Ariba Technologies was founded in September 1996. The principal activity of the Group is the provision of comprehensive intranet- and Internet-based business-to-business electronic commerce solution for operating resources. From its inception, the company’s goal has been to build a world-class organization through a seasoned management team focused on the operating resource market opportunity, a customer-centric approach to product development, and premier venture capital funding. Ariba’s founding members include: Keith Krach, president and CEO, and Ed Kinsey, vice president of finance and CFO. Ariba Technologies received $6 million from Benchmark Capital and Crosspoint Ventures in their first round of funding. According to Bob Kagle of Benchmark Capital, "Ariba is guided by three strong principles: deep understanding of a well-defined customer; systematic pursuit of a large market; and a defensible product strategy. It is unusual to see these attributes so well integrated in a startup company".
Ariba’s executive management team provides expertise in such areas as: growth and management of startup companies; the rapid development of leading-edge software technology; in-depth understanding of enterprise-oriented procurement solutions and expertise in developing and managing large-scale electronic initiatives. This golden startup idea of Ariba--automating the purchase of office supplies and services at large companies transformed the rules of competition in B2B seemingly overnight. A blueprint for software that would enable every employee in a business to order mundane but indispensable supplies--paper clips, file cabinets, pencils--by using desktop PCs to access a site on the company's intranet. In most companies procurement of such non-strategic goods and services is an inefficient, and paper-intensive process. According to Ex-CEO Keith Krach “the size of the market is huge. Any global 200 company has the need for this, and with the Internet there is a paradigm shift where you can put this software on everyone’s desktop” .
For many companies annual operating resource requirements such as office supplies, computer supplies run into millions of dollars, and for a few they run into billions. Until a few years ago the cost connected with purchasing, handling and storing such goods often outstripped their value. In many organizations the paper work involved in making small dollar purchases created cost nightmares for those processing transactions. Thus the idea of consolidating the purchase of such items on single platform defined a new paradigm of business web, -the new platform for business collaboration in 21st century.
On June 23, 1999 barely after 3 years from its inception — Ariba, Inc. (“Ariba” or the “Company”; NASDAQ: ARBA) announced an initial public offering of 5,000,000 shares of common stock. The initial public offering price is $23 per share.
“To create the leading Internet-based business-to-business electronic commerce network platform”. The first global e-commerce infrastructure that connects buyers and suppliers through out the world-allowing, companies to buy and sell any kind of goods and services through a – to – z over the Internet.
Ariba's Strategic business objectives to be successful in the competitive hi-tech industry:
4 Create a new model for enabling commerce communities on the Internet.
4 Strengthen Ariba’s offerings to Global 10,000 companies.
4 Broaden Ariba’s reach into small and mid-size business markets.
4 Expand the buying power of the Ariba Network platform.
4 Grow the supplier content of the Ariba Network platform.
4 Further extend the ability of Ariba solutions to not only save money for its customers, but also drive new revenue streams”.
Ariba's business strategy to achieve these goals is to take advantage of the buying power of a large multinational customer base to attract leading operating resource suppliers to the Ariba's network solutions. A growing number of suppliers in the Ariba network solutions will in turn draw more buyers to its network. Thus, this growth cycle will help create a network effect, where the value to each participant in the network increases with the addition of each new participant, increasing the overall value of Ariba solution. Ariba’s strategy has been to deliver the highest quality eCommerce solution providing the greatest and fastest return on investment to buyers, suppliers, value-added service providers, and partners. By diligently following this strategy, Ariba has attracted the largest single community for conducting business-to-business commerce on the Internet and has developed the most comprehensive business-to-business eCommerce platform.
The high tech computer service industry started with a boom sometime in early 1990's . Being relatively young and high growth industry, the risks for the operating companies are also very high. Almost all businesses depend on the enterprise wide solutions to optimize their business operations and minimize the operating costs. Thus creates the pressure for developing new solutions constantly and continuously. In the present digital economy, businesses operate through eCommerce to gain competitive advantage, not only by improving the efficiency and effectiveness of existing business processes, but also by enabling constant adaptation to rapidly changing competitive environment.
