Ariba’s Q3 Fiscal 2011 Results: The Numbers and Beyond (Part 3: Competitive Environment)

Click here for Part 1 and Part 2 of this post.

Judging by the fighting words on Ariba's earnings call, the vendor's competitive saber rattling is alive and well. On the call, management noted that the Ariba network is "fueling wins across the board from big SAP shops such as DirecTV, to Oracle houses like Corinthian Colleges" and "our solution breadth and our Network coverage is also yielding wins against industry specialists. This was the case with fast growing -- a win at a fast growing biotech company, Human Genome Sciences, who selected Ariba P2P over both ERPs and niche providers. And similarly, one of the nation's largest healthcare companies selected Ariba for both procurement content and PO/invoice automation." In addition, Ariba called out Oracle on the earnings call, noting a win over the hardware and software giant at America Red Cross "where procurement and AP jointly selected Ariba to automate and streamline their procure-to-pay-process." Combine this with "another long-time licensee of SAP SRM and the spirits industry" going with Ariba and "Swedish steel giant SSAB [selecting] the entire Ariba suite including P2P Global Spend Management deployed over their existing ERP systems" and it might sound to the uninitiated that Ariba is dominating the competitive market.

In reality, Ariba is doing just fine. But in practice, the market is more competitive than it's ever been. And Ariba is only winning one piece -- a nice, meaty one, mind you -- of a growing pie. It's essential to break apart Ariba's competitive success (and failures) by solution area. On the upstream side, including sourcing, spend analysis, contract management and supplier management, Ariba continues to struggle in competitive situations where customers prioritize functional capability and/or a Web 2.0 user experience versus full-suite integration (or at least the perception of full-suite integration). At many prospects that scan the market to create their shortlist in spend analysis and sourcing, for example, Ariba is no longer considered a functional leader relative to suite providers like BravoSolution and Emptoris. In situations where Ariba wins against these providers (not to mention Iasta, Spend Radar, and a range of others), it's often a price-driven decision, where Ariba gets aggressive in negotiations. This is often the case with renewals in these areas, where Ariba keeps the business by sharpening their pencil considerably from previous contract negotiations.

Our research suggests that in the upstream areas, Ariba is winning less than 20% of the number of deals in the market that result in a new vendor getting the business (either takeaways or initial buying decisions). In many situations, Ariba is not even considered as an option (this is especially true in supplier management and where more advanced sourcing-type requirements matter). In addition to long-time best-of-breed competitors, SAP and Oracle are coming on strong and can cite an equal or greater number of wins over Ariba, as Ariba cites against them, in sourcing, spend analysis and related areas. Moreover, Zycus has created a lead generation machine that is proving nearly as effective at getting them into hundreds of upstream opportunities on a global basis (Zycus, too, can cite numerous wins over Ariba in the same quarterly period). The bottom line is that the upstream market is highly competitive with no vendor currently able to lay claim to dominance. It's also a fragmented market, with functional leaders in individual segments, but not necessarily across the board. And if Ariba wants to make a play to dominate the upstream market, they'll need to double-down on their modular/functional capabilities in every key area going beyond just positioning the value of their broader network for supplier search, in sourcing, for example. However, this does not seem to be a priority for the company.

The market segment where Ariba is seeing a greater percentage of deals is certainly downstream in an area inclusive of eProcurement, e-invoicing, supplier enablement, supplier connectivity, supply chain finance, etc. Here, Ariba appears to be placing the greatest emphasis on its overall go-to-market approach. This of course makes perfect sense given that Ariba gets paid from both buyers and suppliers in this area, charging procurement and A/P organizations for applications on a SaaS basis (most typically) and suppliers to conduct transactions over their network. In this area, our intelligence suggests that Ariba is likely winning a greater percentage of overall new business in the market in companies between $1-10 billion in revenue (above that, the ERPs tend to do better in today's climate of gradual migrations and applications standardization, at least for core requisitioning and buying controls). Yet this broader market is fiercely competitive as well with a range of vendors capable of providing surprisingly sophisticated solutions (e.g., Verian, ePlus) as well as vendors like Coupa that bring both novel concepts and user interfaces that really aren't directly comparable to Ariba.

Ariba's worst competitive enemy in P2P is direct competition, especially among smaller providers who only see a fraction of Ariba's deal flow. I asked Coupa and Hubwoo last week for their competitive win/loss against Ariba in recent quarters. Here were Coupa's competitive wins over Ariba (by industry) this year: healthcare, retail (2), industrial manufacturing, online media/communications (2), services, high tech equipment manufacturing (2), banking/finance, high tech software, finance and resort properties. Hubwoo's wins over Ariba in 2011 (by industry): oil and gas, chemical/process (2), energy, manufacturing (2), A&D, life sciences, financial services (2), food and services.

Now, both Coupa and Hubwoo had losses as well against Ariba and others, but we share the wins for comparative purposes as Ariba does in their earnings call (we don't hear about Ariba's failed efforts on the earnings call, now do we). Still, in our latest functional analysis, Ariba still wins in absolute eProcurement capabilities, although the gap is narrowing. But factor in broader areas, from electronic invoicing to services procurement, and the market begins to look very different and much more fragmented, with no clear leaders overall. Indeed, the downstream market is not Ariba's market to lose. It's Ariba's market to win if the opt to make some bold moves to take charge which so far they've been hesitant to make.

Jason Busch

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