Now that the regulatory inquiry period is over, sources close to events (as they say) have confirmed SAP is expected to close its Ariba acquisition next Monday, 8th 1st October (see update at end.) At the time of the acquisition announcement I concentrated on the internal implications:
Where does Ariba fit into SAP's cloud play and who will end up running it? We have an answer to the first part as it relates to existing stated strategy. We don't have a clear answer to the second part. SAP has said that Robert Calderoni, Ariba CEO joins SAP's newly formed global management board rather than the executive board. That means when his lock up period is over, he can quietly slip out the back door. But it still leaves the question open - does Ariba join the Dalgaard group or co-CEO Jim Snabe's?
That question still remains open although my current understanding is that Ariba will be managed outside the cloud group - at least for the time being.
From what I can gather and in listening to more knowledgable colleagues, it appears that SAP and close friends consider the network Ariba owns as the real jewel in the crown. SAP will love the fact it gets to the transaction as well as the processing element because it gives SAP more skin in the procurement game at a time when indirect/ad hoc buying is as much, if not more, under scrutiny than centrally contracted buying.
In a recent analysis around what the DoJ may have been looking for in the protracted review proces, Jason Busch said:
First, "Neither SAP nor Ariba are dominant leaders (we would not describe them as functional leaders, either) in the area of e-sourcing. Their combined respective market share in these areas would be significant, but the share of overall spend (especially for more advanced e-sourcing solutions) does not suggest a position anywhere close to dominance or one that would enable a combined organization to gain pricing power. Second, "Neither have significant or dominant traction compared with existing supplier directories such as ThomasNet, Alibaba and others as well as the rest of the SAP/Ariba procurement portfolio, for supplier search as part a supplier network environment."
That point is now moot but worth bearing in mind. SAP believes that by 2015, this LOB alone will be worth around €2 billion ($2.6 billion.) That is close to five times the current run rate and would certainly put SAP on a dominance trajectory. How much will come from transactions and how much from cloud application sales?
I maintain that in order to get all the synergies SAP is predicting - or rather all the value it is predicting - SAP will have to finesse how it handles the development end of the business more carefully than the network. It will also have to ramp staff on the network side of the business to handle anticipated increases in volumes. That all requires managing.
Equally pressing is the matter of how the cloud elements of the business are managed going forward. I said:
Calderoni's three year experience [moving from on-prem to cloud] will be invaluable to a management that has started to recognise it cannot continue on a course that has all the features of an 'ignore everybody' approach to the market though sometimes for all the wrong reasons.
A few months further down the track and I hold that same view only more strongly.
The other week I attended an SAP event (they covered some of my T&E) where SAP's cloud strategy was on display. To describe it as muddled and confusing would be an understatement. On the roadmap we saw, procurement is one of the 'xxx-On Demand' LOB apps slated for the cloud. That would suggest development at least falls into the cloud group.
But if SAP cannot articulate a clear strategy message to those it considers can be of some help then I can only imagine what it must be like internally both now and in the run up to the formal acquisition. For example, it is difficult for me to see how SAP can readily split the Ariba network away from Ariba cloud development without causing disruption. It may work if there is enough group separation to make a split viable but that might lose some of the important value Ariba management brings to the table. We will have to wait and see how it works out.
Let's not forget that SAP TechEd follows the week after the deal is scheduled to close. There will be plenty of technical questions raised by the geeks who anticipate dealing with these technologies. While I don't anticipate SAP will put Calderoni out front so soon (prove me wrong), I do expect to see him take the stage at SAPPHIRENow Madrid in mid-November. Any messaging inconsistencies between the two events will be sniffed out faster than the stink you get from a fetid pond.
I am hoping that SAP will get this one right. Sadly, history tells me I will likely be disappointed even though SAP has taken plenty of soundings from advisory sources in the last few months. It has a great opportunity to provide a coherent, crisp and attractive message both to its developer and business audiences in the coming weeks. If it does that through mid-November then it will be in good shape for the coming year. If not?
Update: oops, I got my timing wrong. The deal closed today...or rather yesterday if you are on a US time zone. Next Monday meant a few hours forward from where I was at but quite a few hours forward from where my source was at. Dang...those time zone differences play havoc sometimes. Apologies to all.