The distinguishing characteristics of this industry is; rapid development/introduction of leading-edge software technology, in-depth understanding of enterprise-oriented solutions, advanced procurement solutions, expertise in developing and managing large-scale electronic initiatives, research & development for innovation of new and improved solution product, integration with suppliers and buyers, and customization of solutions to customers needs. Key technological innovation / development and the ability to constantly improve the product is thus the main driving force for the industry. Other driving forces to shape the ecommerce / B2B paradigm for the computer service industry include; product innovation, technology development and change, integration with suppliers tends to intensify the competition, while the rapid market growth, and product differentiation forces tends to weaken the rivalry. This fast paced industry is also driven by the recent developments of B2B / B2C business that has provided for a ripe environment for growth:
4 Internet has become ubiquitous, with a browser on virtually every desktop. Major corporations are wired with almost every employee connected to the Internet.
4 Businesses have refined their processes to maximize efficiency, and have implemented ERP systems to automate their back offices.
4 Technology has advanced to overcome initial security fears and to provide a common protocol for the communication and transaction over the Internet.
The formation of B2B eCommerce companies has resulted in helping corporations embrace the changes and opportunities of the Internet age. The Key Success Factors for B2B commerce firms is to leverage the eCommerce platform to automate and integrate the internal and external commerce processes of buyers, suppliers, internet exchanges, and value added service providers, delivering a global eCommerce infrastructure that provides cost savings and revenue opportunities for business of all sizes.
The Strategic Group Map analysis for the computer service industry reveals that there is strong competition between the B2B firms who are leaders and visionaries (Oracle, SAP, Ariba and etc) and have the high ability to execute the solutions as per customer requirement. There are challengers, who are mainly new players in the market. But because of the long learning curve of top players, these challengers contribute to the medium quality market. Nonetheless, there are some challengers like MRO Software who have very high quality solutions, and in the present era of collaborative commerce there is always a possibility that they can collaborate with leading vendors and pose competition to the leaders. Considering the downturn in the U.S economy since the beginning of year 2001, this competitive landscape is changing very rapidly. This will reshape the industry depending upon the individual firms business strategy and ability to executive and deliver solution. There are some nic!
he players who operate in low-end market, and likely chances that the competitors will acquire them to further strengthen their market position.
The analyses of five-forces reveal that rivalry among the B2B firms is medium. But the competition among the firms is very high, because this young industry is in the stage of rapid growth, and demand for product is growing very strongly. There is huge market for the solutions that improves the operating efficiencies of the global businesses. The primary competitive weapons that industry rivals utilize in jockeying for sales and market positions are leadership, ability to execute (requires bringing all players; suppliers, buyers; solution provider in one platform); product innovation, quality of product, Integration with existing systems, customization and localization for global companies. Ariba has competitive advantage over its rival as it offers not only Internet procurement services, but also a complete suite for managing Operating Resources for global enterprises.
The strongest Competitors for Ariba are Oracle, SAP, and Commerce One. Other competitors include, I2 technologies, Peregrine, Rightworks, Requisite technologies, Clarus Corporation, and concur technologies. Ariba faces fierce competition from its rivals, as the technology is constantly improved and new products are to be rolled out at a lightening speed. Ariba is a pioneer to make full use of Internet to create new business; however the competitive advantage it once held by possessing this know-how is eroding at much faster pace than its introduction into the market. This is so because the Internet based applications can easily be cloned.
The potential threat of new entrants into the industry is very high, as the market for B2B solution is huge. For instance, in 1999, there were 600 start-ups seeking to premiere B2B exchanges. Gartner forecasts an emergence of 10,000 exchanges in the next couple of years. This means there will be growing competition from established and emerging companies. However, due to the Dot.Com crash, the boom in this industry seems to have slowed down. Each new entrant is critically viewed for its product, execution and ability to function on existing system. The promises are not taken on the big names "B2B Solution" as it had happened in the past, but even so the new entrant have high potential for success.
