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Ariba Goes Direct To (And From) The Source

Written By: D. Geller
Published On: July 13 2000

Ariba Goes Direct To (And From) The Source
D. Geller - July 13, 2000

Event Summary

eProcurement giant Ariba, Inc. (NASDAQ:ARBA) will acquire SupplierMarket.com, a company with expertise in Internet-based collaborative sourcing of direct and indirect materials. The purchase is for $580.8 million in stock. SupplierMarket.com had been expected to raise $100 million through a stock offering. Its initial valuation was to have been $412 million.

SupplierMarket.com is a marketplace for buyers and sellers of manufacturing materials. The system links buyers with sellers, based on the RFQ (request for quotation) posted by the buyer and the posted qualifications of the sellers. A matching capability is provided to help buyer and sellers find each other, but there are also browsing capabilities that companies can use to make their own identifications of likely business partners. Once suppliers are matched to an RFQ the system schedules and hosts a live auction. The system provides auxiliary services, such as bulletin boards to facilitate communication and, through a partnership with Dun & Bradstreet, access to credit rating information.

SupplierMarket.com is entirely browser based. There are no entry fees for buyers or sellers, and revenues are solely derived from transaction fees of between 2% and 4% that are paid by the supplier.

Market Impact

The potential here is to bring SupplierMarket.com's 7,000 buyers and 12,000 suppliers into Ariba's marketplace, and to generate more users of SupplierMarket from among Ariba's current user base. There is no reason that this should not happen, but contributions from one company's client base to the other's will not overwhelm the sales that each makes through its traditional channels.

SupplierMarket's capability is a good one to have available through a large marketplace, but is more of a required feature than a daring innovation. Rival Commerce One announced a similar functionality in February, but details about the date of a release into general availability have not surfaced. Both of these companies, as well as some smaller but feisty second tier competitors, are moving toward deploying "supermarkets" with heterogenous product categories and trading models.

Beyond the competitive aspects of the deal, the availability of cash and leadership from Ariba could be a big help to SupplierMarket.com. The company could become a threat to two kinds of similar businesses. FreeMarkets.com is essentially in the same business as SupplierMarket (see For a Million Gallons of Glue Find a Marketplace on Steroids). FreeMarkets would argue that it tends to handle the high end of the trade - complex procurements where the company adds significant value in crafting the RFQ and qualifying sellers. Whether Ariba will want to reach directly into that high-end territory or not, it will be able to pick away some of FreeMarkets' low hanging fruit. On the other hand, the very publicity that Ariba (and soon Commerce One) will be giving to this type of business might bring more revenue to FreeMarkets than the competition removes. (This may not be true for smaller companies in this space, for whom the merged company could be a real threat.). There's also the possibility for SupplierMarket to expand into other kinds of negotiated marketplace, such as those for used assets (see Antidisintermediation) or excess inventory. As in its current areas SupplierMArket will need to develop expertise relating to such new products, but that wouldn't be difficult.

Are there any downsides for the players? Probably not for SupplierMarket beyond the usual problems of mixing business cultures. Ariba, however, has a lot on its plate. Recent acquisitions of TRADEX and Trading Dynamics, its partnership with IBM and i2, a major attack on the government-to-business market in a partnership with American Management Systems, and other broad initiatives have the company running pretty hard while it juggles a lot of crockery.

User Recommendations

There's no reason to change any current plans. Ariba's core eProcurement products are excellent, but do not meet the needs of every company. If some other product meets your needs better there is no compelling reason to choose Ariba just because of this merger. It will be some time before there's any real integration here, although in the long term Ariba has the capability to integrate SupplierMarket with ERP and Supply Chain systems, which will make for a powerful combined product.

 
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