Ariba steers into e-sourcing software market

By : |September 28, 2001 0

By Siobhan Kennedy

NEW YORK: Ariba Inc., seeking to boost its share of the business-to-business
software sector, this week made its first big push into the growing market for
software that enables companies to collaborate with suppliers over the Web.
Ariba is trying to tap into a potentially lucrative market, which analysts
predict will grow by nearly nine-fold in the next couple of years.

Industry giants including General Electric Co. and Ford Motor Co. are
spending millions of dollars overhauling their computer systems, looking for
ways to use the Internet to streamline costs and communicate better with their
suppliers. Sunnyvale, California-based Ariba, a high flyer in the B-to-B
software market before the Internet bubble burst, said its new Enterprise
Sourcing application is designed to address those needs by enabling companies to
collaborate with suppliers via online auctions.

Up until now, Ariba has focused on procurement software, which lets
businesses cut the costs and time associated with buying basic goods, such as
computers or office furniture, over the Web. But that represents just 25 per
cent of the opportunity for savings, analysts said. The remaining 75 per cent
comes from helping companies find suppliers online and negotiate contracts to
purchase more complex materials.

"Ariba’s addressed the easy part first and now they’re getting round to
addressing the more complex but more beneficial area of strategic
sourcing," Tim Minahan, an analyst with industry research firm Aberdeen
Group said. "That’s where the real savings come in." Aberdeen
estimates the market for so-called strategic sourcing will grow to $3.3 billion
in 2004 from $382 million in 2000. The move will bring Ariba into closer
competition with companies such as i2 Technologies Inc., Manugistics Group Inc.
and FreeMarkets Inc.

Aerospace and home security systems giant Honeywell International Inc. has
been testing Ariba’s sourcing software at its federal manufacturing and
technology plant to purchase such things as construction services and
maintenance and repair goods. According to purchasing manager Susie Ross, the
unit saved $3.6 million between November 2000 and August of this year. "I’m
seeing definite savings in the material prices that we pay," Ross said.

Back to basics

Ariba has seen its share price plummet over the last year as demand for
online marketplaces fizzled and a slowing economy forced a virtual cessation in
corporate software spending. In April, Ariba had to call off its acquisition of
Agile Software Corp. and lay off 30 per cent of its staff in a bid to cope with
the downturn. At the time, the company also said it would go "back to
basics" and focus on its core procurement software market.

This week’s release of Ariba’s Enterprise Sourcing product is the company’s
first attempt to make good on that strategy, Minahan said. It’s also significant
because it means Ariba offers both procurement and sourcing software, said Bruce
Richardson, an analyst with AMR Research in Boston.

"I think the smart thing is to recognize they needed both procurement
and sourcing, as well as the auction capability," Richardson said. For
customers, it means they can select suppliers online, then use the procurement
software to go out and buy the goods. "Doing something like this is much
smarter than trying to move into other areas," he said.

(C) Reuters Limited 2001.

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