The bargaining power of the buyers is very high. This is so because there are many players in the market offering B2B ecommerce solutions. Most companies have also collaborated to create B2B marketplace with the help of the B2B firms. Companies realize that they need to head in the direction of Internet procurement to reduce the processing cost and that there are many firms offering services in this area. This positions buyer in a drivers seat as they have more options. Hence, it is imperative for the B2B firms to keep ahead of the competition in terms of technology and services offered, have strong partnerships, and develop customer loyalty while this industry is relatively young. The competitive pressure from the substitute products for this industry is high. The end customers have a choice of in-house development of the service as the technology is available and if the costs to acquire the solutions out weigh the profit. However, if the costs of in-house developments are high then there are many choices available in the market.
The whole B2B business is a service industry, which is based on the concept of bringing all the players, suppliers & buyers, and service providers' on to one common trading platform. The suppliers in the industry are the information providers to the companies like Ariba or Oracle and etc to integrate their business with the end customers like GM or Ford. For instance, GM is an end customer for Ariba. And Ariba is providing its services to GM to automate GM's procurement process with Staple, in such a case staple will be Ariba's supplier for information for Staples content to be able integrate with GM's procurement process. In this scenario there is a mixed picture of supplier bargaining power. If the supplier is market leader or dominant player, it has more power, while a smaller supplier or relatively new player may have less power. As a key part of delivering comprehensive solutions, Ariba fosters relationships with suppliers worldwide. Working with suppliers and other logistics and financial services companies, Ariba has automated the entire acquisition cycle to provide a completely integrated environment for B2B commerce and collaboration. This gives Ariba competitive edge over its rivals.
4 Powerful strategy supported by competitively valuable skills and expertise in key areas.
4 A widely recognized market leader.
4 Sophisticated use of ecommerce technologies and processes.
4 Vertical Integration with suppliers, and horizontal integration with other system providers.
4 Alliance and joint ventures with market leaders (IBM, Compaq, Dell and etc)
4 Sales dependent on large contracts since it operates in high-end market.
4 Slower penetration into new markets.
4 Operates only in high -end market.
4 Expanding the product line to meet a broader range of customer needs
4 Expanding into new product segment
4 Acquisition of rival firms or companies with attractive technological expertise.
4 Increasing intensity of competition among industry rivals.
4 Technological changes and product innovations that undermine demand for Ariba's solutions.
4 Growing bargaining power of the buyers.
The above SWOT analysis reveals that Ariba's distinctive competence of introduction of technologically and research & development for innovation of new and improved products has a competitive edge over its rivals. The company has strong reputation of bringing in new advanced product into the market; however, the B2B technology can be easily cloned and so Ariba need to be on its toes and innovate new solutions.
Ariba's financial performance over the past four years is very impressive. Net revenues increased at compounded average growth rate of 311.32% from 1997 to 2000. Company's profit margins have shown a steady growth since 1997, though Ariba has continued to incur net income losses though these four years.
Sales increased substantially in 2000. Ariba Inc reported sales of $279.04 million for the fiscal year ending September of 2000. This represents an increase of 515.0% versus 1999, when the company's sales were $45.37 million. Acquisition activity may have played a role in the sales growth: Ariba Inc acquired Suppliermarket.Com, Tradex Technologies Inc. and Tradingdynamics Inc. in fiscal year 2000. This was the fourth straight year of sales growth at Ariba Inc. Sales of Software License saw an increase of 642.6% in 2000, from $26.77 million to $198.79 million. As seen in the Fig-1, though Ariba's return on equity has improved over the past four years, it has largely remained below the industry average. Average Return on equity for past 4 years is -52.49% while the industry average is -4.01%. This reason for such ROE could be because the company has reported losses after tax for each of the past four years. The long-term debt to equity ratio of the company is very low, at only 0!
On the $279.04 million in sales reported by the company in 2000, the cost of goods sold totaled 14.3% of sales (i.e., the gross profit was 85.7% of sales). This gross profit margin is better than the company achieved in 1999, when cost of goods sold totaled 16.3% of sales. In 2000, earnings before extraordinary items were $792.78 million, or -284.1% of sales. This profit margin is lower than the level the company achieved in 1999, when the profit margin was -64.6% of sales. The company has reported losses before extraordinary items for each of the past 4 years. Research and Development Expenses at Ariba Inc in 2000 was 14.0% of sales. In 1999, it spent $11.62 million on R&D, which was 25.6% of sales. During each of the previous 3 years, the company has increased the amount of money it has spent on Research and Development (in 1997, Ariba Inc spent $1.90 million versus $39.02 million in 2000). Though Ariba has competitive edge in B2B technology over its rivals, its financial po
sition has to improve when compared to its competitors.
