Exploring the Ariba Discovery Business Model for Suppliers (Part 1)

In the past 18 months, we've had the chance to demo and then use, in a business setting, the Ariba Discovery product. The product is really a separate component of the Ariba Supplier Network that allows buyers and suppliers to maintain separate profiles (i.e., a buying organization cannot also be a supplier on the network with the same profile) and search for suppliers that match their criteria for a broad range of categories. It's essentially a non-category specific online matchmaking service that is similar in concept to vertical specific capabilities from providers like MFG.com, cBoxBid.

There's an irony in the pricing model for suppliers with Ariba Discovery. Even though it is entirely designed to help drive new business and start new customer relationships (i.e., it's a sales tool for suppliers), it is not priced on a percentage of volume like the standard Ariba network transaction fee, but rather a yearly fixed subscription (in one case with additional response-based fees) for the "Advantage" and "Advantage Plus" levels. Arguably, since there is greater value in winning new business vs. automating transactional connectivity (without any payment mechanism or payment guarantee like a p-card), it is surprising Ariba went with this model.

From a buyer perspective, our experience with the tool is that it is relatively slick and when we ran an RFP on the site looking for market research help (we ended up doing the project we were searching on with an existing contract resource), we got a very solid response including both onshore and offshore supplier prospects. We would certainly use it again, although it is important to note that our successful use of it as a small business is atypical as the network appears positioned (at least as Ariba positions it) as a tool that larger buying organizations are using to identify suppliers. But the big question, especially given that buyers are the beneficiaries of the service, is whether or not it makes sense for suppliers as an investment.

Back when we were first exposed to the tool, it was free for suppliers. Now Ariba is offering three tiers of service: Standard (which is free to view sales leads, but costs as much as $79 to respond to each lead), Advantage (which costs $449 annually and reduces the cost to respond to leads materially and provides other marketing add-ons) and Advantage Plus (which costs $2,999 per year). On the Advantage and Advantage Plus levels, one of the additional benefits features the ability to show you're a low risk supplier by including your credit and risk score when responding to RFIs/RFPs.

While we commend Ariba for offering a free version, the challenge with any of these supplier-paid response models based on a fixed annual fee is that across most categories, there is often a significant portion of vendors who are not as successful at winning business and the spoils often go to select providers in each category who have a knack for responding to online requests. For this reason, the $2,999 version of Discovery -- which makes it free to respond to as many RFIs/RFPs as possible -- is likely to be a low ROI investment for the majority while a high ROI investment for a select few, if historic similar models are any precedent. Yet the good news in such models is that they're ultimately self-correcting -- as suppliers who don't achieve a return are much less likely to renew, at least at the higher level. However, there are other, more difficult to quantify, vendor benefits from supplier discovery tools that are worth exploring -- some of which Ariba is deploying, others which it is not.

Stay tuned as our analysis continues.

Jason Busch

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.