- Forrester Councils
- Councils Overview
- log in
Posted by Andrew Bartels on May 23, 2012
The big news in the ePurchasing software market yesterday was SAP’s acquisition of Ariba. This blockbuster deal will extend SAP’s position as the largest software vendor in the ePurchasing market. It also brings into the SAP fold one of the most innovative companies in this market – a company that has a fair claim to having begun the whole market in the late 1990s.
Still, as my title suggests, I’m not convinced that this acquisition makes strategic sense. I think there’s a real risk that this turns out to be a deal where one plus one equals 1.75, not two, let alone a multiple of two. Reason one: the tremendous duplication of products between the two firms, and thus the problems of product rationalization and internal competition. Reason two: the Ariba Network, which is the main rationale for the acquisition, is based on an idiosyncratic pricing model that in my view is unsustainable at current rates and thus will not generate the kinds of revenues that SAP is expecting.
Let me first state the case for why this could be a good deal:
But here are the reasons it’s not such a great deal:
Bottom line: I think revenues from sales of Ariba’s non-network products (or from SAP’s products) will suffer as a result of the SAP acquisition, while revenues from the Ariba Network will not grow as much as SAP expects. At best, the deal will be a one-plus-one arrangement in which the combined revenues of the two businesses will be the same as if they had remained separate. At worst, the loss of product revenues due to integration of two competing product lines and potential organizational conflicts between the legacy SAP SRM business and the new Ariba business and the slower-than-expected growth in network revenues because of resistance to Ariba’s pricing model will mean less revenues for the combination than if they had remained separate.
Save Money On Your Next Software Negotiation
Work with our software negotiation experts to save 10–20% on your next contract »
Lead BT Transformation
Develop customer-obsessed strategies to drive growth »
Forrester's CX Index
Predict how actions to improve CX will affect revenue performance.
Measure the customer experiences that matter most »