Ariba maintains corporate relationships by working with industry leaders like - system integrators, eCommerce solution providers, content providers and application service providers. To provide solutions to their clients, Ariba maintains strategic alliances with leading firms like Andersen Consulting, Deloitte Consulting, Hewlett-Packard, Cisco, IBM, i2, J.D.Edwards, Microsoft, Peoplesoft, SAP, and etc. The benefits Ariba derives from its alliances are enormous. For e.g. the deal with IBM will give Ariba the opportunity to operate IBM’s internal system – which runs the largest e-procurement system in the world for its own 13,000 suppliers with it’s own software. This deal shows Ariba’s commitment to neutrality, which will help it reach a more diverse customer base. The other benefit Ariba derives from this deal is a sales channel to many of IBM’s hundreds of thousands of customers around the world.
The global eCommerce revolution is entering a new phase. While the first stage was fueled by the vision and innovation of business-to-consumer Internet companies, the next phase will be defined by the leadership and market success of companies engaged in business-to business eCommerce. The early consumer-focused eCommerce winners created the Internet business model, but it will be their B2B successors that realize the full potential of the new electronic economy. Still in its infancy, B2B eCommerce is already the fastest growth area in the superheated new Internet economy and carries potential almost beyond measure. A Boston Consulting Group report estimates that Internet-based electronic business relationships will account for $2.8 trillion in sales by 2003. GartnerGroup places this figure even higher – at $7.2 trillion.
Ariba will enter a critical phase over the next few years as they put newly struck alliances and stratagems to work. It would be foolhardy at this stage, with ecommerce still so nascent and volatile, about who will wind up on top. But one thing is certain: B2B eCommerce is such a complex proposition that no one software company can do it all, from making programs that run a company’s online procurement systems to powering online auctions and enabling exchanges to allow buyers and sellers to manipulate the supply chain. This is why the decisions made by Ariba on which strategies to pursue and on which partners can best help it realize its game plan. Under this scenario following is recommended for Ariba:
4 Ariba suffered major blow due to recent downturn of economy beginning early 2001. This is because of its dependency on large deals on high-end markets. Ariba should expand into broader range of customer needs and industry segments.
4 The B2B technology can be easily cloned; hence Ariba should rapidly develop innovative solutions and product improvement and out into the market more quickly than its rivals.
4 Market openings to extend the company's brand name, reputation, and leadership to new markets to increase the market share.
4 Aggressive expansion via both acquisition and internal growth to increase the market share. This is critical for survival during the recent year 2001 economy slide.
Business-to-business online commerce has become too complex for point solutions. To succeed in B2B, companies require an open solution, one flexible enough to access all trading partners in the new economy – buyers, suppliers, and service providers. They need an effective, easily managed open commerce platform of best-of-breed applications and services, powered and amplified by a B2B network. In an accelerated competitive landscape, uncovering new sources of innovation and efficiency is everything. The advantage goes not to the largest or most dominant enterprise, but to the most nimble. Small, aggressive organizations can quickly emerge as leaders in their industry. Large, established enterprises can reinvent their business and enter new markets. Those companies with a strategy and total solution for online B2B will win.
