Ariba steers into e-sourcing software market

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.