SM: So your strategy to stabilize the business after the dot-com crash was to continue development of your software product and then conduct acquisitions to increase your core product offering?
KC: Yes, and at the same time we continued to add capabilities into the technology stack to cover a broader area in the sourcing and procurement. That really stabilized the company and put it back on a path to growth. At this time, many of the dot-com companies had gone out of business or had been acquired by other organizations. Of the companies that were in existence when Ariba started, by about 2004 the vast majority of them had either gone out of business or had been acquired by other organizations. Today, Ariba stands as the only organization that not only survives but thrives out of the early 2000 dot-com bubble.
SM: In 2002, while you were checking the decline in business and stabilizing Ariba, were you selling through the large system integrators?
KC: In the dot-com heyday there were channel partners everywhere. Everyone wanted to sell and implement Ariba technology. When the bubble burst, a lot of those folks exited the business. They went on and tried to do different things. That is part of the reason we went on and tried to build a services organization as well.
At that point, we improved productivity and started selling through a direct sales force.
SM: Was your business model enterprise software sales?
KC: The business model at that time was enterprise software sales with a big dose of services. We called it a solutions sale.
SM: So it was software along with integration services?
KC: Yes, and also a good dose of business process services and management assistance services. Not only did we put the technology in, but we also educated people in the organization to whom we sold the technology how to use it and get the most out of it. If someone was going to buy chairs with the software, we would install the software, train them on using it, and then teach them strategies for buying chairs using the software.
SM: What kinds of strategies would you use?
KC: You could buy chairs through an RFP process where you found suppliers and sent out a request for proposals. You could specify the quantity and type of chairs needed along with a delivery date and location. You could then find 10 suppliers who would respond electronically. You could then select the lowest cost provider.
Alternatively, you might go out and set up a reverse auction. It is almost like eBay in reverse, where you bring suppliers to your auction and then run the auction for a period of two hours. At the end of the reverse auction, you would then purchase the chairs.
Those are two very different options for purchasing the exact same commodity. Knowing which one should be used at any given time is important to drive efficiency and effectiveness in your sourcing operation.