In Millions of U.S. Dollars(except for per share items) 12 Months Ending 09/30/00 12 Months Ending 09/30/99 12 Months Ending 09/30/98 12 Months Ending 09/30/97
Total Revenue 279.0 45.4 8.4 0.8
Cost of Revenue 47.5 8.8 1.5 0.9
Gross Profit 231.5 36.6 6.8 (0.2)
Selling/ General/ Administrative Expenses 236.4 41.8 12.9 2.8
Research & Development 39.0 11.6 4.5 1.9
Depreciation/ Amortization 706.6 14.6 1.0 0.0
Interest Expense (Income), Net Operating – – – –
Unusual Expense (Income) 56.6 0.0 0.0 –
Total Operating Expense 1,086.2 76.8 19.9 5.7
Operating Income (807.1) (31.4) (11.5) (5.0)
Interest Income (Expense), Net Non-Operating – – – 0.3
Gain (Loss) on Sale of Assets – – – –
Other, Net 16.3 2.2 0.6 0.0
Income Before Tax (790.8) (29.2) (11.0) (4.7)
Income After Tax (792.8) (29.3) (11.0) (4.7)
Net Income Before Extra. Items (792.8) (29.3) (11.0) (4.7)
Discontinued Operations – – – –
Net Income (792.8) (29.3) (11.0) (4.7)
Income Available to Common Excl. Extra. Items (792.8) (29.3) (11.0) (4.7)
Income Available to Common Incl. Extra. Items (792.8) (29.3) (11.0) (4.7)
Basic/ Primary Weighted Average Shares 193.42 70.06 23.05 2.56
Basic/ Primary EPS Excl. Extra. Items (4.099) (0.418) (0.475) (1.829)
Basic/ Primary EPS Incl. Extra. Items (4.099) (0.418) (0.475) (1.829)
Dilution Adjustment 0.0 0.0 0.0 0.0
Diluted Weighted Average Shares 193.42 70.06 23.05 2.56
Diluted EPS Excl. Extra. Items (4.099) (0.418) (0.475) (1.829)
Diluted EPS Incl. Extra. Items (4.099) (0.418) (0.475) (1.829)
Dividends per Share - Common Stock 0.000 0.000 0.000 0.000
Gross Dividends - Common Stock 0.0 0.0 0.0 0.0
Stock Based Compensation 206.8 1.1 0.0 0.0
Pro Forma Net Income (999.5) (30.4) (11.0) (4.7)
Pro Forma Basic EPS (5.170) (0.435) (0.475) (1.830)
Pro Forma Diluted EPS (5.170) (0.435) (0.475) (1.830)
Interest Expense, Supplemental – 0.1 0.1 0.0
Total Special Items 745.2 0.0 0.0 –
Normalized Income Before Tax (45.6) (29.2) (11.0) (4.7)
Effect of Special Charge on Income Taxes 0.0 0.0 0.0 0.0
Income Taxes Excl. Impact of Special Items 2.0 0.1 0.0 0.0
Normalized Income After Tax (47.6) (29.3) (11.0) (4.7)
Normalized Income Available to Common (47.6) (29.3) (11.0) (4.7)
Basic Normalized EPS (0.246) (0.418) (0.475) (1.829)
Diluted Normalized EPS (0.246) (0.418) (0.475) (1.829)
In Millions of U.S. Dollars(except for per share items) As of09/30/00 As of09/30/99 As of09/30/98Restated09/30/99 As of09/30/97
Cash and Short Term Investments 280.2 98.2 11.9 15.5
Total Receivables, Net 61.9 5.2 2.1 0.2
Prepaid Expenses 13.1 1.9 0.3 0.1
Other Current Assets 3.5 0.8 0.0 0.0
Total Current Assets 358.7 106.0 14.3 15.8
Property/ Plant/ Equipment, Net 56.0 9.4 2.2 0.9
Goodwill, Net 3,287.1 0.0 – –
Long Term Investments 84.5 54.3 2.0 –
Other Long Term Assets 29.5 0.3 0.2 0.1
Total Assets 3,815.9 170.0 18.8 16.8
Accounts Payable 11.2 3.8 1.0 0.9
Accrued Expenses 105.8 11.8 3.0 0.7
Notes Payable/ Short Term Debt – – – –
Current Port. LT Debt/ Capital Leases 0.5 0.7 0.3 0.2
Other Current Liabilities 101.2 30.7 3.9 0.3
Total Current Liabilities 218.8 47.1 8.2 2.1
Total Long Term Debt 0.4 0.8 0.6 0.1
Other Liabilities 98.5 0.0 – –
Total Liabilities 317.7 47.8 8.8 2.3
