A Quick Look at Ariba's Competitive Environment, Their Quarter and Fiscal Year

I've recently spent quite a bit of time digging into the customer side of Ariba's business, and plan to share what I've learned early next week on Spend Matters. I also plan to dig into some of the news from their analyst call that is taking place as I write. But in the meantime, if Ariba's latest quarterly and fiscal year results are any indication of where the company is headed, it's clear that their SaaS transition is proceeding and that they're continuing to weather the overall economic storm (although year-over-year revenues have declined, owing primarily -- at least from my observations -- to a challenging services environment). Moreover, at least on certain fronts, this is a company that has some degree of bifurcation within its customer base regarding overall Ariba support, direction and impression (i.e., net positive vs. net negative). But in general, based upon my research, the majority of SaaS customers appear satisfied -- with the occasional exception, mind you -- and this is where Ariba is clearly placing its growth bets from a software standpoint.

How did Ariba perform in the latest quarter? Stay tuned for my specific analysis of the numbers following the conference call later this week or next. But for now, I'll posit that overall, the numbers do not suggest a company that is performing any worse than its peer group, and in fact is performing significantly better than some.

According to Reuters, Ariba beat its quarterly earnings estimates by a penny a share. And they "added 40 new customers in the fourth quarter and closed 15 transactions over $1 million, including six software deals over $1 million. On-demand product deals totalled [SIC] 231." This translates to net income of 6 cents a year vs. an 8 cents per share loss from the same period in 2008. Perhaps most interesting from a numbers perspective is that the company managed to improve the health of its balance sheet to the tune of a $40 million increase in cash and cash equivalents over the last 12 months.

I have personally seen a number of new deals of late where Ariba has done a good job winning over prospects in relation to the competition. That has been due in part to what appears to be more aggressive pricing, a better story around SaaS P2P (from an integration standpoint vs. when it first came out in an On Demand model) and some competitive follies and missteps from key competitors both overall and in particular deal situations, particularly on the ERP side. I suspect, however, that as SAP continues to push its new solutions such as spend visibility and SRM 7.0 and its partner-driven On Demand business model, that Ariba will have at least a slightly more challenging time in the quarters ahead when it comes to direct face-offs with their main ERP rival. In addition, the latest news out of the Oracle -- stay tuned for continued coverage later this week and next on the news out of Open World -- will no-doubt contribute to additional competition in the areas of spend visibility (including classification), P2P, e-sourcing and supplier information management.

Jason Busch

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