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No need to reinvent the wheel-Part Two

Happy 2012.

In this second part of my post I will address other points that make the experience of B2B solution providers so relevant to those financial institutions involved in developing global transaction services on platforms. The examples come from the history of Ariba, a company that had the vision to use the Internet to enable companies to facilitate and improve B2B procurement processes.

In 2006 Ariba decided it was time to approach to a lower tier marketplace made of mid and small-size companies. Technology innovation enabled the shift thanks to the introduction of the SaaS (software as a service) delivery model. I believe this was one of the most important strategic decisions taken by the company. For two major reasons: First, it takes quite some internal change management discipline for a company used to a more traditional and lucrative license and maintenance-based fee structure to accept the initial negative impact on revenues of a “pay-per-use” model (such as SaaS).
Second, the change is also required on the client’s side, where the move to use remote software applications normally kept “behind the firewall” is not as easy as imagined.

Another key decision came when Ariba completely re-engineered its product suite in line with the new SaaS model. As one of the company executives told me, “Ariba did SaaS from the ground-up”. Can you believe the cultural impact such a decision has within any organization? Basically, that’s like deciding to invest time and resources in something that can potentially destroy your business.

SaaS implies not only the possibility to just pay for the time the software is used. Its mechanism is based on a solid internet-based communications infrastructure and applications. These characteristics are founded on the concept that the network is the engine of commerce, which has always been Ariba’s real vision since day one and an incredible added value to all its propositions.

To my memory, the concept of the Ariba Network has always existed since the first time I met the company in 2000 (and in those days it was sitting on a market cap of almost $40 billion). At that time it was called the Ariba Supplier Network (ASN). The Ariba Network is a trading community that registered members use to discover, connect, and collaborate with a population of more than 340,000 global businesses. It’s supported by a technology platform that runs e-procurement, e-invoicing, and working capital management.
Ariba’s engine allows to find new sources (i.e., goods to purchase), new suppliers, new buyers, and, more importantly, new services (e.g., IT consulting). Ariba Exchange (another service launched in 2009) enables suppliers and buyers to collaborate by asking questions, posting comments, and running an equivalent of what can be considered a social network for B2B commerce.

No need to reinvent the wheel: The community is the real value of any platform-based offering. On-boarding must be made easy (i.e., lower the entry barriers) and value added services (e.g. search and matching engines; analytic tools; research reports; private room chat) keep members loyal (i.e., raise the exit barriers).

The evolution of the Ariba Network community concept has today evolved into Ariba’s new value proposition: the “Commerce Cloud”.  The Commerce Cloud is intended to support companies in what they do.
This, very simply, comprises three basic activities:

  • Buying;
  • Selling; and
  • Managing cash.

When corporations perform these activities they need applications, services, and best practices to manage purchase orders, invoices, payments, remittances, discounts, receivables and payables financing.
Companies do not operate in a vacuum. They are part of a trade exchange community.
The community functions well if supported by an adequate technology infrastructure that continuously evolves and adapts to the needs of the community members.

I find that the Commerce Cloud materializes three key elements of a company’s strategy:

  • The vision that to cover your client’s needs you must provide capabilities to support its business processes;
  • The vision that the network is the real commerce engine; and
  • The vision that technology is a powerful source of inspiration and an enabler of any business change.

No need to reinvent the wheel: The three key points just mentioned above.

I am fully aware that, at this point, I must bring my instinctive analyst passion for new models and innovative technologies back to a more rigorous business perspective. That is, to answer the blunt question whether any business can be made out of all this. The B2B company whose history of choices and decisions I borrowed all the way long tells us something also in this context. Ariba’s revenue model is basically established on three main revenue streams:

  • Volume-based: A share of the spending volumes exchanged within the system;
  • Transactions-based: A fee per each electronic document (e.g., invoice) exchanged on the system; and
  • Project-based: A consulting fee to implement/adapt new capabilities when requested.

 No need to reinvent the wheel:Ditto.


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