Analyzing Ariba’s Quarter (Part 1): Core Solution Performance in a Competitive Context

Judging by the Wall Street reaction to Ariba's quarterly performance (the quarter ending December 31st, 2010), it seems that the vendor could do no wrong -- taking its place on the podium of B2B turnaround success stories. If you were to only look at Ariba's financial situation, it appears to those not on top of the procurement software market deal flow that the vendor continues to distance itself from others in the market (a hypothesis that does not hold up in a competitive context, in absolute and relative terms both in the overall source-to-pay arena and also from a solution specific perspective, but we'll get to this in a minute). Total revenue came in above guidance at $90.4 million for the quarter (including $50.2 million in subscription software revenue). Maintenance revenue came in at $100K over guidance at $15.6 million, and the services/other hit $24.6 million, roughly $3 million above the mid-range of guidance. Moreover, Ariba is now sitting on a war chest of nearly $300 million in cash, restricted cash and investments. Following the close of the Quadrem acquisition, Ariba is now forecasting a 146% growth in network revenue fees to a $101 million, including 44% organic network growth (more on this in Part 2 of this post, tomorrow).

On the earnings call, Ariba shed only limited light on where this growth was coming from in specific solution areas. Ariba told investors that during the quarter, it had 41 new "downstream deals" including 10 P2P and 14 invoice engagements/contracts. Spend Matters research and Ariba customer/prospect discussions suggest that Ariba is invited to the table in a good percentage of overall SaaS P2P opportunities in the market, owning in large part to the marketing/lead generation machine it runs to get in front of prospects. Yet in the quarter, Ariba was anything but the de facto final choice in P2P, winning a fair share of business -- but losing a fair share as well. Coupa, Verian, Basware, ePlus, SciQuest, Proactis, SAP, Oracle, Science Warehouse, Ketera/Rearden and other P2P vendors continue to compete heavily against Ariba in this downstream market and took material business away from Ariba in Q4 (both new deals and existing CD accounts). Despite the Ariba marketing machine, these vendors often win business in this area without Ariba even knowing it. Still, SaaS P2P opportunities only reach the RFP stage in a minority of circumstances without Ariba having had a material shot at the business (except when an organization knows it is headed down an enterprise software path, or is seeking a specialist solution provider).

In the upstream area, Spend Matters knows of numerous engagements where Ariba made up for continuing holes in the sourcing area by informally partnering with CombineNet for optimization, data gathering and other capabilities for organizations looking for more than what Ariba provides in its Sourcing products today. This relationship has helped Ariba overcome other sourcing competitors with greater native capability in this area. Spend Matters is also aware of cases where Ariba was able to extend sourcing deals into supplier performance management and other upstream areas, which suggests that an integrated approach to sourcing, SPM and supplier management is appealing to a material set of customers going to market for solutions today. From a spend analysis perspective, our analysis suggests Ariba is losing ground to competitors in both new deals and also in existing business it has lost in recent quarters (interestingly, Spend Matters believes that Ariba has been a finalist in considerably less than 50% of spend analysis deals contracted in recent quarters, a percentage figure that is lower than in other areas where they compete).

Stay tuned for further coverage of Ariba's quarter as we turn our attention to network traction, growth and additional analysis tomorrow.

- Jason Busch