Analyzing Ariba’s Fourth Quarter (Part 4)

In this post in this mini-series looking at Ariba's quarter, I'll share a few opinions around how Ariba is performing in the market relative to others from growth, renewal and product expansion perspectives. On the products side, Ariba is talking in a bullish manner to analysts and industry observers about the recently released 10s2 version which, in their pitch, now "surpasses the CD version" in capability. Of course it should be at least at parity, considering that it's from the same code base! My take on the 10s2 release is that while it includes a number of enhancements across the board (Ariba Exchange has a number of details on the specific enhancements), it still has a long way to go in certain areas to achieve functional parity with the market leaders in sourcing and spend analysis, among other areas. For example, you're still limited in the number of line items for complex events in the sourcing (which greatly reduces the chance that you'll ever use Ariba Sourcing for a highly complex bid involving optimization). Still, as noted on Ariba Exchange, this is a "very high priority with the 10s3 release."

Aside from the recent SaaS release, Ariba continues to see renewal levels increase "from the low 80-90% range and it's been trending around 90%," according to information shared on the earnings call. This is in line with the low-end of many SaaS vendors in the space we track and follow, yet given Ariba's large user base, is not a bad showing in the least. Still, what Bob failed to highlight is that during renewal periods, our market intelligence suggests Ariba will often get far more aggressive on pricing than they were in previous deals in competitive situations (customers should take note of this even if they plan to stay with Ariba). Just as Ariba is often the price leader in competitive modular and suite deals for new business, our research suggests they'll do anything not to lose a customer, even if it means a material price reduction.

On the acquisition front, Bob took one call from a sell-side analyst who was curious about Ariba's M&A plans. He responded, "Obviously, the timing is always hard to predict on that. But it remains part of our strategy. It remains something that I still expect we're going to do." What types of companies is Ariba looking at? "It will be either a network company, network type of solution or it will be a software -- a SaaS-based software company that we think the software also creates some level of network effect like some of our solutions. And there is a number of -- a number of targets that we're working with and the timing of which I just cannot forecast." This comment is in line with our own take based on market chatter and sources close to Ariba. Namely, that Ariba is actively evaluating deals at the moment and given Bob Solomon's new role (former SVP of the network business) leading M&A, it's not surprising deals would focus in the network area.

Stay tuned for the final post in this series when we offering some parting analysis and opinion.

Jason Busch

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