Inc. (Nasdaq: ARBA) announced two partnership agreements. Ariba will integrate
its cXML language into both the eSales product from Siebel Systems Inc (Nasdaq:
SEBL) and the Commerce Exchange product from InterWorld Corporation (Nasdaq:
INTW). Both arrangements will give newly developed vendor, manufacturer and
distributor websites nearly instant access to Ariba's purchasing Marketplace.
gains both tactically and strategically as a result of these agreements. The
immediate benefits are partnerships with two significant vendors of software
used to build E-commerce solutions for medium and large-size customers. Such
customers will have an easy path to integrate their own sales catalogs into
Ariba's Marketplace, giving them access to Ariba's network of buyers and giving
Ariba a boost to its transaction-based revenue stream.
longer-run value is that signing one supplier should lead to other buyers joining
the Network. Consider how memberships might spread from the arrangement with
one of these companies. Let's say a hypothetical firm, Sally's Sanitary Supplies,
decides to move its distribution business on line. Working with a boutique design
firm or systems integrator they utilize software from Siebel or InterWorld as
the basis of their website. When the site is ready, it is very easy for them
to get plugged into Ariba's network. According to Ariba, Sally's needs only
to integrate four web pages, and won't require additional back-end programming.
Now Sally's can also sell its goods through the Ariba Marketplace. Obviously,
this gives Sally's access to new customers. Sally's may also send some customers
that come to it through other channels to Ariba. Why would it do this? Many
of Sally's prospective customers will be interested in purchasing other kinds
of material - things that Sally's doesn't sell. Sally can now send such customers
to the Ariba Marketplace. The advantage for the customers is that they will
have a uniform interface for all purchasing activities. Sally can still work
out a sole source contract with a customer; and that customer will see only
Sally's products in the Marketplace catalog. Sally may lose a small transaction
fee to Ariba, but gets to acquire or keep a customer that might otherwise have
of course can spread further. When a different vendor approaches one of these
new customers that Sally has steered to Ariba, say Rich's Racks and Shelving,
that vendor may now be asked to join the Ariba network. Again, this is for the
convenience of the customer, but also has benefits for Rich's. The result that
Ariba hopes for is a chain reaction where more and more buyers and sellers become
part of the network.
Other companies in the procurement space hope to create similar chain reactions
for their products. One factor that will lead to success is being there first.
A second is the ability of the network to attract other buyers and sellers,
A third is the degree to which the purchasing system ties into other back end
systems, such as Financial, ERP, and Supply Chain applications. Both the Siebel
and InterWorld arrangements promise such integration. Another advantage of the
Siebel arrangement is Siebel's strong reputation and offering in the category
of "Front Desk" software, software that presents the end user with a unified
interface to a variety of systems. Ariba's smaller rival Concur Technologies
has strong offerings in this area, and a secondary benefit of the Siebel arrangement
may be to give Ariba access to Siebel's technology. We expect (probability 85
percent) to see further announcements from the Ariba-Siebel team.
continue to watch all events in this field with an eye toward the underlying
XML standards (See TEC News Analysis article: "Ariba
Successes Highlight Standards Wars" August 13th, 1999) A secondary
benefit of any partnership is to get control of, or at least influence on, the
partner's commercial language. If a vendor builds the catalog properly there
is no reason that partnering with Ariba today would preclude partnering with
another purchasing network tomorrow. However in these early days of still-emerging
standards (See TEC News Analysis article: "New
Venture Fund to Propel XML" October 13th, 1999) the knowledge and technology
that support the "proper" approach may not have reached all suppliers.
these are good moves for Ariba, this does not significantly slow down any of
its competitors. The space is just too big, at least for now, and Wall Street
continues to favor companies that can fit the phrase "Business-to-business E-commerce"
into its SEC filings. For every GM or Ford that gets bagged in the aggressive
hunt for customers (See TEC News Analysis articles: "Commerce
One Meets GM: Web Now Has A Really Big Parts Department" November 10th,
1999 and "Oracle
is Word One at Ford" November 11th, 1999) there are plenty of Saabs
and Fiats and Toyotas and Hyndais wandering free on the plain. However, it is
in the nature of chain reactions to exhibit exponential growth, so the game
may get scarce sooner than anyone expects. We expect the market to leave its
current explosive growth phase around autumn of 2000.
The partnership with Siebel is a significant one. InterWorld is an order of
magnitude smaller, and while it is not a bad partner, it does not merit the
same attention or resources from Ariba that Siebel does. However, while InterWorld
may not be as well known as some other companies in the same sell-side solution
space, it has both a strong international presence and an even stronger international
financier, George Soros, among its investors; Soros owns 10 percent of InterWorld
shares. In light of Commerce One's strong moves in Europe, Asia and the Pacific
(See TEC News Analysis article: "Commerce
One to Procure for the Antipodes and Elsewhere" October 5th, 1999)
we think Ariba has been clever in its choice of partners.
the long run we believe that there will be a maximum of three or four major
trading networks, and we believe that Ariba will be one of them. At that point
the differentiators will be less about how the products satisfy the purchasing
department and more about how they satisfy the CIO. The CIO's customers - the
other VPs - will be pushing for extensions into the Supply Chain, allowing companies
to share inventory and production data up and down the line. As usual, the CIO's
own number one problem will be supporting the end user with reliable, integrated
systems and simple, trouble-free tools.
needs to build and demonstrate strength in the Supply Chain. Not having even
a Hyundai to put up against Commerce One's GM suggests that Ariba can't solve
the end-to-end problems of major manufacturers. Although Ariba does have a partnership
with Hewlett-Packard's Supply Chain Management group, Ariba itself does not
offer capabilities of a true supply chain solution (See TEC Technology Research
Essential Supply Chain" September 16th, 1999). Ariba should also milk
the arrangement with Siebel for all it can get in terms of front desk technology.
Some of Ariba's competitors, such as Concur Technologies and Peregrine Systems,
offer E-procurement as part of a suite of self-service applications that integrate
through sophisticated workflow engines. Siebel's applications are similarly
workflow enabled, and do not overlap with those of the E-procurement vendors.
Ariba could do worse than license Siebel's workflow technology and use its expertise
to broaden its offerings beyond E-procurement. We note, however, that Ariba
has shown a preference for partnerships over outright acquisitions of complementary
products. Working well with others is a good trait, but we believe that many
potential customers who would prefer to work with a single vendor that offered
more functions than only purchasing. There are, for example, a number of companies
offering standalone workflow products that would make good acquisitions for
for all the importance of these announcements, they don't necessarily change
things substantially for anyone currently making a decision between Ariba and
its competitors. We believe that these announcements represent building blocks
in an as-yet-unannounced strategy, but don't act as major product differentiators
for companies whose main interest is Ariba's core offering. They are more significant
perhaps for potential customers of Siebel and InterWorld, for whom easy access
to Ariba's software and network are a substantial added value.