At Last, After A Long Courtship, They’re Engaged! (Ariba and Quadrem, That Is)

No, I’m not wasting Forrester’s blog space for yet more coverage of the royal engagement. I think Ariba’s proposed acquisition of Quadrem, that it announced today, is much more interesting. http://ht.ly/3bPei

Royal souvenir plate

Forrester has been predicting, and advocating, consolidation in the procure-to-pay market for a while:

“Once consolidation starts, the natural imperative of scale in the technology business will transform the market into one in which a few large, successful, interoperating networks enable buyers to reach all their suppliers, however small or physically remote.” Enterprises Should Push Supplier Networks To Deliver Interoperability, July 2009.

While I’m unqualified to comment on whose investors do better from the $150m purchase price for a company with about $50m revenue, I do believe the merger is good news for both sets of customers and suppliers. Firstly, Ariba reinforces its place as one of the four or five large supplier networks that will eventually dominate the market. Its customers now get access to a wider stable of suppliers. Quadrem originated as a marketplace for mining companies, so it is particularly strong in MRO categories and in natural-resource-rich regions such as Africa and Latin America where Ariba is under-represented.

Secondly, Quadrem customers will, in time, be able to upgrade to a superior platform (Quadrem is currently based on an old version of SAP's SRM module) without having to worry about switching their suppliers to a different service. They’ll get a much large stable, and a better product roadmap. Plus they’ll get out from under the Sword of Damocles that now hangs solely over Hubwoo customers, namely SAP deciding to fill the supplier network gap in its SRM portfolio.

The main challenge for Ariba will be to retain as customers the members of the founding consortium once they are no longer co-owners. In previous cases, such as Hubwoo’s merger with Traderanger, the existing revenue stream melted away once the lock-in period ended. Ariba’s recently-increased charges to supplier members may be a source of tension in this regard. Some Quadrem suppliers may face a price increase, but will benefit by being able to reach more customers through one gateway.

Comments

Duncan, Good coverage, but I

Duncan,

Good coverage, but I think it's important to mention that Ariba is not pursuing a connectivity strategy based on openness and interoperability. They want to be the network -- they do not want to connect to other networks or be part of an ecosystem. This is an important distinction for buyers and suppliers alike.

BTW ... my wife and others can't get enough of the royal engagement stuff here state-side. Is this your way of getting out of the economic mess? Taking our tourist dollars?

Openness versus interoperability

I wrote this before I'd read your analysis, with which I mostly agree.
http://www.spendmatters.com/index.cfm/2010/11/18/Ariba-and-Quadrem-Marke...

My view is that Ariba will accept selective interoperability, with network providers that it believes are its peers, rather than openness, which might let smaller niche competitors benefit from its supplier base without bringing enough in return.

In terms of cutting the deficit, how about using Prince Harry as the prize in a reality game show called The Royal Batchelor?