Ariba’s Q4 2011 Results — Do They Matter to Gauge Overall Market Growth Any More? (Part 1)

As much as we may quibble about Ariba's network pricing model, our main curiosity with the best-known procurement vendor in the past year has centered on how its general rate of solution enhancement is moving at a slow comparative pace -- sometimes at a very slow comparative pace (e.g., despite promises and a new commitment to CD customers on Buyer for the past year, the "cloud" P2P offering is still further ahead when it comes to a range of new features). In a series of posts looking at Ariba's quarter and why we believe that Ariba is no longer a proxy for the very solid growth happening in the broader Spend Management market, we'll explore these and related topics in more detail. First, let's start with another example to set the stage.

Ariba's has virtually ignored the booming market for supplier management. In contrast, SAP and Oracle get it, not to mention Emptoris, Zycus and others that are aggressively pursuing it. Ariba has also done little to enhance its own sourcing, spend analysis, contract management and other non-P2P capability to bring it up to competitive parity with other suites, let alone other true best of breed functional specialists (aside from a side venture to re-platform some of its contract management capability for Across these areas, Ariba has seen little functional enhancement relative to where other best-of-breed vendors and ERP has gone or where the roadmaps we've seen are about to take some of them. Now, to be fair, from a business standpoint, Ariba has done a tremendous number of things right.

These include solid execution on the commercial front in terms of overall business signed despite getting outflanked by competitors in absolute solution capability. As one example, we know of one organization that signed onto a large, broader Ariba suite deal (upstream and downstream) earlier this year. Ariba has not released the name of this customer, but we actively correspond with them. Along with a broader package that we believe was aggressively priced -- Ariba tends not to lose on price, factoring in, however, only what buyers pay versus suppliers -- they threw in their contingent workforce capability which would be "free" except for what suppliers would have to pay.

This, of course, was an ingenious sales move because for those outside procurement, it seems like a great deal. But all VMS solutions are, in fact, free to the buyer under standard pricing -- staffing firms pay under the typical models for accessing and using the system. In reality, Ariba tossed in a substandard module -- their VMS capability is not even in the top six or seven in the market and probably not in the top ten -- and succeeded, to some, in positioning it as a "free" addition when in fact it would be priced identically to any third party VMS the organization might opt for.

In short, Ariba is executing commercially when it can despite having a largely dated set of products, slow development on existing platforms/solutions, multiple and not always fully compatible/interchangeable architectures (e.g., installed and vs. cloud) of course, a network business model built off the backs of its largest suppliers that subsidize smaller vendors on the network. The fact Ariba is minting cash is testament in a somewhat ironic way to the success of the often-criticized comp plans for executive management. Indeed, Ariba is executing commercially, despite a number of fundamental product shortcomings and a rate of innovation that is much slower than the competition, which perhaps makes the combination of both a non-technical President and CEO worth it in the scheme of things (despite their combined eight figure take). Which is precisely why we'll argue in the subsequent posts in this series, at least in part, why we should no longer judge Ariba's quarterly performance as a proxy for broader Spend Management technology and market growth and penetration.

Up next in this series: a look at Ariba's quarterly performance, including the actual numbers.

Jason Busch

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