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Nearly nine months after merging with FreeMarkets, Ariba Inc. is now developing a more integrated procurement lineup, with the ultimate goal of giving users an on demand model for “spend management” software and services.

In a presentation at Lehman Brothers’ 2005 Global Software, IT Services and Internet Conference, Ariba Chief Financial Officer Jim Frankola likened the company’s expansion into spend management from its early e-procurement roots to PeopleSoft Inc.’s movement into ERP (enterprise resource planning) from its human resources software beginnings. SAP AG, another ERP leader, “started out with general ledger,” he told the audience.

But unlike many other enterprise IT vendors, which sell to CEOs, Ariba’s pitch is to CFOs, according to the Ariba CFO.

Ariba’s decision to broaden its portfolio of products and services was driven by the “dot-com crash” earlier in this decade, he said. In talking with procurement users at that time, Ariba heard over and over again that “e-procurement is not enough.”

Ariba today is the market leader in spend management, “roughly 10 times larger than our closest competitor,” according to Frankola.

The company’s customer list includes ChevronTexaco Corp., Hewlett-Packard Co., FedEx Corp., Merrill Lynch, Cisco Systems Inc., Pfizer Inc. and Hallmark Cards, to name a few.

Spend management is “a very high potential area,” Frankola said. “A lot of money is being left on the table by corporations.”

At the spend management end of the supply chain, Ariba focuses on helping large enterprises save money by managing expenditures in both direct and indirect procurement categories, the CFO said.

The vendor provides software and services that range across functions such as sourcing, negotiating, invoicing, online auctioning and “spend” monitoring, for instance.

But over the past few years, Ariba has started to place less emphasis on sheer technology and more weight on underlying business processes, Frankola said.

“Software is an enabling driver,” he said. Ariba also operates IT and business services across a wide range of areas, including BPO, implementation, data services, application hosting and “expert” advisory services on specific supply markets.

Next Page: Depending on customer testimonials.

In winning contracts over competitors such as Oracle Corp., Ariba draws strongly on success stories and testimonials from existing customers, Frankola said.

Some industry analysts have been favorably impressed by the results of Ariba’s merger with FreeMarkets, completed in June 2004 for $493 million.

“The merger is ahead of plan, and the company is targeting the higher areas of procurement category growth in strategic sourcing and spend management,” wrote AMR Research analysts Lora Cecere and Mary Melton, in a report published last November.

Frankola said at the conference this week that he expects Ariba’s services revenues to be temporarily flat, as the company integrates services from FreeMarkets.

He also noted that, earlier this year, Ariba agreed to pay $37 million to ePlus, after a jury found that certain features in Ariba Buyer, Ariba Marketplace and Ariba Category Procurement violated software patents held by ePlus.

Click here to read more about the ePlus lawsuit.

“[But] the overall picture [for Ariba] is one of wealth and stability,” according to Ariba’s CFO.

Going forward, he said, Ariba will work toward better integration of its own procurement offerings, to help give customers more flexibility in choosing the software and services they want via an “on demand” model.

For example, a customer might determine that it doesn’t need help with business processes or sourcing, and that it “only wants auctions,” Frankola said.

Another customer, on the other hand, might find that “travel is not strategic” to it and opt to “outsource [the travel] commodity” to Ariba instead, he said.

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