Business & Technology Nexus

Dave Stephens on technology and business trends

The Inexorable Push of ERP into Procurement

with 2 comments

I liked Jason's coverage of Ariba's on-demand announcement. By all means, read it. And I can't resist commenting on my curiousity on the press release itself – this is a major product announcement from Ariba and yet no one from Marketing is mentioned within it, and there's no quote from Ariba's CEO. Strange and pretty uncharacteristic for Ariba.

Back to Jason's post, one of the stipulations he makes, which I've also heard straight from Ariba themselves, is that eProcurement "belongs" to the ERP players now, at least in the Fortune 500 or Global 2000. It's an interesting view – and I can understand how Ariba could become convinced of that due to the relentless attacks (successful or not) they've experienced from SAP and Oracle. It's no fun to have your install base under assault from these guys' huge direct sales forces – it costs too much money to hold your ground, let alone make forward progress.

But it's not at all clear that the assertion explains Ariba's recent fortunes, or for that matter is backed up by the experience of other vendors in the market. Counterpoint 1 is Sciquest's success in the higher education/researcher market. I haven't talked to a customer who dislikes them, and some have even thrown out ERP eProcurement solutions to go wall-to-wall with Sciquest. Sciquest publicly claimed bookings have increased 100%, which to me seems pretty darn good. Counterpoint 2 is Procuri, who has stated revenues are up 71%. Both Oracle and SAP cover the ground these firms cover (not as well, not as fully), so why are they doing better-than-fine and growing far faster than Oracle & SAP?

Is SaaS the reason for the difference & therefore the answer for Ariba? I don't think so. Firstly, Ariba has had an SaaS sourcing offering for awhile and has still stagnated as others grew nicely. Secondly, SaaS doesn't change the fact that SAP and Oracle are inexorably expanding their Procurement footprint.

And remember, Oracle has been offering single-tenant SaaS ERP for years now & can expand that. And SAP is making inroads in SaaS too. Neither really embrace multi-tenancy (the ability for customers to all share the same database & operating environment). But that's by choice. Some internal SAP studies I've been priviledged to hear about reveal only a 5% internal operational cost advantage for multi-tenancy. Not nearly enough to justify the risk associated with having a single point of failure for your entire hosted customer base.

Now what's great about SaaS for point solutions like Ariba is the immediacy of use, the ability to end-around a reluctant IT department, and the rock-bottom TCO.

And so at the end of the day I think what we are seeing with the divergence of Ariba's performance from others is something far simpler than "ERP owns eProcurement now". Instead, I think what we are witnessing are enterprises making rational and informed decisions to lower the total cost of ownership of their systems. It's a financial thing, and in my view always will be. SaaS will only work for Ariba if they can build better software and offer it for a modest subscription price with rock-bottom TCO.

My claim is based on the belief that the enterprise software market is fundamentally a "technology" market. It's very difficult to win in a technology market as the high-priced leader – and that's exactly what Ariba has been for years. Much better I think to offer products at the lowest price possible & also have them be the best. Perhaps Apple is the best example of a technology company bucking my claim, but in my view they are truly one of kind.

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Written by Dave Stephens

05/10/06 7:49 PM at 7:49 pm

Posted in Opinion

2 Responses

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  1. Dave,
    Virtually all procurement SaaS providers have experienced significant revenue increases… I am seeing this across most industry verticals, including public sector, and geographies around the globe… So you need to get your next generation procurement ideas into a business plan soon while there is increasing demand!

    Vipin Chawla

    05/11/06 1:39 AM at 1:39 am

  2. I disagree … market valuations stink, and the platform game is going to be won by the big guys (and maybe a handful of best of breeds already in the game. I love this sector, but I would be very careful about investing my time or money in the software side of it (unless it were a VERY novel idea).

    Jason Busch

    05/11/06 11:41 AM at 11:41 am


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