Part 3: Analyzing Ariba’s Quarter — Products and Solutions

In the first two posts in this series, we examined many facets of Ariba's quarterly performance. But one area that we did not double-click on in detail was new product and solution trends. Of all of the insights Ariba shared on the call, this is some of the most interesting, as it speaks to broader trends and customer interests in the market at the moment. First-up in this area is supply risk management, a subject I continue to cover on a frequent basis on Spend Matters and with clients simply because I've been getting so many questions about it. The interest in Ariba's new supply risk management is strong indeed.

In this regard, Ariba noted that in its first quarter of availability, that 15 customers signed on for Ariba's new solution in the area covering supplier information, supply risk and supplier performance management. I'll be forthright in saying that I'm not sure who these customers are because I've not spoken to anyone who actually pulled the trigger in this area from a software perspective with Ariba yet, however I have gotten a number of questions from interested parties wanting to know how Ariba stacks up to other players in this area. I suspect this early traction and the interest that Ariba is generating will continue to grow, potentially at a very strong clip, until the economy picks back up.

What's driving this growth? Primarily, it's because supply risk is a trailing indicator of overall economic performance and companies are just starting to feel the pain of supply risk challenges (i.e., suppliers tend to go out of business, cut corners, etc. months or quarters into a downturn versus right away). Moreover, organizations across industries -- often for different reasons -- are just starting to realize that they have a strong need to better manage supplier information in general and that the solution provider landscape is complicated and potentially confusing.

In addition, companies are realizing that they need to identify new suppliers to offset rising risk in their existing supply base (not to mention generating additional competition for incumbents). For these reasons, it's not surprising that Ariba Discovery, an open RFQ marketplace-like platform and service that connects buying organizations with suppliers, is growing. Bob noted on the earnings call that in the first nine months of Ariba's fiscal year, volume through Ariba Discovery grew to $8.5 billion "worth of RFPs". Granted an RFP does not always equate with actual transaction volume -- consider Ariba Discovery "shopping" versus "buying" -- but considering that Ariba is not aggressively promoting this service, the number does seem to suggest at least a moderate need for supplier discovery and open RFP solutions which are not unlike what, Ketera and many others are trying to deliver as well.

In recent months, I've begun to wonder if solutions like Ariba's new supplier information management offering and Ariba Discovery could help to exponentially prove the value of networked business models (versus one-to-one software, content and solution sales). This is certainly the vision that Ketera is hoping will have enough traction in the market to carve out a new niche for itself. But my guess is that companies outside of the middle market, provided they have budgets to invest in these areas, will continue to want to consume services, content and applications the way they traditionally have, in a mid- to high-touch model focused more on the value of a particular implementation or deployment versus the networked impact across the entire community.

I just have this near- to mid-term gut that procurement and supply chain organizations are, for the most part, too conservative to embrace a new model on such a broad scale, even if it saves them money and delivers a better service along the way. Ariba, Ketera, et al. -- I hope you prove me wrong!

Jason Busch

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