Ariba LIVE — A Corporate Update (Dispatch 7, Part 2)

At the investor presentation during Ariba LIVE last week, Ahmed Rubaie, Ariba's CFO, provided an update on the company's core business strategy and financials. For frequent Spend Matters readers, nothing Rubaie presented came out of left field, yet he did provide some additional color around specific growth strategies as well as financial and business context around the growth of different business lines (e.g., the network) inside Ariba. Rubaie began by noting that Ariba estimates the total opportunity of the multiple sectors that they are pursuing at roughly $18 billion. This number includes delivering enabling solutions to both buyers and suppliers participating in the Ariba ecosystem. Rubaie also expressed confidentally that Ariba believes that its sub-sector revenue will grow faster than the overall market by focusing on five specific strategies.

Theses five strategies are: [focusing on] existing customer penetration, adding new customers, greater network participation, new products and value added offerings and acquisitions and [an] expanded partner ecosystem. Among these strategies, the newest for the current Ariba team will most certainly be M&A, which Ariba has not aggressively pursued in recent years. Given that Bob Solomon, the former executive in charge of the supplier network, is now taking on a role in the acquisition front, among other responsibilities, I suspect the network is one area we might see material non-organic growth interest in. One reason is that Ariba views the network as core to both margin and overall growth. In Rubaie's words, even in the "worst recession" in recent memory, Ariba grew network business 20% in a single year.

It's not just revenue opportunity driving Ariba's interest in this area; it's the market dynamics as well, which suggest the environment is ripe for a consolidation play. Especially in Europe, the supplier network/connectivity environment remains highly fragmented in the invoice management area. Because Europe is ahead of the US in invoice automation and document exchange adoption owing to government VAT requirements (among other legislative requirements that ensure the tax man gets paid), there are many smaller providers that have focused on regional requirements in this area than in the US. Outside of Basware, which has linked many European partnerships and made acquisitions in the invoice management market in recent years, there has not been an attempt to either consolidate or extensively partner for interoperability in this market. Perhaps with Ariba's ranking network-focused executive taking an expanded focus on M&A, we'll see a focus in this area.

Stay tuned for further analysis from Rubaie's presentation, including a discussion of the other five strategic growth pillars.

- Jason Busch

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