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Ariba Hopes to Spark Chain Reaction

Written By: D. Geller
Published On: December 1 1999

Event Summary

Ariba 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.

Market Impact

Ariba 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.

The 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 been lost.

This 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.

Vendor Winners/Losers

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.

We 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.

Although 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.

Vendor Recommendations

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.

In 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.

Ariba 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 Note: "The 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 Ariba.

User Recommendations

Oddly, 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.

 
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