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Pioneering SaaS In Business Process Optimization: Ariba’s Kevin Costello (Part 7)

Posted on Tuesday, Jun 8th 2010

SM: What are the plans for 2010 and beyond, now that the licensed-software-to-SaaS transformation is complete?

KC: Every other SaaS company out there has satisfied an existing business process. We are out to create an entirely new way of doing business. Why is it so easy to buy a book on Amazon.com but so hard to source the goods and services you need to run your business? How can you manage your personal finances and pay your bills on time online yet have no idea what you’re spending, with whom, or when you’ll get paid at your company? Why do you know more about what your friends ate for lunch than the status of your key trading partners? In short, why is buying, selling, and managing cash in your personal life so easy, yet business commerce is so complex? Our mission is to simplify business commerce and make it as easy as personal commerce. And we’ll do it through the Ariba Commerce Cloud.

SM: My hypothesis is that Oracle and SAP will build SaaS portfolios through acquisitions. Salesforce.com could also become a major consolidator. Where do you see Ariba fitting into that picture?

KC: We feel fortunate to be in the position to be an acquirer in the space. We’ve publicly announced that we are going to do between one and three acquisitions over the next 12 to 18 months, which will allow us to expand the depth and breadth of our cloud-based offerings. Of course, others will follow suit. The only way for SAP and Oracle to get into the SaaS market is by acquiring appropriate companies.

SM: Is there any kind of a buying club model in Ariba’s offering? Like a group of SMEs getting together to harness better negotiating leverage over suppliers?

KC: A number of consortium-based buying groups such as Medbuy and Topco use Ariba to source goods and services for their members. Medbuy, for instance, negotiates and manages contracts with suppliers on behalf of more than 30 members. Prior to Ariba, Medbuy used a combination of homegrown software and manual processes to source and manage contracts. And while the systems were automated, they were automated to the extent that Medbuy had seven or eight different systems to download information from. With Ariba, they have a single, integrated platform through which they can fully automate the procurement process.

SM: Why isn’t Ariba charging its 300,000 suppliers a “club membership”of sorts? It seems to me that the suppliers in Ariba’s network ought to be highly monetizable. At a $1,000 per membership this is a $300 million a year business, at a $10,000 a membership this is a $3 billion a year business. Wouldn’t that be a more profitable business model than the enterprise SaaS model?

KC: As is the case with all of our solutions, we try to align the price that people pay with the value that they receive. Sellers who reach a certain threshold using our network do pay a nominal fee. But until they reach this threshold, membership is free. We think that’s the appropriate model right now, and sellers using the Ariba Network have accepted it.

SM: How do you view Rearden Commerce, which is doing a different type of procurement, such as travel? Do they have a similar philosophy? Is that a potential acquisition?

KC: I won’t comment on specific targets, but I am always looking for companies that will allow us to expand our cloud-based services and create additional value for our customers.

SM: Congratulations on your success to date. I look forward to following Ariba’s story.

This segment is part 7 in the series : Pioneering SaaS In Business Process Optimization: Ariba's Kevin Costello
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