Event Summary
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 web site.
Citibank 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.
The 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.
Market Impact
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 (see Concur Aims To Be Single Point Of (Purchasing) Access) did not prevent it from dropping its e-procurement initiatives rather dramatically.
Oracle 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?
It 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.
On 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.
User Recommendations
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.
If 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.
Potentially 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.