Ariba: Remaking Itself Around its Supplier Network?

Earlier today, Ariba announced a number of new enhancements to its supplier network. Positioning the latest release as Supplier Network 44, Ariba has added a handful of clever features that, if you dig below the surface, could become critical revenue streams in a few years time for the vendor (or should I say marketplace?) Don't believe me? Well, read ahead and decide for yourself.

Primary among the enhancements is new discount management capability that allows "organizations of all types and sizes ... to take advantage of a variety of supply chain financing tools that promote cost savings, including purchasing cards, early payment discounts, dynamic discounting and third-party supplier financing." In Ariba's words, this enables buying organizations to "optimize working capital and boost returns on short-term investments through self-funded early payment discounts, improve working capital through term extensions with minimal impact on supply base, increase days payable outstanding through third-party supply chain financing, and minimize supply chain risk through more predictable payments." Suppliers benefit by the ability to "maximize working capital through early payments, minimize ambiguity in forecasting through more predictable payments, leverage buyer's cost of capital, [and by shortening the] order-to-cash cycle."

In other words, don't think of the ASN just as a tool to enable supplier on-boarding and management anymore -- for either Ariba or non-Ariba (read SAP/Oracle) eProcurement users. Rather, also look at it as a central financing hub that will also skim cents (perhaps dollars) off of every potential transaction specifically because the accounts payable / accounts receivable marketplace is by nature inefficient and unpredictable based on situational needs -- and is ripe for new business models that benefit both transacting parties. Ariba, however, is not alone in this thinking. American Express and others also have similar offerings and ambitions. However, the existing billions of dollars in liquidity on the ASN should give it an early leg up in the supply chain finance race. Given this, I have no doubt that if Ariba is able to execute on this vision, that by 2010, they'll be making far more off of the ASN than new SaaS or licensed software sales.

But supply chain finance is only one piece of the new network offering. In addition, Ariba has begun to copy some of the capabilities of other marketplace-like models such as in offering buyers the ability to post an RFX out to an open network of suppliers via the ASN in their new release (at no charge). Ironically, this was the originally business model behind Supplier Market (a fly-by-night sourcing vendor that Ariba acquired back in the day). According to Ariba's announcement, “"enhanced public RFX functionality embedded in the latest release of Ariba Supplier Network, buyers [can] publish RFX documents to a public site enabling registered and unregistered suppliers to respond to them in real time. More than 150,000 suppliers registered on Ariba Supplier Network are automatically notified of events that fit their profile, and unregistered suppliers can quickly and easily search postings by commodity type, geographic location and buyer."

Now, there's no mention in the announcement about charging suppliers to view these RFQs. But knowing other business models out there, I have no doubt that this is a direction that they're thinking seriously about. And this would also be in-line with the other supplier-paid aspects of the network.

There's a couple of other tidbits buried in the announcement such as new levels of ERP integration for heterogeneous environments, enhanced EIPP capabilities to digitally sign invoices, and a new type of rapid invoice enablement. But to me, what really matters in this announcement is that Ariba is putting a stake in the ground as a marketplace -- not as a software vendor -- from a revenue perspective. If they pull this off, we won't be looking at them primarily as a software company in the near future, but rather as a new type of business network that becomes ubiquitousto both Ariba and ERP software users. Whether they succeed and reach billions in revenues from these new approaches or fail horribly, it should be a fascinating effort to watch -- especially considering how conservative the company's culture has been in the recent past. Clearly, things are changing in Sunnyvale ...

Jason Busch

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