Ariba StartSourcing: Just How Good is Free? (Part 2)

Please click here for the first post in this series.

From a competitive standpoint, Ariba is not the first to deliver a free sourcing capability ( and others have gone down this path before). Yet they are the first to offer free pre-packaged sourcing capabilities with the scale of a large organization supporting the solution. Still, at this point, we do not believe the product represents serious competition to Ariba's fee-based sourcing offerings or that of its competitors because of limited capabilities and seat restrictions. More curious from a Global 2000 perspective is that Spend Matters is aware of numerous situations in the past two quarters where Ariba has priced, in the five figures per year, combinations of spend, sourcing and supplier management together -- for large organizations.

Pricing the fee-based variants of Ariba Sourcing and related products, including the Enterprise edition, at extremely low price points (in certain deals) has the potential to change the landscape. In short, this strategy appears aimed toward getting large enterprise volume on the Ariba network to accelerate the monetization of vendor-paid fees for Ariba Discovery, which StartSourcing appears also poised to do given the new "Free" fee structure. Although StartSourcing appears to offer some decent -- stay tuned for our full review of the offering -- flexibility with its RFX creation capability including the ability to run basic forward and reverse auctions and "drag and drop to quickly organize event content, lots, and line items" the real shift in Ariba's "free" strategy of late has been to transfer fees to suppliers. We've written quite a bit on Ariba Discovery -- you can read our latest posts here and here -- and believe the model of charging suppliers for access to qualified RFPs brings significant potential, although we're not sure if the initial pricing model (as referenced in the above-linked posts) is the right one for the longer term.

Moreover, as we've noted before, Ariba needs to improve on introducing new suppliers into sourcing events to improve the benefits for both sides of the trading equation. One organization, an Ariba Sourcing customer, wrote to us this fall and suggested they were "not seeing benefits from the buyer, or supplier side to this service where postings are automatically sent to suppliers regardless of the nature of the opportunity (i.e., the third stage in a sourcing project, or an eAuction where only known preferred providers would stand a chance of winning). Suppliers do get these, and respond to them only to be disappointed by our reply, that we are mid-way thru a project and aren't looking for new suppliers in this initiative.

It's likely the nuances of the supplier-paid pricing model will be lost on many users of Ariba StartSourcing who are likely to be more inclined to simply try to get up and running on a sourcing tool for the first time or don't want to deal with the hassles of another tool that is sitting on the shelf somewhere in their company already. For this group, StartSourcing is likely to serve the role of delivering a basic platform to get started -- or to further -- their e-sourcing journey on an event-by-event basis. Still, we agree with Ariba in their own marketing material, that, "effective supplier discovery and supplier information management are critical for the sourcing process to drive sustainable results, yet many organizations struggle to keep their supplier information current." Although we do find it odd that this configuration of the product states this in its marketing material, yet the solution does not leverage the Ariba network to deliver an Aravo-like network enablement capability for the management of vendor information.

Is this a sign of things to come for Ariba? Perhaps, but one of the challenges of Ariba StartSourcing and the Ariba supplier network architectural model in general is that the way profiles on the system works is that buyers can't be suppliers and supplier's can't be buyers -- users must register twice and/or kludge together such a dual profile on their own. This will limit the ability, for example, of suppliers that win an RFP through Ariba Discovery to then turn around and source the necessary raw material, labor or other inputs through Ariba StartSourcing, tying together supply chain visibility and insight for all sides of the supply and demand equation to reduce risk and costs at multiple tiers.

In short, we applaud Ariba for making StartSourcing free. We are also supportive of supplier-paid business models that can align incentives for both buying and selling organizations (although we would further tweak the model Ariba is pursuing to create greater value with lower risk for suppliers). Yet Ariba will need to decide with StartSourcing and whether or not associated network and Discovery capabilities it is building a sourcing and supplier management vision for the future that could transform the market or whether they are content to continue pursing a model that commoditizes a set of legacy market segments with lower price points alone. The former approach would require re-architecting Ariba's products or inorganic expansion -- the latter is simply a business model adjustment (and one that is under way already). You can guess which one our money's on.

Jason Busch

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