Between the Lines

Larry Dignan, Sam Diaz, Andrew Nusca
Home / News & Blogs / Between the Lines

Ariba's Costello on the transition to SaaS, business commerce

By Larry Dignan | July 26, 2010, 2:30am PDT

Summary

Ariba this week will report its fiscal third quarter results and highlight how it’s becoming a company gaining software-as-a-service momentum.

Topics

Software-as-a-service, Ariba Inc., Software As A Service (SaaS), Managed Hosting, Cloud Computing, Emerging Technologies, Larry Dignan

Blogger Info

Larry Dignan

Biography

Larry Dignan

Larry Dignan

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CNET News.com. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism and the University of Delaware.

For daily updates, follow Larry on Twitter.

Sam Diaz

Biography

Sam Diaz

Sam Diaz

Sam Diaz is a senior editor at ZDNet. He has been a technology and business blogger, reporter and editor at the Washington Post, San Jose Mercury News and Fresno Bee for more than 18 years. He's a member of the National Association of Hispanic Journalists and a graduate of California State University, Fresno.

Andrew Nusca

Biography

Andrew Nusca

Andrew Nusca

Associate Editor

Andrew J. Nusca is an associate editor for ZDNet and SmartPlanet. As a journalist based in New York City, he has written for Popular Mechanics and Men's Vogue and his byline has appeared in New York magazine, The Huffington Post, New York Daily News, Editor & Publisher, New York Press and many others. He also writes The Editorialiste, a media criticism blog.

He is a New York University graduate and former news editor and columnist of the Washington Square News. He is a graduate of the Columbia University Graduate School of Journalism. He has been named "Howard Kurtz, Jr." by film critic John Lichman despite having no relation to him. A native of Philadelphia, he lives in New York with his fiancee and his cat, Spats.

Follow him on Twitter.

Vendor HotSpot
Here to help you with your Document Management Needs

Read the DocuMentor blog now

Learn More »

Ariba this week will report its fiscal third quarter results and highlight how it’s becoming a company gaining software-as-a-service momentum.

The company, which focuses on spend and supplier management software, currently gets half of its revenue from on-demand applications. Four years ago, the company made the transition to SaaS. In May, Ariba launched its Commerce Cloud and inked an integration deal with IBM’s Lotus Live.

It has been a long trip for Ariba. In 1999 and 2000, Ariba was one of the key glory stocks of the dot-com boom. Today, the company is on track to deliver annual revenue of about $353 million or so, a bit above the $325 million in sales for 2005.

We’ll let the historical chart tell the tale.

The more recent picture is better as Ariba shares have nearly doubled in the last year.

Under the hood, Ariba has undergone a big transition and analysts say the company is emerging from the downturn in a good position. “We believe it is well positioned coming out of the downturn as the leading on demand vendor of spend management solutions,” said JMP Securities analyst Patrick Walravens in a recent research note.

We recently spoke with Kevin Costello, president of Ariba, on the company’s transition to software as a service and the prospects for B2B procurement.

On a transition to SaaS, Costello said the Ariba decided four years ago that on-demand delivery and cloud computing would be the way “most organizations buy software in the future.” “So we built a true multitenant technology stack across all of our applications,” said Costello. The company said it added 145 net new customers in 2009 in a poor economy. “We attribute that success to the SaaS model.”

Regarding its SaaS customer profile, Costello said midmarket companies went the SaaS route for Ariba software quickly. Today, SaaS is being accepted by large enterprises, including those that have already licensed Ariba’s traditional software. “Customers are buying new modules on the SaaS platform,” said Costello. “The vast majority of new software acquisition is SaaS.” Ariba has 25 percent to 30 percent of its customers on multiple platforms.

On potential competition from ERP vendors, Costello said Ariba is more of a partner. A lot of customers are using SaaS to wrap around their ERP systems. Analysts frequently expect SAP and Oracle to delve into the spend management market. Costello, however, noted that software companies have always carved a nice niche wrapping applications around ERP systems. “You wrap yourself around things that ERP companies can’t do and don’t want to do,” said Costello.

As for the business model, Costello said it charges based on the utilization of its software. Ariba has compiled a supplier network with more than 300,000 suppliers. Overall, Ariba’s commerce cloud moves $140 billion in transactions a year. Suppliers that move a lot of volume (about 15,000) pay fees based on volume and number of transactions, but the majority of them don’t.

On IT decision makers, Costello said Ariba has to reach “five minds that matter” to sell it’s wares. Those minds include the senior VP of supply chain and procurement, sales and marketing executives, the CFO and CIO. In a nutshell, it’s all about procurement and working capital management.

Why isn’t B2B commerce as easy as consumer commerce? Costello said “the business world hasn’t taken the initiative that the individual consumer has to make a business cloud a reality.” Before now, companies haven’t done much to optimize intercompany commerce and 80 percent of transactions remain manual. However, the recession forced companies to weed out inefficient processes, said Costello.

Kick off your day with ZDNet's daily e-mail newsletter. It's the freshest tech news and opinion, served hot. Get it.

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic.

Disclosure

Larry Dignan

Larry Dignan has nothing to disclose. He doesn’t hold investments in the technology companies he covers.

Biography

Larry Dignan

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CNET News.com. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism and the University of Delaware.

For daily updates, follow Larry on Twitter.

More from “Between the Lines”

Related Discussions on TechRepublic

Did you know you can take part in these discussions with your ZDNet membership?
Ask a Question Start a Discussion

Talkback - Tell Us What You Think

advertisement

Get it the way you want it

ZDNet Newsletters

Get the best of ZDNet delivered straight to your inbox

Facebook Activity

Blog Roll

Blog Archive

White Papers, Webcasts, & Resources
advertisement