SAP Buying Ariba: Because Software Alone is Not Enough

The cloud frenzy continues, with SAP announcing yesterday that it will acquire Ariba for $4.3 billion (a 20 percent premium over the May 21 closing price, and about 10X fiscal 2011 revenues). You can read the press release for all the details, but here is a quote from SAP Co-CEOs Bill McDermott and Jim Hagemann Snabe:

“The cloud has profoundly changed the way people interact. The impact will be even greater as enterprises connect and collaborate in new ways with their global networks of customers and partners. Cloud-based collaboration is redefining business network innovation, and we are catching this wave in the early stage of its evolution. The addition of Ariba will create the business network of the future, deliver immediate value to our customers and provide another solid engine for driving SAP’s growth in the cloud.”

Considering that I first wrote about “the emergence of supply chain operating networks” about a decade ago, I think SAP is actually catching a wave that other network-based solution providers have been riding on for years, including Descartes, GT Nexus, LeanLogistics, Nistevo (now part of IBM), One Network, and a few others. However, I do believe we’re still in the early stages of customers (namely, manufacturers and retailers) fully understanding the value of network-based solutions and why, in my opinion, they are ideally suited for supply chain processes that involve the exchange of data, documents, and information between various trading partners.

Representation of Supply Chain Operating Network (Source: 2010 presentation by Adrian Gonzalez)

The convergence of enterprise software with B2B networks has been happening for years, but it really started gaining momentum almost exactly two years ago when IBM acquired Sterling Commerce. Here is an excerpt of what I wrote at the time:

Software is not enough. You can have a best-in-class enterprise software platform within your four walls, but without an adequate B2B connectivity network and associated capabilities, you can’t effectively manage end-to-end supply chain processes.

In the months that followed, other acquisitions were announced, including HighJump’s acquisition of TrueCommerce, SAP’s acquisition of Crossgate, and Descartes’ acquisition of InterCommIT. Based on these deals, I predicted back in December 2010 that more companies and solution providers would recognize the importance of B2B connectivity, resulting in more acquisitions and partnerships in the years ahead. SAP acquiring Ariba is just another chapter in a story that’s been unfolding for years.

And where is this story heading?

In the months and years ahead we’ll see…

  • Social media and mobile networks weaved more tightly into the fabric of existing B2B networks (see “A Social Media Approach to B2B Connectivity and Commerce”).
  • Enhanced business intelligence driven by network data and information. In other words, what sets a network-based solution provider apart from a traditional software vendor is their ability to leverage the vast quantities of data flowing through their network to provide customers with timely insights and intelligence that they otherwise couldn’t get (for a transportation example, see “The Missing Link in Transportation Business Intelligence”).
  • More acquisitions and partnerships in this area as other traditional software vendors face the reality that software alone is not enough. Oracle, for example, has a partnership with E2open. Will this lead to an acquisition? What actions, if anything, will JDA Software, Manhattan Associates, RedPrairie, and other leaders in the supply chain and logistics software market take?
  • A few savvy 3PLs wake up to the great opportunity before them. Simply put, many 3PLs already have large networks of manufacturers, retailers, carriers, and other trading partners already in place, with access to vast quantities of valuable data and knowledge. Unfortunately, many of them lack the technology or talent to exploit this opportunity. But 3PLs that can quickly put the pieces together have the potential to emerge as leaders in this area.

Finally, software vendors are defining “cloud” in so many different ways that it has become virtually meaningless to me. Personally, I prefer the term “network-based solutions” to describe supply chain and logistics software applications that are delivered via a large network of connected trading partners. Having a server and app reside “in the cloud” somewhere outside your four walls is not the real game changer here; it’s having the ability to gain deeper and richer supply chain business intelligence by mining the data from thousands of companies flowing through a common network, business intelligence that is impossible to obtain in a traditional, stand-alone deployment.

Editor’s note: For related commentary, please read the following postings:

SAP, Descartes, HighJump, LeanLogistics, JDA Software, Manhattan Associates, Oracle, and RedPrairie are ARC clients and/or Logistics Viewpoints sponsors.