Spend Matters welcomes another guest post from NPI, a spend management consultancy, focused on delivering savings in the areas of IT, telecom, transportation and energy.

Earlier this month, CIO ran an article on "Top CIOs Predict the Five-Year Future of the CIO". The article lists the different roles that CIOs will be expected to play in the next few years. Of these, there are three that caught my attention -- not because they're surprising, but because of the widespread impact this evolution will have on IT spend management. These roles are:

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Today's Afternoon Coffee is brought to you by Brianna Tonner.

Jason gives his opinion on SAP/Ariba in InformationWeek.
SAP Ariba Deal: Not All About Cloud -- SAP co-CEO Jim Hagemann Snabe spent a lot of time talking about the promise of cloud-based business networks at last week's SAPPHIRE event, and now we know why. The company on Tuesday announced its intention to buy Ariba, a cloud-based business-to-business trading network, for $4.3 billion. The deal is expected to close in the third quarter, pending regulatory approval...

As if he wasn't cool enough...
Apple design chief Jonathan Ive is knighted -- Jonathan Ive - the British designer responsible for Apple's iMac, iPod, iPhone and iPad - has been knighted at Buckingham Palace. The 45-year-old said the investiture in front of the Princess Royal was "really thrilling and particularly humbling". Now based in the US, Apple's senior vice-president of industrial design flew in to the UK with his wife and eight-year-old twin sons for the event. He was born in Chingford, east London, and studied at Newcastle Polytechnic. Sir Jonathan had a brief chat with Princess Anne and later revealed they had talked about how often he comes back to the UK while she spoke of her iPad...

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The buzz surrounding the announced SAP and Ariba transaction is making its way through the practitioner and provider communities less than 24 hours after the initial announcement. One of the major tasks that SAP and Ariba customers and prospects will have as they consider how the various providers' solution capabilities can fit into their procurement technology portfolio will be to understand the related and overlapping offerings of each provider -- not to mention how they stack up comparatively in the market.

Early this morning, on Spend Matters PRO, we published a detailed initial research brief that took what we consider to be a high-level functional look at the strengths and weaknesses of Ariba and SAP in the sourcing, spend analysis, supplier management and contract management areas including how they compare in the competitive marketplace. We also offered initial recommendations to Ariba and SAP customers and partners about how they should look the overlapping modules in each area. In our 1,800 word analysis, we include the following observations:

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Earlier this morning, we published a detailed initial research brief on Spend Matters PRO providing a comparative high-level functional look at the strengths and weaknesses of Ariba and SAP in the sourcing, spend analysis, supplier management and contract management areas -- and how they stack up to the competition. We also offered initial recommendations to Ariba and SAP customers, prospects and partners about how they should look at the acquisition in each of the functional areas as well as when alternatives should be considered (including which provider to look at). In our 1,800+ word analysis, we include the following observations:

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Last night, Spend Matters published our initial detailed comparative analysis (for Spend Matters PRO subscribers) of the SAP/Ariba acquisition announcement from a customer vantage point in the areas of sourcing, spend analysis, supplier management and contract management (authors: Jason Busch and Thomas Kase; length 1,800 words). Our customer and comparative analysis in the areas of eProcurement, e-invoicing, supplier enablement, catalog management and transactional/network connectivity will appear on Spend Matters PRO later this week next, as will an executive analysis from Peter Smith aimed at helping CPOs make heads (or tails) of the acquisition news. Beta subscribers can access this information on the Spend Matters PRO site immediately (we are accepting a limited number of additional subscribers this week during our ramp-up period, although general access for new research subscribers will be available by June 1 -- subscription information is on the site).

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The Spend Matters team is furiously writing and research stories on the SAP and Ariba transaction for publication tomorrow and later in the week (you can read our initial coverage here, here and here). In the process of looking at what we've said about SAP and Ariba in the past, we dug out this old number titled "SAP -- Pull the Trigger on Ariba." The column dates to 20 March 2009. In reading it again, we were either prescient or naive -- or maybe a combination of both. We make the primary case that Ariba's business applications in procurement (spend analysis, sourcing, contract management, e-procurement, e-invoicing, etc.) were far ahead of SAP and the venerable ERP player should buy Ariba to catch up. My, how a few years change things!

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When a company goes through the due diligence process looking to acquire another organization prior to the signing of a definitive agreement or announcement, it typically has a code name for the project. Historically, the suitor uses the first letter of the target's name as the start of the cipher that will stand in its place. In the case of Ariba, SAP used the internal code-name "angel" when discussing the deal. But whether or not Ariba proves to be SAP's true benevolent procurement and supplier network seraph, mediating network transactions and more between the heavens and the ground in the cloud, remains to be seen.

SAP shared on their analyst call that Ariba is currently the world's largest network for "buyer/seller collaboration" bringing "instant access to a network of 730,000 companies [which] is expected to grow to 1 million companies in 2012." Yet Ariba and SAP are not alone in the network game. There are a range of supplier networks and invoicing network connectivity providers in the market, ranging from SAP partner Hubwoo (it remains to be seen what role Hubwoo will play for SAP/Ariba going forward following the close of the Ariba transaction***), Basware, Oracle, OB10, Transcepta, Pagero, Rearden, Coupa, ADP (oil and gas specific), Tradeshift and many others with varying degrees of capabilities and business models. In addition, on the EDI-side of the equation, GXS (which has broader ambitions and capabilities than what it is most known for) and IBM/Sterling also add to the collective network competitive environment.

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Please excuse our back-of-the-napkin math, but while we're waiting on hold to join the SAP/Ariba analyst call, we thought we'd share some quick arithmetic on SAP's recent cloud transactions.

SuccessFactors
2011: 1,578 employees, sales $327.9M - $208K per employee
SAP paid $3.4B -- 10.4X revenue or $2.15M per employee

Ariba
2011: 2,432 employees, sales $443.8M - $182K per employee
SAP plans to pay $4.3B - 9.7X revenue or $1.77M per employee

SAP
2011: 55,765 employees, sales $19,116.3M - $343K per employee
At the same 10X evaluation SAP would be worth $191B -- however today their market cap is $70B

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Moments ago, SAP announced it would acquire Ariba. According to the news, "SAP AG and Ariba announced that SAP's subsidiary, SAP America, Inc., has entered into an agreement to acquire Ariba for $45.00 per share, representing an enterprise value of approximately $4.3B ... The Ariba board has unanimously approved the transaction." SAP is funding the transaction from "free cash and a €2.4B term loan facility." Further, "The transaction is expected to close in Q3 of calendar year 2012, subject to Ariba stockholder approval, clearances by relevant regulatory authorities and other customary closing conditions ... The transaction is expected to be accretive to SAP's non-IFRS EPS in 2013."

With the acquisition announcement, it's clear that SAP is playing for cloud-keeps in the business applications space, even if Ariba represents a source-to-pay provider that ported its CD business to a SaaS model. Coming on the heels and post-merger integration of the SuccessFactors transaction and the internal SAP cloud team realignment, the Ariba news will no doubt be a surprise to many in the field. While we will analyze the solution and product synergies of the announcement throughout the next few days, there is significant overlap in the solution base between the two providers, and still, a number of holes that SAP will have left to fill (e.g., advanced sourcing/optimization).

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