Ariba gains ground

With its sharp focus on providing substantial procurement cost reductions quickly, Ariba Inc.'s spend management suite is boosting its traction in a market that has battered other enterprise application software vendors.

In a bright spot among the recent dismal earnings news from enterprise software vendors, Ariba announced Wednesday that it posted a pro forma profit for the third quarter ending June 30, while boosting revenue for the third quarter in a row. In addition, the company detailed plans for the next generation of its enterprise spend management strategy.

Revenues for the Sunnyvale, Calif., company for the quarter were US$58 million with a pro forma net income excluding more than $200 million of non-cash costs of $1.9 million or $0.01 per share. Just a year ago the company posted a pro form net loss of $26 million for the corresponding quarter on revenue of $85 million. At that time the company also announced a major restructuring that included cutting one third of its workforce and the exit of its CEO.

Bob Calderoni, Ariba president and CEO, said the company's new line of spend management products have accounted for the boost. Ariba's spend management line is designed to provide a single point of visibility and control allowing companies to engage, manage, and leverage the entire spend lifecycle from analysis, through sourcing, to procurement across the enterprise.

"We took the quick, decisive actions last summer that we had to to right the ship," Calderoni said. "It's these new products that have allowed us to buck the overall trend in the industry. Ariba's spend management solutions stand alone as the only solution to allow a company to manage expenditures ... to deliver significant bottom line savings."

Calderoni cited spend management customer General Dynamics Corp. as an example of the quick ROI its technology can afford enterprises. General Dynamics trained 140 purchasing employees on Ariba's strategic sourcing product, which it has rolled out to seven business units. Using the technology, the company has run 75 sourcing events and generated 11 percent savings on those buys while reducing cycle times by 15 percent, Calderoni said.

Ariba's financial performance and new deals reflect more than its cost-cutting measures, said Jon Derome, an analyst at The Yankee Group Inc. in Boston.

"They seem to be in fact driving new business," he said. "Ariba before the e-marketplace hiccup ... was a pretty successful company selling a procurement application. If you take that e-marketplace hiccup out ... this is a continuation of a pretty positive trend that goes back several years."

Ariba also previewed a new dashboard capability Wednesday code-named "Project Colorado" designed to provide a strategic integrated view across all sourcing decisions. Due out this fall, Project Colorado will be a new project analysis layer of Ariba's platform designed to provide a common procurement process across an enterprise that encompasses not only company buyers and suppliers but all stakeholders including engineers, said Michael Schmitt, Ariba executive vice president and chief marketing officer.

"We're going to give heads of procurement a single dashboard with complete visibility of all their projects, all their resources ... to share common knowledge, and leverage it," Schmitt said.

In effect, the dashboard will boost visibility for all the projects every procurement employee is working on enterprisewide to allow for more efficiency, he added.

This move to extend spend management throughout the enterprise is the next generation in the spend management market after first cutting costs by whittling a supplier list to those that provide the best quality product at the best price, said Joseph Marino, an analyst at Current Analysis Inc., in Sterling, Va.

"The whole key to enterprise strategic sourcing is after you get this wonderful 12 to 22 percent cut for buying pallets or whatever you are buying, the second time around you don't get that," Marino said. "What you have to do is go after cost centers, go after a much larger slice of the corporation. You're looking more strategically across the company to create efficiencies."

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