Ariba, FreeMarkets Acquire Services Capabilities

By Renee Boucher Ferguson  |  Posted 2004-01-08

Ariba, FreeMarkets Acquire Services Capabilities

With companies maturing in their own sourcing capabilities and bringing those applications in-house, global supply management software developers find themselves in a quandary: branch out or die out.

Recent acquisitions by rivals Ariba Inc. and FreeMarkets Inc. prove that there is still a breath of life in supply management software, though perhaps only through diversification.

Ariba announced earlier this week its intent to acquire little-known hosted services provider Alliente Inc., a privately-held procurement business process outsourcing provider. The week previous FreeMarkets announced its intent to acquire the sourcing and services arm of Covisint.

With their respective acquisitions, both Ariba, of Sunnyvale, Calif., and FreeMarkets, of Pittsburgh, are moving in the right direction by providing a hybrid model of delivery that includes a technology platform for automating the supplier sourcing process, expert domain knowledge and supporting services.

Aribas acquisition of Alliente will expand its existing spend management and procurement capabilities to include managed procurement services—a subset of the business process outsourcing market. At the same time Ariba gains additional domain expertise that makes third-party sourcing relevant.

"About 30 to 40 percent of [Alliente] employees are specialists—in travel, energy, leasing, marketing, print, IT hardware and IT consulting," said Michael Schmitt, executive vice president of strategy at Ariba. "So these are people who live and die [for their area of expertise]. They study price points, takedowns, supply and can get into the microeconomics of that industry."

What these domain experts do is go into a company and determine the best sourcing options in a given area. They can help a company source a single item or an entire category.

Next page: On the technology front


On the technology front, Ariba will look to provide more functionality around compliance with the next iteration of its platform. Due in February, the Mars platform will add enhanced functionality that enables users to cross-check vendor invoices against negotiated contracts—a key capability according to research firm Aberdeen Group, which also points to outsourcing and category management as areas to watch in 2004.

Separately, FreeMarkets acquisition of Covisint likewise beefs up its services arm, though the acquisition doesnt provide much in the way of technology. The move also positions FreeMarkets as a serious contender in the automotive industry.

Under the terms of the agreement, Covisint will transfer its customer contracts for auction services to FreeMarkets—a move that will guarantee FreeMarkets revenue from Covisint for the next three years and move it more solidly into the coveted automotive vertical.

With the Covisint purchase, FreeMarkets will add General Motors Corp., DaimlerChrysler AG and Ford Motor Co. to its customer roster. The deal is expected to close this month.

Even with a full plate of offerings, Ariba and FreeMarkets face stiff competition from the likes of IBM and EDS that provide sourcing technology and strong service arms. At the same time, enterprise resource planning software developers are close at their heels as they look to provide similar functionality.

"There is going to be a good deal of consolidation [in this area]," said Tim Minahan, vice president of supply chain research at Aberdeen, in Boston. "Some of the pure plays are going to either merge or be acquired, particularly as ERPs want to grow out their supplier relationship management and augment that with domain expertise."

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