Ariba: After the GulpBy Baselinemag | Posted 2006-01-14 Print
Ariba is stronger after a difficult merger with erstwhile rival FreeMarkets, say customers. But was it late to the hosted services party?
Over the past two years, according to customers, Ariba had a rough time ingesting FreeMarkets, formerly a bitter rival in the online sourcing market. But now that the combined company's indigestion is subsiding, they say, Ariba has become stronger.
The merger was hard because the two companies had very different cultures and business models, says Jim Polak, director of general purchasing at paint, glass and chemical manufacturer PPG Industries. FreeMarkets offered hosted services, while Ariba was a traditional software company. Since then, in Polak's view, Ariba "has absolutely done the things we needed them to do." For example, he says, the company tightly integrated the pieces of software from FreeMarkets and four smaller spend-management firms Ariba recently acquired.
John Zagata, Cendant's director of e-procurement, says combining Ariba and FreeMarkets "wasn't quick, but it was a natural fit," because Ariba gained expertise in helping customers buy a wide range of commodity products, like office supplies.
Lou Unkeless, Ariba's chief marketing officer, calls the FreeMarkets merger "a very significant process," and says ultimately "the vast majority of the people in the company" saw that the two complemented each other and had only a 6% overlap in customers.
Meanwhile, Ariba is still drenched in red ink. It posted a $349.6 million net loss on sales of $323.0 million for the fiscal year ended Sept. 30, 2005. Even without special chargesincluding $247.8 million related to acquisitionsAriba was $11.5 million in the hole for the fiscal year.
Unkeless points out that Ariba has no debt and maintains a stable of large customers, including American Express and Exxon Mobil. And, he says, the company's growth will come from a broader base of customers: In November 2005, Ariba launched hosted spend-management services geared to small and midsize businesses. "All our efforts are about driving [our products] to the mass market," he says.
But Ariba took longer than some rivals to tap growing demand for hosted services and should have diversified its offerings sooner, says Sarmento Silva, director of purchasing systems at pharmaceutical company AstraZeneca, which uses Ariba's procurement and sourcing software in the U.S. "To me as a customer," he says, "if you're looking at the financial viability of a supplier, eventually they're going to have to find new markets."
ARIBA OPERATING RESULTS*
Impairment charge; 2003fy results include $113.5m amortization charge
Total assets - $590.64M
Stockholders' equity - $329.53M
Cash and equivalents - $60.91M
Short-term investments - $50.52M
Long-term debt - None
Shares outstanding - 63.66M
Market value, 1/5 - $550.31M
** as of sept. 30, 2005, except as noted
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