With all the quick-thinking and finesse of an Italian analyst in a Hollywood Hills salami shop, here's HfS Research's Tony Filippone imparting the scoop on why SAP just bought Ariba...
With its $4.3 billion cash offer, SAP answered every procurement technologist’s question, “Who is going to buy Ariba?” While this acquisition will rupture the procurement technology universe, HfS believes the real question that supply chain and finance professionals must ask is, “Now that SAP finally has a credible commerce network, can I eliminate and automate processes I’ve been busily outsourcing?”
It Didn’t Happen Overnight
Give credit to Ariba’s leadership. Over the last few years, Ariba’s CEO Bob Calderoni and President Kevin Costello bet the farm on cloud technology and the networked economy. With the introduction of cloud-based 10s1, they took their focus off gritty areas, like category management, usability, and procurement process management, and jumped into technology’s cloudy fray. This was a “check the box” exercise for any technology company. Yet, the real jewel was Ariba’s supplier network. With the help of procurement teams bent on mandating its use among suppliers, Ariba’s supplier network swelled to $319 billion in commerce transactions spanning 730,000 companies. Ariba’s network fees doubled. SAP noticed.
In the meantime, Calderoni sold Ariba’s services arm to Accenture 18 months ago. This clarified Ariba’s technology-focused strategy. It also eliminated the largest objection larger technology firms had about acquiring Ariba – the services. Technology firms want nothing to do with services as they can neither manage nor sell them effectively. In the end, Ariba became a feature-rich, cloud-based platform with one of the world’s largest B2B commerce networks.
What It Means to the Industry
SAP customers gain network capability that automates their O2C and P2P processes. With an installed license base of 190,000 customers, SAP enters the cloud technology world with a real commercial network. This exposes SAP’s industrial, manufacturing, and CPG clients to a modern method of conducting O2C and P2P business. SAP’s customers are likely to rapidly adopt the network. In the wake of SAP customers’ adoption of the Ariba network, business owners should seek to consider bolder, more transformations alternatives to outsourcing their finance and accounting processes. Quit emailing POs, and start electronically flipping them to eliminate manual effort and obtain the true contract value you negotiated.
Other technology players are left picking over the leftovers. SAP eliminated one its competitors, while IBM’s Emptoris acquisition eliminated another. Two heavy weights are gone, and in their wakes lay a large number of low-priced, niche procurement solutions that are left to fight it out. While buyers will always have some interest in pure play solutions, choices for enterprise buyers are more limited. Expect the smaller players to focus on usability and niche process solutions, like supplier relationship management. However, seamlessly automating a company’s global payables team through an established network dwarfs the differentiation of better-looking user interfaces.
Outsourcing service providers face a new landscape. With SAP customers poised to adopt a network, finance and accounting outsourcing service providers will face lower volumes of manually transactions. Service providers that can help buyers transform their processes are positioned best to service clients and win new ones. However, this isn’t a simple technology issue solved by templates. Supplier network adoption and onboarding is a complicated, tactical task and finance and procurement teams will need operational expertise to handle the transition. In addition, SAP’s partner model for its On-Demand services may open new opportunities for service providers that had previously relied on Ariba’s cloud suite.
Procurement and supply chain gets shoved into driver’s seat. With SAP’s sales force pushing Ariba’s network, expect CPO’s to feel the pressure to take more control of their firms’ end-to-end P2P strategy. Whereas few enterprises currently consolidate sourcing, procurement, and payables teams, Ariba’s network will force organizations to reconsider if they want to tap into the true value of seamless source-to-pay processes. More importantly, supply management executives will be given a better network to manage direct goods and services. As a result, CPOs and supply chain leaders will feel the pressure to manage source-to-pay in an end-to-end fashion.
The Bottom-Line: SAP’s Acquisition is a Good One
After the dust settles and SAP integrates Ariba’s sourcing, procurement, and contract management capability into its suite (or vice versa, which could create quite a bit of dust, but represents a fine network-based model for B2B commerce), SAP and Ariba’s customers come out as winners. Customers will get better features, a more broadly adopted cloud-based delivery model, and a rapidly expanding commerce network that reduces the inefficiencies of manual P2P processes. However, despite all the hype SAP has created about its On-Demand solutions, can the German software firm really manage a network and B2B community-based solution?