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Ariba Reaches Out To The Little Guy

Written By: D. Geller
Published On: September 28 1999

Event Summary

Ariba (Nasdaq: ARBA) announced two initiatives aimed at small and mid-sized businesses at Ariba's User Group and Advisory Council meeting on September 28. The Ariba Internet Business Exchange is an internet procurement application based on the company's Ariba Network, which brings together vendors and services into a single purchasing portal. ORMX is a version of Ariba's buyer-side procurement application that is designed for application service providers (ASP's), who will offer it on a subscription basis.

Market Impact

These announcements are important in three ways. First, by simplifying its buyer-side features, Ariba moves into a fragmented market that does not have a clear leader. Second, by increasing the size of the buyer market it brings to Ariba Network it opens the door to attracting more vendors and to lowering prices, which in turn will attract more buyers. Third, Ariba signs on more companies to its cXML dialect (See TEC's Research Note: "Ariba Successes Highlight Standards Wars" August 13th, 1999 ) that enables companies with different systems to exchange commercial information.

Vendor Winners / Losers

Ariba has made strong moves with these announcements. Ariba is ranked first in the procurement space with 42.3 percent of the market according to Dataquest, and these product initiatives will have the effect of increasing both the E-procurement software and services market (currently $24.9 million) and Ariba's share. Ariba's major competitor Commerce One (Nasdaq CMRC), with 6.5 percent market share, may well suffer in the domestic market, but is making its own moves globally (See TEC's News Analysis article: "Commerce One to Procure for the Antipodes and Elsewhere"). The third competitor Intelsys, with 3.6% market share, is making its own moves into the small and mid-size market space, notably through a recent announcement with the Chase Manhattan Bank to develop a purchasing portal for the bank's 350,000 customers. Since Chase's customer base includes both buyers and sellers there will be competition for these customers between Ariba's existing vendor-rich network and whatever inducements Chase offers. There is clearly room for both companies, and more, but we continue to believe that a major driving force in success is to sign up as many vendors as possible early, both to have a richer offering and to tie them to a particular XML dialect. Given Ariba's lead we expect that ambitious companies like Intelisys will eventually have to become cXML compatible if they want to share vendors.

Vendor Recommendations

These announcements move Ariba into working with a different class of customer. These customers do not generally have the IT sophistication of the larger enterprises, which Ariba has recognized by scaling down some features, particularly those involving back-end integration, and by putting ASP's on the line for direct customer service. It will be a very attractive option for the smaller companies wanting to achieve E-procurement savings without the costs of the high-end products. The downside of working with smaller companies is that the integration and development edges are a lot rougher, and Ariba is giving control of much of its reputation to ASP's. Ariba will do well to make training and support of these new partners its number one priority.

 
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