Ariba and Quadrem: Market and Industry Implications and Analysis

Based on the news that Ariba is acquiring Quadrem (see our earlier coverage here and here), there are a number of key takeaways for the market we think are worth considering from different vantage points. In general, Spend Matters believes this move will accelerate consolidation in the network and connectivity market for basic, undifferentiated PO Exchange and invoice automation (along with associated matching, workflow, etc.). Yet there is more to the deal than what meets the surface of the indirect procurement eye. Here are some ideas for consideration:

General Implications/Competitive Landscape Considerations

  • The supplier network/connectivity space is poised to heat up in 2011 and Ariba wants to be a consolidator. We suspect its main competition in buying invoice and PO volume will be other providers like Basware, which has been on a similar (yet smaller and more targeted) volume acquisition spree overtime in Europe, most recently with the network acquisition of TNT Post's connectivity volume and capabilities
  • Ariba expects it should be able to "leverage the scale and improve the profitability of the combined network." The translation of this for suppliers should be to expect to pay similar or larger amounts overtime to Ariba for the privilege of transacting as well as to be sold additional capabilities (e.g., early payment discount opportunities, ability to find new customers, etc.)
  • Given market consolidation, SAP and Oracle will have fewer and fewer options if they want to enter the network connectivity space (in SAP's case) or accelerate their penetration and functional offering (in Oracle's case)
  • Basic network connectivity is a boring, undifferentiated extension of legacy EDI capabilities in a many-to-many – though not always open, in Ariba's case -- manner; Ariba will need to build out scale and penetration for its more advanced capabilties if it is to maintain the price premiums it has charged in the past (and that Quadrem has charged as well) given the rise of lower-cost and in some cases free connectivity alternatives

Customers and Industry Considerations

  • Quadrem customers should look to evaluate SAP SRM, sourcing, spend analysis and related alternatives (including Ariba) given that Ariba is unlikely to invest much in these capabilities going forward; it's also unlikely that SAP will want to enable Ariba with new releases for Quadrem customers
  • According to Lisa Reisman, Editor of MetalMiner, "indirect procurement network connectivity in the mining, minerals and metals world is not the primary focus of procurement and supply chain operations. What gave rise to the use of Quadrem's network business was the need for a shared service for something procurement heads did not want to waste a minute thinking about. More strategic procurement issues for mining, minerals and metals customers include: services procurement (including contingent workers in mines), labor management, capital equipment procurement, service parts/spares procurement (remember the tire issue and shortage from 2008?), MRO strategies and fulfillment for mining facilities (e.g., safety supplies, mining supplies, etc.). BPO is also a rising area of interest here as well."

Jason Busch

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