Ariba, as solutions provider, will have new competitors
By Staff -- Manufacturing Business Technology, 6/1/2004 12:00:00 AM
Ariba is going through the third stage in its evolution as a company, and at least its second attempt at educating the market for its solutions.
Ariba was born roughly six years ago as an e-procurement company; later it morphed into a spend management company. And at its recent user conference, CEO Robert Calderoni declared that Ariba is now a solutions provider.
The implication of "solutions" is that Ariba helps companies plan and manage procurement strategies, rather than simply sell them applications for executing purchases. Much of this management expertise, Calderoni says, comes from Ariba's recent agreement to purchase FreeMarkets, a former competitor that specializes in helping companies find the best deals on goods used in production processes, known in industry parlance as direct materials.
Ariba created and dominated the e-procurement space with its solutions for automating the purchase of indirect goods such as office supplies. But Calderoni said that end of the business holds limited growth potential because it doesn't offer companies a strategic advantage.
That led Ariba to develop its spend management platform—applications for analyzing purchasing patterns, securing the appropriate items from approved vendors, and ensuring all dealings with suppliers adhere to corporate policies and contract terms. Ariba argues that instilling this level of discipline into the procurement process, particularly for direct materials, gives a company a competitive edge by consistently delivering high-quality products on time, and at reasonable prices.
In addition to gaining consulting expertise by acquiring FreeMarkets, Ariba recently purchased an e-procurement outsourcing company called Alliente, which puts Ariba in the position of being able to take over all of a company's procurement functions.
"Spend management will be big," Calderoni declared in a meeting with the press and industry analysts during the user conference in Phoenix the week of May 3. But in making that declaration, Calderoni also conceded he couldn't predict when the market would take off.
"We are at the beginning of building a new market," said FreeMarkets CEO Dave McCormick at the same meeting. "Some uncertainty in the customer base about how this merger will play out is slowing sales."
The uncertainty relates to how the company will be structured, and which vendors' solutions will survive, once the deal is completed. The two CEOs say they expected the merger to be final by late spring or early summer. They also indicated the newly merged company would rely heavily on Ariba's technology with FreeMarkets personnel—particularly its 400 commodity purchasing experts—handling customer support.
Tim Minahan, an analyst with Aberdeen Group, Boston, says the strategy behind the FreeMarkets/Ariba merger makes sense, but it doesn't guarantee success. He says the combination of Ariba and FreeMarkets could do well in the general e-sourcing space, which is populated primarily by small vendors that have struggled to reach their sales goals. But Ariba's new emphasis on spend management consulting as well as sales will bring the vendor into direct competition with consulting powerhouses like IBM and the AT Kearney arm of EDS.
Minahan says Ariba's technology could give it an edge over the big consulting houses, but ultimately he believes the greatest success in this space will go to the company that can sell CFOs on the notion that managing procurement across the enterprise can drastically improve the bottom line. In short, Minahan concludes, "The first one to get to the CFO wins."
Ariba bullish on "spend management
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