Ariba LIVE 2011 in Nashville was well attended, with over 1600 attendees. Here are some highlights from the show.
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Grand Ole Opry House
Site of Ariba LIVE 2011 Keynote Sessions
In the middle of Ariba LIVE 2011 in Nashville, the sirens sounded for a tornado alert. Everyone had to immediately leave the sessions they were in and head down into the basement of the convention center into one of large cavernous unoccupied exhibit halls. The empty space and bare concrete floors made it very echoey and gave it that “underground bunker” feel. This impromptu gathering of a couple thousand people quickly turned into a spontaneous networking session. I felt that was an appropriate metaphor because “making connections” seemed to be one of the recurring themes of the conference and of Ariba’s strategy. For example, they set up a matchmaking game, where suppliers and buyers exchanged stickers to win a prize and an iPhone app that they created to help in matchmaking. This is reflective of Ariba’s larger strategy to create Collaborative Commerce between buyers and sellers. Simplicity, ease-of-use, connectivity, and Collaborative Commerce were key themes throughout the conference.
The Ariba Network
The Ariba Network is a key underpinning of those concepts and central to Ariba’s strategy. When first conceived about a decade ago, the Ariba Network was simply a service for buyers, primarily to make it easier to onboard common suppliers. Since then it has grown to encompass a number of services for suppliers and buyers. Ariba charges some suppliers for those services, so part of Ariba’s strategy has been to use the Network to expand its customer and revenue base. But they are also quite serious about what they are calling Collaborative Commerce, supporting inter-enterprise processes (as we have been writing about for nearly a decade) such as discovery (finding new businesses), sourcing, buying, paying, and managing cash. Ariba rightly realizes that inter-enterprise processes are most effectively addressed by networked software that sits between companies, not by applications that are behind the firewall only.
In the world of networked applications/platforms, scale matters. Ariba executives talked frequently about the network effect, where the value of a network rises exponentially with the number of participants, and often used the analogy “like Facebook.” With the recent acquisition of Quadrem (more on that below) Ariba has one of the largest transactional application networks in the world. Ariba provided a plethora of statistics about the size and breadth of their network: 500,000 companies on the network, 1,000 new companies join each week, and every 24 hours on average 105,000 deals worth $490M are sourced/sold on the network (that comes out to about $170B/year). Those are impressive numbers that give Ariba’s network an advantage over other alternatives.
Jason Kurtz, Vice President, Network and Financial Solutions for Ariba, said that the goal for the Ariba Network is to be the largest global network by making it easier and easier for buyers and sellers to join, by providing more integration options, such as using Hubspan, and by continually improving their buyer-supplier matching services. He said, “Our goal is that 100% of non-payroll payments coming out of an organization should go through us, whether they are running SAP, Oracle, Edwards, PeopleSoft, or Baan.” I recently wrote a short piece stating that 2011 could be a very important year in this battle to decide what will be the dominant supplier networks. Jason Busch offered another perspective on this question in his informative blog Spend Matters (an excellent source for sourcing and procurement information).
Quadrem + Ariba Network
On January 28th 2011, Ariba acquired Quadrem, a complimentary supplier network with 80,000 suppliers connected. By chance, during the opening keynote session, I happened to sit next to Quadrem’s CEO Charlie Jackson, who is now Managing Director of Global Network Solutions with Ariba. In just a couple of minutes, he was able to explain to me the background and synergies behind the deal. Quadrem was founded in 2000 as an e-marketplace focused on Natural Resource industries. By 2010 they had $31B of spend automated through their network, with over 75,000 suppliers. Quadrem’s customers tend to have complex supply chains in remote regions. Quadrem extends internal processes from within these companies to enable collaboration with the external ecosystem of suppliers and partners, while accommodating the localized business processes between trading partners. This was confirmed by the speaker from Rio Tinto (see below).
