Robert Kugel's Analyst Perspectives

Ariba Acquisition Will Bolster SAP’s Growing Cloud Presence

Posted by Robert Kugel on May 24, 2012 10:13:55 AM

SAP is planning to acquire e-commerce company Ariba in a transaction worth about US$4.3 billion expected to close in the third quarter of this year. Ariba provides cloud-based collaborative business commerce through a Web-based trading community that enables companies to find, connect and collaborate with a global network of partners. Its Commerce Cloud is a platform that businesses can use to buy and sell goods. Currently, Ariba counts more than 700,000 companies worldwide attached to this network. The purchase follows SAP's acquisition of cloud-based HR software vendor SuccessFactors for $3.4 billion. In the past SAP had been reluctant to make large acquisitions, but these two large purchases and the naming of Lars Dalgaard, former SuccessFactors CEO, to the SAP executive board indicate the strategic imperative SAP puts on quickly gaining a solid cloud presence. The acquisition also complements its 2011 acquisition of Crossgate, an electronic data interchange (EDI) service provider, which enables companies to exchange documents with customers, suppliers, supply chain partners, financial institutions and government entities, streamlining transactions and cutting administrative costs.

SAP had recently reiterated its five-pillar (cloud, mobile, analytics, applications and database/technology) strategy at SAPPHIRE NOW, which my colleague Mark Smith covered. The new acquisition will use Ariba’s large trading network to create a business network that can generate incremental growth opportunities for the combined company. Ariba gives SAP a well-developed set of products and services that complement its core ERP software. Moreover, Ariba is the market leader and has no major competitors that rivals such as IBM or Oracle could acquire.

SAP intends to connect all of its relevant products to the Ariba Network. They include the Business Suite, All In One, Business One and ByDesign, as well as the on-demand versions of Customer and Supplier Relationship Management (CRM and SRM). Ideally this would simplify the process of effecting data interchanges and automating workflows across companies and can save both parties time and eliminate most errors in purchase and sales transactions. The combination should allow SAP’s customers to manage the full “source to settle” process in an end-to-end fashion. Whether it actually does that depends on how quickly SAP enables deep integration of processes, applications and data. Currently its Enterprise Information Management (EIM) product does not support that level of integration with Ariba.

Ariba’s leading market position in a dynamic sector of the cloud gives SAP a significant opportunity to develop its own leadership position in the cloud, but neither this move nor the acquisition of SuccessFactors makes this a sure thing. I think the real test for SAP will be how quickly it can add to and enrich the integration of the two companies. It raises a number of questions. For example, what new mobile applications will be available to enhance visibility, control and analytics that increase the effectiveness of the purchasing and supply chain functions? What measurable increases in agility and efficiencies can be achieved by having in-memory capabilities, which SAP already has in HANA? What enhancements of industry-specific end-to-end processes will be available? How easily will companies be able to use Financials OnDemand to manage pieces of transactions while integrating data flows from their on-premises (and non-SAP) systems? As well, how quickly will enhancements to the combined SAP/Ariba offerings be available?

There’s also a potential management issue. Assuming the Ariba organization will be reporting to Lars Dalgaard, he will assume responsibility for very different organizations in very different businesses with dissimilar sale management practices, customers and customer relationships. This is a challenging scenario for anyone.

SAP has to build up its presence in the cloud as companies increasingly adopt this computing mode for business-critical functions or risk losing its leadership position in business applications. By breaking with its history of avoiding large acquisitions, management has confirmed the strategic importance of going fast and big into the cloud. The initial steps it has taken are necessary, but I see considerable work left to do in building out its cloud-based presence in finance, supply chain and customer-facing functions.


Robert Kugel – SVP Research

Topics: Big Data, SAP, ERP, EDI, end-to-end, Analytics, Cloud Computing, Uncategorized, CRM, SCM

Robert Kugel

Written by Robert Kugel

Rob heads up the CFO and business research focusing on the intersection of information technology with the finance organization and business. The financial performance management (FPM) research agenda includes the application of IT to financial process optimization and collaborative systems; control systems and analytics; and advanced budgeting and planning. Prior to joining Ventana Research he was an equity research analyst at several firms including First Albany Corporation, Morgan Stanley, and Drexel Burnham, and a consultant with McKinsey and Company. Rob was an Institutional Investor All-American Team member and on the Wall Street Journal All-Star list. Rob has experience in aerospace and defense, banking, manufacturing and retail and consumer services. Rob earned his BA in Economics/Finance at Hampshire College, an MBA in Finance/Accounting at Columbia University, and is a CFA charter holder.