisions, Transpac Access (also run by FreeMarkets alumni), Intersources, and Aptium Global are thriving in the current environment as well. Along the same lines, it is no secret that IBM and Accenture are continuing to hire aggressively in their sourcing and supply chain practices to meet client needs at the moment.

So why is Ariba's management consulting revenue not helping to drive overall services growth? Honestly, I don't know. All of the right pieces appear to be in place, and the market is growing significantly around them. Perhaps this segment of Ariba's services revenue really is growing, and they just don't want break it out for the street. Or maybe it is more of a branding and marketing issue. Regardless, there's no excuse for this not to be a booming business for Ariba throughout the rest of 2006 and into 2007 given the overall demand in the market, and the growth of competitive firms and practices, not to mention Ariba's global sourcing capabilities gained through the FreeMarkets acquisition.

Jason Busch

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