Behind the breakup
Ariba's value chain vision slips, but in current climate, megasuites may be less urgent
By Roberto Michel, Editor -- Manufacturing Business Technology, 5/1/2001 6:00:00 AM
Ariba's deal to acquire Agile Software in a move to form a collaborative commerce software powerhouse disintegrated April 2 amid a slumping stock market and quarterly performance warnings from Ariba, a Mountain View, Calif.-based vendor of e-procurement, Internet trade exchange, and strategic sourcing software.
The main culprit, according to both Ariba and San Jose, Calif.-based Agile, is the tight economy. The immediate impact for manufacturers is that Ariba's vision of being a single-source provider of a broad suite of value chain management applications has been delayed.
"There's no doubt it's a setback for Ariba's move toward a more manufacturing-centric private exchange approach, but for both companies, it was probably the wisest thing to do right now," says Katherine Jones, managing director of the collaborative business applications group at Aberdeen Group, a Boston-based analyst firm. "The market is hideously soft right now, and mergers and acquisitions can be tricky even in good times."
Agile's software uses Internet technology to facilitate collaboration around product-related information across multiple partners in a supply chain, thereby speeding new product introductions. The impetus behind Ariba's play for Agile was to integrate its Web-based direct materials e-procurement and trading functions with Agile's collaborative manufacturing functions, creating a single-source provider of broad-based collaborative commerce functionality.
On April 2, however, the companies called off the deal. On the same day, Ariba announced revenue for its fiscal second quarter would be about half of what was forecast, and that the company now expects an operating loss of about 20 cents per share. Ariba also announced layoffs of 700 people—nearly a third of its workforce. Agile reported seeing some negative sales effects as well, though it doesn't plan layoffs.
Ariba's stock price had dropped significantly since the deal for Agile was announced in late January, lessening the value of the deal. However, even with no merger, the two vendors say they will work together to serve joint customers.
Why the woes?
"The reason for the shortfall is the obvious dramatic change in IT [information technology] spending," says Keith Krach, Ariba's CEO, who also cited an almost complete falloff in business from dot-coms and public trade exchanges as a reason for the reduced expectations.
While some analysts conjecture that Ariba should have seen the fall-off in public exchange business coming, few would argue that application vendors face trying times. Even procurement vendors, which make a strong case for rapid return-on-investment (ROI), are having a hard time closing deals. "Overall, at the CIO and the chief procurement officer level, there continues to be clear acknowledgement of the quick time-to-benefit and ROI that Ariba brings," says Krach. "But at the next level, many CEOs and CFOs are in a wait-and-see mode for the economy."
The vision thing
According to Bryan Stolle, Agile's CEO, Agile "feels good about its prospects" as an independent. He added that the tight spending mood presents Agile with a "sufficient runway" for it to mature independently.
Such comments hint at a key underlying issue for end-users: should manufacturing executives look for a single-source provider for all collaborative commerce functions, or is a best-of-breed approach more reasonable, given the breadth and complexity of what is involved, and the maturity of single-source solutions? Certainly e-Business software juggernauts such as Redwood Shores, Calif.-based Oracle Corp., Walldorf, Germany-based SAP, and Dallas-based i2 Technologies already tout the breadth of their collaborative commerce solution sets.
But in the current economic climate, Ariba is far from alone in coming up short of earlier predictions. For instance, i2 announced April 2 that its sales would be lower than expected for the first quarter, and may shed up to 10 percent of its workforce. According to Navi Radjou, an analyst with Cambridge, Mass.-based analyst firm Forrester Research, vendors with broad solutions have an advantage in that they can "decouple" their offerings into smaller pieces, while still pushing the larger vision.
Ariba, too, was pushing a broad-based message it called "value chain management" soon after it announced the Agile deal, and Ariba executives say they haven't given up on this vision. "We continue to remain completely committed to value chain management," says Larry Mueller, Ariba's president and COO. "We will focus on network-based solutions for automating inter-enterprise business processes."
Even without Agile, Mueller contends that Ariba today offers major pieces of its value chain management vision, including direct materials procurement. "When the market looks appropriate, then we will invest in the production or the product collaboration side," Mueller says.
According to Jones, it's still too early to tell who will emerge as the dominant collaborative supply chain software vendors. There is also less of a rush today to buy into all-inclusive solutions, Jones says. "There was a big flurry of activity about 18 months ago, with the belief that companies had to make decisions quickly, or be left behind," Jones says.
