Ariba Building Future on Direct Buying

B2B company moves beyond indirect purchasing app development.

Ariba Inc., the former Wunderkind of business- to-business e-commerce that has fallen on hard times, is looking to right its ship with a new line of direct procurement software.

The company last week tried to put less-than-flattering events behind it—the loss of CEO Larry Mueller after one quarter in office, poor first-half financial results and a major company restructuring—by introducing Ariba Enterprise Sourcing, its first major move into the direct procurement arena.

The Enterprise Sourcing platform allows professional buyers to access supplier management tools and commodity templates to source suppliers, negotiate contracts, analyze what they are spending, and conduct online e-procurement, Ariba officials said.

Like Aribas existing Sourcing platform, the new application suite enables buyers to automate the sourcing process online. It diverges from the previous Ariba software in two ways—it provides out-of-the-box integration with the Ariba Buyer platform, which offers procurement execution functionality such as contract management, and it offers connectivity with the Ariba Commerce Services Network, or CSN, which provides access to a large base of suppliers.

Ariba, of Sunnyvale, Calif., has come under fire in the past for having limited direct procurement functionality, which left scant room for companies to perform critical functions such as collaboration or strategic sourcing.

The Enterprise Sourcing suite looks to answer that problem with collaborative capabilities that allow buyers to use templates to conduct sourcing events in multiple stages, including requests for information and requests for quotes using question-and-answer message boards and bid wizards to communicate with suppliers.

Buyers can also define what data to capture about each supplier and pump that information into a private supplier database or the Ariba CSN to search for qualified suppliers. Once a buyer negotiates the terms of a contract, it is automatically created in Ariba Buyer.

Although analysts and Aribas own customers have said the company needs to move beyond its roots as a provider of software for procuring goods not used directly in product manufacturing, Ariba Chairman and acting CEO Keith Krach said the companys software already is being used for direct procurement.

"We have been labeled as doing only indirect e-procurement, but thats not correct," Krach said. "Ariba Sourcing solution is widely used for direct goods and services."

Hydro One Inc. routes much of its direct procurement through Indus International Inc.s enterprise asset management application but has done a little direct procurement through Ariba Buyer, its indirect e-procurement platform.

"Weve been waiting on Ariba to get their [direct procurement] product out," said Dan Olsen, director of supply management with Toronto-based Hydro. "Im not sure they have all the functionality we need, but Im pretty comfortable with the platform."

The kinds of direct e-procurement products that Hydro uses Ariba software for, however, are not necessarily highly engineered or require much design collaboration with suppliers.

To build up its supplier collaboration capabilities, Ariba plans to roll out over the next several quarters a host of products in the areas of strategic analysis, supplier relationship management and contract management. The products encompass a new area for Ariba termed Spend Management, which is defined as one place a chief purchasing officer can go to access his or her companys spend data.

Ariba plans to have the full Spend Management product suite on the market by the end of the first quarter next year. Enterprise Sourcing is the first piece of that offering. Other modules will provide functionality for planning and analysis, contract management, and invoicing.

Industry observers believe that while sourcing automation holds a better opportunity for Ariba than did transaction management, the company will face stiff competition in sourcing automation. Not only are enterprise resource planning software developers Oracle Corp., SAP AG and J.D. Edwards & Co. moving toward their own strategic sourcing offerings—which boils down to direct procurement applications—supply chain management software vendors such as i2 Technologies Inc. and Manugistics Group Inc. also may be formidable contenders.

At the same time, Aribas archcompetitor, Commerce One Inc., has already taken steps to provide enterprise strategic sourcing in partnerships with Microsoft Corp. and with SAP and its SAPMarkets subsidiary.

"Automating direct procurement is a pretty substantial business problem and a decent-size market for what [Ariba] is trying to do," said Jon Derome, an analyst with The Yankee Group, in Boston. "They have a reasonably strong position, but if some of the big companies decide that what Ariba does [is what they want to do], its going to be a pretty awkward position for Ariba."

Another hurdle is the persistent rumor that Ariba could be sold. After big financial losses in the first half of the year and its stock price hovering under $2 per share, Ariba is seen by some as a takeover target.

"Yes, were concerned, but one of the things we recognize is that IBM has made a significant investment in working with [Ariba], and they may well get folded into IBM," Hydros Olsen said. "If that happens, were fine."

However, as Hydro expands its B2B e-procurement software installation, Olsen will not limit himself to Ariba.

"Were really looking for best of breed," Olsen said.