Existing Ariba Inc. customers should minimize their investment in the company’s e-procurement solution, and potential customers should select that solution only if they are protected from fallout from a possible Ariba acquisition, according to a Gartner Group Inc. report scheduled to be released this week.

Gartner says Ariba is in trouble

Existing Ariba Inc. customers should minimize their investment in the company’s e-procurement solution, and potential customers should select that solution only if they are protected from fallout from a possible Ariba acquisition, according to a Gartner Group Inc. report scheduled to be released this week.

Gartner has placed Ariba on its “problem watch” list, which the analyst firm reserves for vendors with solutions where the risk of buying the software is greater than the potential benefits, according to a copy of the report obtained by InfoWorld.

The Mountain View, Calif.-based Ariba has been wounded by the recent downturn in the e-procurement market and its inability to expand its product offerings beyond generic indirect procurement, the report said. Once the Wall Street darling of the e-procurement market, the company has been plagued by problems this year including disappointing first-quarter earnings, job layoffs, and the recent failed US$2.5 billion acquisition of Agile Software Corp.

As a result, it likely will be acquired or will have to acquire direct materials procurement, supplier relationship management, collaborative product commerce, and/or supply-chain management solutions to augment its current market offerings.

Likely candidates to acquire Ariba would be IBM Corp., PeopleSoft Inc., JD Edwards, or a CRM (customer relationship management) company like Siebel Systems Inc., according to Gartner.

Lauren Ames, Ariba’s vice-president of corporate communications, said Tuesday that company officials had not seen a copy of the final report. However, she noted that “the market opportunity for e-procurement solutions … continues to be very attractive for customers.” More than 80 per cent of the code needed to address the value chain (procurement and supply-chain management) market has not been developed, she added.

“The market opportunity for e-procurement is in no way dried up,” Ames said. “Companies are realizing significant, quick ROI with our solution.”

In addition, Ames said Ariba officials have not met in person with the authors of the Gartner report in six months.

Bruce Richardson, an analyst at AMR Research Inc. in Boston, said Gartner is using the Ariba report as a marketing mechanism for itself. However, he noted that the report would test the management at the company.

“This is like the Tylenol scare for Ariba,” Richardson said. “They’ve got to come out of the next couple of quarters with some momentum or people won’t care.”

Ariba set itself up as a target for criticism for not publicly defending the market for indirect procurement when market hype for direct procurement and supply-chain management began growing, Richardson said. Instead, they “got sucked in by the i2 [Technologies'] mystique of supplier relationship management,” he added. “What they should have done is put the pedal to the metal and trotted out happy customers … then you look to expand the footprint.”

The report notes that Ariba has a strong balance sheet with $400 million in cash and continues to cut costs with a 30 per cent reduction of its workforce; however, the company is facing mounting challenges. That is because it generates 80 per cent of its revenue from the Buyer product, according to Gartner.

Gartner clients that have implemented or are implementing Ariba’s Buyer e-procurement solution are increasingly dissatisfied with deployment results, according to the report. Ariba has been late in releasing promised upgrades, and when delivered the migration has been expensive and problematic for integration, the report said.

As a result, some Buyer customers have begun to re-evaluate their investment and evaluate procurement offerings provided by their ERP (enterprise resource planning) vendors, many of which have added indirect procurement functionality into their procurement-based offerings for two to three times less cost, the report said. To date, only 150 of Ariba’s 250 Buyer customers are live, and many are in the pilot stage, according to Gartner.

“We were late with Buyer 7.0 last fall,” Ariba’s Ames said. “That’s not new news. We haven’t found anybody that has deinstalled Buyer for an ERP vendor’s application.”

More than 60 per cent of Ariba’s Buyer 6.x customers have successfully migrated to Version 7.0, she added.

Ariba was caught off guard by the downturn in the economy that tempered technology buying, and the company faltered with its notion that indirect procurement could be marketed as a standalone application, said Laurie Orlov, research director for e-business applications at Forrester Research in Cambridge, Mass.

However, Orlov said Ariba will be bolstered by its existing co-marketing, co-selling relationship with IBM. IBM also is Ariba’s biggest customer, she added.

“I don’t think Ariba will exit the landscape with IBM being in the picture,” she said.

The report recommends that existing Buyer 6.x users and below delay upgrades to 7.0 unless there is clear evidence that the application is already delivering immediate savings. Customers that have licensed but not yet implemented Buyer should determine ROI and, if warranted, pursue an implementation with loose integration and simplified workflow for isolated classes of goods, according to the report.

Because of a lack of other, more compelling e-procurement applications, the report suggested it would be premature for enterprises to remove Buyer in favor of those other applications.

However, enterprises with ERP applications from major ERP vendors such as SAP, Oracle, and PeopleSoft should begin to evaluate the functional fits of these vendors’ e-procurement offerings.

Enterprises considering e-procurement solutions for indirect materials should consider only other solutions with lower price points, such as those offered by Commerce One and Clarus, the report said.

Gartner will evaluate removing Ariba from problem watch status if it acquires – as opposed to building – and begins to integrate strategic sourcing functionality during the next six months. Target functionality should include spend data extraction, contract development, and contract management.

Ariba does have a strategic sourcing solution, which it obtained via an August 2000 acquisition, Ames said.

Related Download
Fast track to the future							Sponsor: IBM Canada Ltd
Fast track to the future
Download Fast Track to the Future, IBM’s third annual Tech Trends report, and find out where business stands in the adoption of social, mobile, cloud and analytics technologies; the hurdles to their implementation; how the speed of change is creating skills gaps at some companies; why security is an issue that pervades the business, not just the IT department; how growth markets differ in their adoption of and preparation for new technologies; and much more.
Register Now
Share on LinkedIn Share with Google+ Comment on this article