We Shall Be Giant
Oracle Corp. (NASDAQ: ORCL) has followed the lead of Ariba and Commerce
One in tying its B2B future to a large financial institution. Citigroup
(NYSE: C) has agreed to use Oracle's technology for its internal procurement
and to market Oracle's exchange services worldwide through a co-branded
has the potential to bring the message about the partnership to 100 million
customers. The message will surely paint a picture in which a company
can participate in a global exchange that will save money for buyers and
reduce costs of sale for vendors, and provide all parties with one click
access to loans, lines of credit, factoring, and all the other financial
services of the global economy.
news brought a welcome bump to Oracle's share price, which rose 13 percent.
The stock had been flagging due to concerns about future database revenues
and the rapidity with which customers can convert to new Oracle applications.
A move of this nature was inevitable for both companies. Ariba has linked
itself to Amex (see IBM
is Not Enough; Ariba Announces Strong Partnership with Amex) and Commerce
One has string ties to a number of strong regional financial institutions,
including Canada's TD Bank Financial Group and Latin America's Grupo Financiero
Banamex-Accival ("Banacci") (see Commerce
One Goes High, Wide and PeopleSoft). Offering financial services through
a B2B exchange is generally accepted as necessary for both partners; it
is not however sufficient, given that Concur's arrangements with Amex
Aims To Be Single Point Of (Purchasing) Access) did not prevent it
from dropping its e-procurement initiatives rather dramatically.
obviously believes that it must have a piece of the B2B exchange world,
and nobody is arguing. In less than eighteen months the direction of B2B
exchanges has almost completely changed from enabling the purchase of
indirect supplies to becoming vital components in integrated supply and
distribution chains. That same progression will likely be replicated at
the level of individual companies, individual exchanges, and the industry
as a whole. For Oracle, that makes a customer's decision to participate
in an exchange the opening to sell them, over time, a full suite of back-end
software products. For Citigroup it is obvious that such exchanges must
be lubricated by a vast flow of cash, and why shouldn't the bank get its
fair share of the fees?
is hard to think of a move like this, so clearly foreseeable for both
sides, as having a major effect on the existing market - which in any
case is not nearly mature enough to see the effects. It does solidify
Oracle's claim to a leading position in e-procurement, and with Commerce
One and Ariba sharing those lead honors it isn't easy to see where a challenger
might come from - GE's Global eXchange Services is one contender worth
watching, but they don't yet show signs of relishing a head-to-head confrontation.
the other hand, there are many more huge banks than there are e-procurement
software companies of any size, even when a generalist like Oracle is
included. Those financial giants are not going to sit idly by while Amex,
Citigroup and a few others carve up the world. With nearly no other software
leader to partner with - and if there were, the competition for its favors
would be truly intense - we won't be surprised to see a large bank, or
a consortium of first and second-tier banks, attempt to grow an e-procurement
giant from an existing weaker company with a plausible track record. Clarus
Corp. (NASDAQ: CLRS) comes to mind as an inviting target.
You should be interested, but there's no reason to change any plans at
all. Each of Oracle, Commerce One and Ariba is well situated to begin
providing financial services through its exchange, and in each case there's
a long way to go before these capabilities become significant to you.
you were considering Oracle as an e-procurement partner but wondered about
its commitment to the business, we think it's clear that you need not
wonder any longer. You do, however, need to continue to evaluate all of
your candidates for features and ease of installation and integration.
the users most affected in the future will be small to medium sized businesses.
They can expect that the influence of Citibank will lead to a fairly painless
entry into e-procurement. We think that's true, but point out that many
partnerships will be attempting to do the same. Companies that already
specialize in applications for businesses your size are preparing their
own packages of exchanges, financial services, and other software. It
is too soon to say whether there's one kind of approach, let along one
vendor or partnership, that will prove best for mid-sized companies. Such
companies will have to remain agile and keep their options open - but
that's what they do anyway.