The complementary nature of Ariba and Quadrem’s networks is one of the primary synergies. The companies in Quadrem’s network tend to be multinationals, operating in multiple regions with 60% of their business south of the equator. They have a strong presence in Australia, South America, and Sub-Saharan Africa. This acquisition thereby helps Ariba move into markets where they previously had little or no presence. The merging of these two large networks will take time. As Charlie told me “it won’t be so quick, because we are committed to doing it right.”
One of the speakers was Scott Singer, the head of procurement for Rio Tinto, a $57B international mining company with a global supply chain spanning five continents, largely in non OECD countries around the world. Scott leads Rio Tinto’s procurement organization of about 1,000 employees managing 57,000 suppliers and $14B in annual spend across 38 categories and 1850 contracts. For Rio Tinto, supplier connectivity has been a major challenge. They have a decades-long history of developing indigenous, local supply chains, such as using Pilbara Aboriginal contractors in west Australia. These suppliers often do not have access to the same types of systems and technology that larger corporations in the developed countries have. Quadrem’s ability to address these geographies and challenges was an important factor for Rio Tinto. For example, cellular networks are an important link in remote locations like Ghana. Quadrem enables Rio Tinto’s suppliers in these remote areas to receive POs and acknowledge them on their mobile phones.
The Suppliers’ Perspective
For much of Ariba’s early history, all of their customers were buyers. They had a network of suppliers, but they were not paying customers. Starting in 2004, Ariba began to charge some fees for some suppliers. In spite of their vision for Collaborative Commerce, Ariba is still more of a buyer-centric company, in terms of functionality, customer and revenue base. Of the people I met at the conference, buyers outnumbered suppliers by quite a bit. When I asked suppliers why they were using Ariba, the answer was universally, “My customer told me, ‘Use Ariba if you want to continue to do business with us.’ ” That can be quite motivating. I also asked most of them whether they were seeing incremental business as a result of participating on the Ariba network. The answers were a bit mixed. Nobody I talked to said that participating in the network was adding a really substantial amount of new business for them, but my sample size was quite small, so it is likely that there are exceptions. Even so, it does point to the fact that suppliers’ primary motivation for participating at this point is because their customers are demanding it.
There was a panel of three sellers that spoke:
Chip Graham, B2B Integration Program Manager at EBSCO
Robert Calvert, B2B Integration Program Manager at HP
Brady Seiberlich, eProcurement and Development Manager at National Furniture
The panel reinforced some of what I heard from other suppliers, saying that they didn’t necessarily join the network because they wanted to, but rather because buyers said they had to. But Robert Calvert of HP added, “Once we did that, we started to see some of the benefits of exposure.” He said that HP does as much business via B2B integration as via their own e-commerce website.
EBSCO’s Graham also said that they grudgingly started using Ariba because buyers said they must. EBSCO provides a desktop application to help clients manage portfolios of subscriptions. The application includes access to millions of journals, databases, and massive amounts of info. EBSCO had to integrate all of that information and functionality onto the Ariba platform, a complex endeavor that included, for example, dealing with things like renewal codes that had to be inserted into shopping carts. At first they wondered about the cost vs. reward, but their large buyer customers said, “Deal with us via Ariba or not at all.” In the end, he said it was worth it, that Ariba Discovery has given them additional exposure, and provides a bit of pre-qualification for new suppliers—buyers big enough to use an Ariba system are more likely to be a viable target.
Both HP and National Furniture stressed the importance of making the shopping experience as easy as possible (echoing Ariba’s emphasis on providing an Amazon-like experience—see below). This includes things like the ability to easily filter results to find exactly what you are looking for. HP’s Calvert used the analogy of his family’s recent trip to Disney World, where everything was made easy for them—huge, very clear signage, people directing them and helping at each step, leaving little room for confusion or having to figure things out themselves. He said that the buying experience should be like that, you shouldn’t even be aware of the platform because everything happens smoothly, automatically, and naturally.
