(Nasdaq: ARBA) announced its acquisition of privately held Trading Dynamics
for stock valued at approximately $400 million. The acquisition will enable
Ariba to offer such dynamic pricing models as auctions, reverse auctions, and
exchanges. The six current customers of Trading Dynamics will be folded into
Ariba's current customer network and will therefore have access to all other
buyers and sellers on the network. The acquisition is expected to complete in
the first quarter of the new millennium.
According to Ariba spokespeople, Trading Dynamics was chosen for three reasons.
First, the early adoption of the Trading Dynamics technology by key Market Maker
companies. Second, the quality of the product itself, and its on-time delivery.
Third, "their team of economists, computer scientists and experienced managers
is both strengthening its current offerings and entering a new market, which
is to provide infrastructure to the so-called Net Market Makers. Companies counted
as Net Market Makers bring together a scattered population of buyers and sellers
and enable them to take advantage of the resulting volume. Such companies may
create horizontal or vertical markets. With thousands of such Market Makers
expected in the next few years, it was imperative for Ariba to gain a piece
of this business, as it was for rival Commerce One (Nasdaq: CMRC) whose $227
million acquisition of CommerceBid was announced a few days earlier.
we believe that there is enough customer base in this area to make both Ariba
and Commerce One happy, we see some differences between the two moves. Where
both Ariba and Commerce One currently manage their own trading hubs, we think
that Commerce One is more likely to create its own trading markets than is Ariba.
We predict (probability 60%) that Ariba will shy away from creating markets
itself, and will be content to take its toll fees from those who do.
However, we believe that Ariba has another market in mind, as well. The huge
government procurement markets, both domestic and international, play by different
rules than most companies. From the smallest township to international organizations
like the U.N. and NATO, there are requirements for competitive bidding, offering
a slate of "approved" products, and supporting minority and small businesses
that are fixed in law. We believe the acquisition of Trading Dynamics will provide
an important link in Ariba's ability to sell to government organizations, and
we predict (probability 85%) the launch of an enhanced marketing effort to that
sector before mid-year.
Current and prospective Ariba customers who have eyed the trading model will
now have a smoother path to try it. Given that, once the technology is in place,
the current Ariba Marketplace and the new capabilities brought by Trading Dynamics
will have a uniform interface to back-end systems , working with Ariba on a
marketplace development will be much more attractive than choosing a third party.
Others interested in moving into the Market Maker arena will be interested in
looking at Ariba's offerings when they evaluate Trading Dynamics, and at Commerce
One's when they look at CommerceBid, but are best off making features and robustness
the top criteria in their decisions.