Last week’s Ariba Live event at The Venetian and Palazzo in Las Vegas gave us a lot to think about — and not just from a business process perspective. Cirque du Soleil‘s live acrobatics woke us up, and Candy Chang‘s fusion of art, public space, and community-based collaboration, got us engaged. It’s not always easy–or natural–to smoothly transition from non-business to business content and messages in these type of environments, but I think it’s fair to say that the non-practitioner content did its job in getting us to think a bit differently about what’s possible when we apply equal parts creativity, skill, and preparation. And that’s where I make the tie back to the wonderful world of procure-to-pay.
Looking back over the different sessions and conversations, there are four main things that I think are important to note, for current customers, prospects, and the market in general. These have to do with (1) network expansion, (2) user experience, (3) partner ecosystem, and (4) payment options. I discussed the first two in my previous post, and will wrap things up here with the final two pieces of the puzzle.
Opening the API
The attractive storyline here is that SAP and Ariba learned from Concur’s success in nurturing a developer network for their platform and are embracing the approach post-acquisition. That said, folks like Salesforce.com and NetSuite have been doing this very well for a while too, and their success has been quite visible in the marketplace. Regardless of whether any of those were the real genesis of Ariba’s Open API initiative, I think it has the opportunity to start something special.
Until now, Ariba has been running a pretty classic two-sided network of buyers and suppliers. An honest review has to point out that what has been missing is the two-sided benefit model that leads to true network effects. By that, I mean that the vast majority of development (and marketing) has been focused on buy-side benefits. That serves to attract buyers, and they bring suppliers with them – but there isn’t an independent value source attracting new suppliers to the system. That’s where we get into the realm of the telephone model of value: new buyers make the system more attractive to sellers, leading to new sellers who make the system more attractive to buyers. And B-school professors everywhere go wild…
With an Open API, the model changes a bit: there’s a third community that can participate, adding value that can attract new buyers (and perhaps sellers too). The number of participants already on the network attracts developers to add functionality on a completely separate development track than Ariba’s own roadmap. The cool thing is that, as we’ve seen with the Force.com/Salesforce1 platform approach (1), this adds new features but maintains the connection to the data that runs the show. That’s the big difference between API-based platform developers and third-party solutions that communicate with, but live apart from, the main system.
Since that was all quite general, let’s get specific. I think new apps will focus, at first, on the buy-side. That’s where the focus has been, and that’s probably who will benefit first. That said, I think there’s a real opportunity to show some love to the sell-side community as well. Ariba’s started doing this on their own. One subtle point that a sell-side attendee pointed out to me is that they’ve started referring to sellers as “customers” as well, and not keeping that label just for buyers. The same sentiment was there when I chatted with folks who were entirely focused on supplier satisfaction and retention.
I think this could be a real inflection point for the network, depending on how it all shakes out. If someone—either Ariba or the developer community—builds out functionality that provides enough value to suppliers to get them signing up without needing their buyers to invite them, the equation starts to get really interesting. New suppliers and broader participation from existing suppliers are two things that could (if we trust models… and professors) catch the attention of new buyers. I thought Discovery might have had a chance to play this catalyst role, but that hasn’t been the case. Who knows, though – perhaps the Open API will lead to development of functionality that makes Discovery more attractive, and everything will come into alignment.
Building the Payment Alternative
Last but not least, something directly related to finance. As I mentioned previously, I had the chance to sit on a panel discussing B2B payment options. For Ariba, that means their continued development of AribaPay. From conversations with buy-side and sell-side folks at the show, Ariba and Discover seem to be on to something here. They’re discussing it as an ACH replacement, removing the need/ burden for you to store and manage all of your suppliers’ bank account information. When compared to ACH, the settlement time is the same (two days, generally) but the transaction cost is a bit higher. You’ll need to see if that is offset by savings in other areas (IT support, security infrastructure, supplier information management reduction). One very interesting value point they’ve highlighted is AribaPay’s ability to improve on-boarding rates for procurement programs. If you can drive greater procurement savings by using AribaPay as an incentive, the per-transaction costs may not be an issue at all.
If we look at the roadmap, I think the some significant buy-side value will come when AribaPay does something that ACH/EFT cannot (at least outside of SEPA): go cross-border. When we talk international, we’re in wire territory – with the costs that go along with that channel. True, wires are a small portion of most companies’ payment mix, but if a lower-cost (and almost as fast) option exists—and is acceptable to suppliers who may value the non-recourse/certain nature of wires—that could be a fairly easy swap.
On the sell-side, AribaPay is more attractive as a card replacement. Ariba hasn’t published the exact pricing, but different conversations at Live point to rates a few decimal places away from the 150-350 basis points suppliers currently incur on card-based payments. In addition, there’s a hard-dollar cap on that transaction fee that makes it an absolute no-brainer for suppliers when compared to currently-uncapped card fees. The flipside, of course, is that the buyer loses the rebate income. The suppliers I spoke with say that they end up pricing those rebates into the sales anyway, so the rebate income may actually be illusory in the end.
And that’s a wrap. If you missed the first part of the series, you can find it here. It will be interesting to see how these developments are received by the market as the solutions, partnerships, and design approaches are put through their paces in live enterprise environments.
1. Let’s not undersell what’s possible with that open platform approach. Salesforce.com began as a CRM/SFA application, but it’s creation of a development platform for others to build from has led to the creation of FinancialForce.com — an entire ERP on-top of Salesforce1. True, they weren’t starting from scratch. It was a joint venture between Salesforce and Unit4 (FinancialForce began its life as Coda). Even still, that’s a heck of a lot more than a simple plug-in.