Analyzing the SAP/Crossgate Acquisition: Customer, Product and Competitive Implications (Part 2)

In the first post in this series, we offered our analysis of what SAP's acquisition of Crossgate might mean for customers and future generations of products that exist in the space in between organizations and systems as well from a metadata analysis perspective. You can also read our initial take summarizing the news on the deal after it broke from last week here and here. Today, we'll conclude our analysis on the acquisition by considering the competitive implications of the transaction.

Competitive Implications
Spend Matters believes that in the next decade, the space that exists between buyers and suppliers -- not to mention the connectivity intersections of multi-tier supply chains -- is going to get a heck of a lot more interesting. And shockingly, given their historic slow track record of innovation over the past decades (until recently), there's a chance that providers like SAP could easily lead the show with new offerings (for a preview of what's possible, check out the first post in this series, linked above). I also believe that we could see new intermediaries and network providers spring up like Amazon and even Walmart, offering wholesale cloud and connectivity services either cross-industry or for specific verticals like healthcare.

In short, there's no reason to believe that the second generation of indirect procurement "post-EDI" connectivity from providers such as Ariba, Basware, Hubwoo, Perfect (based on the Commerce One platform, for you B2B old timers) and others are going to dominate the connectivity world of the future. Just as legacy EDI ended up being a stable and though stagnant market, I believe first generation networks will need to evolve if they're to justify the premiums that investors are currently ascribing to at least some of them.

However, today, there are immediate short-term implications of what SAP is up to with Crossgate before we can even think in detail about what might be coming down the pike a decade from now. From our vantage point, this deal will impact the competition in the following manner:

  • It will likely put additional pressure on Ariba to create new innovation within its network to justify any price premiums they can command in the future over other foundational B2B supplier networks; in general, on a short-term (1-2 years) basis, it is likely to put increasing price pressure on network fees for Ariba customers that have an SAP back-end and will now have a more fleshed out, organic SAP offering to opt for
  • The deal will likely provide ammunition for Oracle to justify injecting the old Oracle Supplier Network (OSN) with some new life or, more likely, a strategic acquisition to build out a truly network-centric offering (i.e., one-to-many or many-to-many) for supplier connectivity
  • Other network providers, especially smaller invoice operators in Europe, are likely to face declining valuations and an increasing threat to their core business. This could actually help the case for companies like Basware that have articulated a European network consolidation strategy by reducing valuations further (this could benefit Ariba as well, potentially)
  • EDI providers are likely to face an increasing threat from SAP and will need to respond accordingly, offering new types of innovation to stay relevant (e.g., GXS' purchase of RollStream). SAPs newfound ownership of connectivity plumbing and inter-company interoperability will likely increase the pace at which organizations move to post-EDI approaches to reduce costs as well as gain new visibility into the data (and meta-data) that transactions generate over network environments, especially aggregate information exhaust spanning multiple trading partner relationships
  • Niche network providers are going to need to get more aggressive on the marketing and sales front to combat the expected SAP commercial ramp-up

Overall, Spend Matters believes that the competitive implications of the SAP/Crossgate acquisition are likely to drive further innovation and consolidation -- yes, the two can happen at the same time -- in the market. Moreover, it is important to realize that if looked at from a forward-looking vantage point, the network market is not a zero-sum game like the EDI market where vendor growth essentially requires taking market share from a competitor. New business models and offerings (e.g., supplier management, supplier search, transactional analytics, predictive risk modeling, forecasting) will undoubtedly create additional opportunities, increasing the size of the overall network pie for those that push innovative approaches.

Jason Busch

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