Amazon-like Ease of Use – “Consumerizing’ Business Commerce
This was another recurring theme throughout the conference. Ariba executives frequently made the comparisons to shopping on Amazon and the convenience and ease-of-use features they are bringing, such as side-by-side product comparisons, seeing other people’s recommendations, and one-click checkout. As Ariba’s President, Kevin Costello put it, they are trying to make the buying that you do between 9:00-5:00 pm as easy as the online shopping you do at home. I found this interesting since we used the same analogy in our 2004 paper on SaaS/On Demand, in which we said “You cannot get to instant [deployment] if it requires long training classes and learning curves for your user community. Think about it, how many hours of training classes are required for using Amazon.com or Google?”
SaaS and On Premise
As has become common among large software makers (e.g. SAP’s approach), Ariba supports both true SaaS and on-premise/behind-the-firewall (Ariba calls it CD-based) delivery models. Ariba said they will continue to embrace and support the CD customers. Of course the pace of delivering new functions is different between these two approaches. Ariba is moving to regular quarterly releases of their SaaS software—much more frequent releases than the CD version. This gets them focused on smaller, more digestible functionality increments every 90 days, and provides customers speedier access to new functionality.
Approaches to Growth for Ariba
Ariba is currently focusing on expansion in Europe. For that they have added product capabilities such as VAT compliances and new languages.
They are also looking for new ways to grow their network. Typically their network has grown because large buyers bring in their suppliers. Ariba is looking to try and make the opposite formula work as well, by helping suppliers convince their customers to connect; what Jason Kurtz referred to as “customer enablement.”
They are also trying to build up the network by bringing in buyers and sellers in big groups, such as entire industry groups or verticals or partner communities, rather than just one customer a time. They do this in part by integrating with applications such as Maximo and Salesforce.com, to gain access to those communities of users.
Ariba has been pretty progressive in realizing that they are in a position to help with cash management issues for both buyers and sellers. During a session with Ariba’s executive team, I asked where they were seeing the most traction for their cash management capabilities. Kevin Costello (Ariba’s President) pointed out that at the most basic level, buyers with manual paper-based systems are often unable to take advantage of available early payment or volume discounts simply because they cannot approve the invoice fast enough or don’t have visibility into spend. Automating the procure-to-pay process enables buyers to take advantage of the early payment discounts they’ve negotiated. If you look at the number of companies that still need to automate these processes, it represents the single biggest opportunity to help companies better manage their cash in this very basic way.
Beyond that, Jason Kurtz (VP Network and Financial Solutions) said that Ariba is also seeing increased adoption of Dynamic Discounting in the last 6-12 months. This is where the buyer can offer early payments at a discount to the suppliers automatically whenever invoices are approved for specific suppliers or a group of suppliers. The supplier is presented the offer and can accept with a click.
They are also starting to see a lot of activity in Supply Chain finance, going beyond the earlier adopters. Some companies have developed very strong balance sheets, and Ariba is seeing more of their customers ask about it. Ariba’s supply chain finance is “funder agnostic,” not tied to a particular bank as most other offerings are.
The Maturing of Collaborative Commerce
We founded ChainLink Research almost a decade ago to focus on the inter-enterprise space: the “links in the chain” between companies. This consists of key processes that go on between entities in a supply chain (see Figure 1, below).
Figure 1: The Links in the Chain
Source/Bid, Buy/Sell, and Invoice/Pay are major inter-enterprise processes. We believe that Ariba is really on the right track viewing their platform as sitting between enterprises, thereby enabling these processes. It opens up whole new ways of collaborating that are not possible from single-enterprise, behind-the-firewall systems. Ariba is ahead of much of the market in their inter-enterprise collaborative solutions. As companies automate the basic functions, we expect Collaborative Commerce to mature and Ariba to continue to fill out the inter-enterprise processes with innovative and highly valuable functions.
To view other articles from this issue of the brief, click here.