Redeemable Preferred Stock – – – –
Preferred Stock - Non Redeemable, Net – – 0.0 0.0
Common Stock 0.5 0.4 0.1 0.0
Additional Paid-In Capital 4,466.3 191.2 28.2 19.3
Retained Earnings (Accum. Deficit) (837.7) (44.9) (15.6) (4.7)
Treasury Stock - Common – – – –
Other Equity (130.9) (24.4) (2.7) (0.2)
Total Equity 3,498.2 122.2 10.0 14.5
Total Liability & Shareholders’ Equity 3,815.9 170.0 18.8 16.8
Total Common Shares Outstanding 247.82 181.76 76.37 93.05
Employees (actual figures) 1,680 386 221 –
Number of Common Shareholders (actual figures) 1,379 294 –
Sales Comparisons (Fiscal Year ending 2000)
Company YearEnded Sales(US$mlns) SalesGrowth Sales/Emp US$) Largest Region
Ariba Inc Sep 2000 279.039 515.0% 166,095 The United States (78.0%)
Oracle Corporation May 2000 10,130.128 14.8% 245,163 The United States (52.0%)
Sap Dec 2000 5,594.729 22.6% 231,407 The United States (30.0%)
Commerce One Inc Dec 2000 401.796 1,097.4% 106,690 N/A
Company Year LT Debt/Equity DaysAR R&D/Sales
Oracle Corporation 2000 0.05 101 10.0%
Company Year GrossProfitMargin EBITDAMargin Earnsbeforeextra
Oracle Corporation 2000 74.8% 34.3% 62.2%
Commerce One Inc 2000 N/A N/A -85.9%
Corporate Information & Press Releases
“Ariba Leads the Way In B-to-B Marketplaces”: www.informationweek.com
“Battle to the Bitter End (-to-End)”: www.business2.com
The New Way to Start Up in Silicon Valley”, Fortune 03/02/1998, Available (online): www.fortune.com
Ariba Expands Capabilites of Ariba Commerce Services Network, News Press Releases - 2001, Mountain View, Calif., April 10, 2001
eProcurement Applications Market Forecast and Analysis, 2000-2004,Albert Pang,Report #W23837 - February 2001, http://www.itresearch.com/
Ariba Unveils Value Chain Management Strategy And Solutio,News,Press Releases - 2001, Radio City Music Hall, New York City, NY, February 28, 2001
Business 2.0,Five Questions with Larry Mueller ,http://www.business2.com/ebusiness/2001/05/lmueller.htm,May 18, 2001
InfoWorld, Ariba's new CEO explains how his company will help corporate America save money ,http://www.infoworld.com/articles/hn/xml/01/05/11/010511hnmueller.xml,May 14, 2001
CNET News.com,Ariba beefs up e-commerce network ,http://news.cnet.com/news/0-1007-200-5556113.html?tag=cdshrt
Apr 10, 2001
Computer World,Ariba chief stresses e-business 'cultural shift' ,
http://computerworld.idg.com.au/cwt.nsf/DocID_HTML/1007D53779A1DAFBCA2569F90021E692!OpenDocument,Feb 21, 2001
eWeek,Helping major companies link to suppliers, http://www.zdnet.com/eweek/stories/general/0,11011,2683054,00.html
Feb 14, 2001
CNBC.com,Agile, Manugistics Announce Formation of Strategic Alliance, http://www.cnbc.com/news/news/conewsstory.html?sym=AGIL&id=045p5902,Feb 14, 2001
Ariba's Agile Move
Undeterred by the dot-com shakeout, Ariba CEO Keith Krach is upping the ante in his drive to dominate the B2B software industry.
Feb 09, 2001
The Fortune e-50
Ariba featured in the Fortune e-50
Feb 07, 2001
Ariba Looks Ahead
Undeterred by the dot-com shakeout, Ariba CEO Keith Krach is upping the ante in his drive to dominate the B2B software industry.
Feb 05, 2001
Network World Fusion News
Ariba chief surveys B2B market
Interview with Ariba CEO Keith Krach
Jan 31, 2001