SAP to Strengthen Cloud Portfolio With Ariba Acquisition

G00235705

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Summary

SAP’s plan to acquire Ariba is a positive development for both companies. The deal will strengthen SAP’s cloud and procurement portfolios and give Ariba needed resources, but leave SAP with redundant product lines.

News Analysis

Event

On 22 May 2012, SAP announced an agreement to acquire Ariba, a provider of cloud-delivered business-to-business network services and enterprise procurement applications, for $4.3 billion. SAP expects to maintain Ariba as a subsidiary with its own sales force, and has committed to keep the Ariba Network open for use with non-SAP environments. SAP plans to add Ariba CEO Bob Calderoni to the SAP Global Managing Board with responsibility for all SAP cloud supplier solutions. The transaction is expected to close in 3Q12.

Analysis

This planned acquisition confirms Gartner's view that SAP is committed to protecting its core ERP business by acquiring successful software-as-a-service (SaaS) offerings to extend it. This strategy reduces the threat of SAP being seen as providing system-of-record products while clients turn to specialty providers for differentiation and innovation. Moreover, the deal will create the largest procurement solution vendor by far, and put SAP at the forefront of multienterprise process and integration enablement with a global network in the early stages of formation. Gartner believes shared networks like the Ariba Network will evolve significantly during the next five years, to enable business partners to expand online collaboration across a broadening range of activities in a highly scalable way. SAP clients will benefit immediately from the deal through access to Supplier Discovery, Ariba's online directory of suppliers.

The deal comes at a pivotal time for Ariba, giving it additional resources to compete. The company recorded 62% organic network growth in 2011, but its application business has struggled with a fragmented market and falling prices.

The deal faces challenges, however. Ariba solutions are used to source all types of goods and services, but the Ariba Network and the procure-to-pay solution are deployed primarily to support indirect spending. Ariba has focused on building out its network, so several of its products are no longer industry-leading in areas such as ease of use. SAP will need to convince customers to use the Ariba Network to get a return on its investment. Ariba will also give SAP a new, but small, foothold in the small-to-midsize-business buyer market.

SAP will end up with an extensive portfolio with many duplicate applications. Although the Ariba solution portfolio will not be tightly integrated with SAP's offerings anytime soon, this is not a significant issue. SAP has built its procurement portfolio through internal development and acquisition, but it has sold well despite being loosely integrated. It will likely take SAP two years to organize its portfolio offerings, tie in Crossgate and refocus its relationships with business network partners such as Hubwoo. Gartner believes SAP will likely maintain its in-house and Ariba application portfolios indefinitely as separate product lines.

Recommendations

  • Current SAP procurement solution customers and current Ariba customers: Recognize that it will take a significant period of time (likely two years) for SAP to develop and implement plans for these product lines. Demand a minimum of 18 months' written notice of product retirement, and push for a portfolio road map. Continue with investments.

  • Current and prospective Ariba and SAP procurement solution clients: Insert language into agreements to protect from being switched over or rebundled to less functional solutions and to ensure that negotiated contract terms do not materially diminish on renewal. Evaluate investments on the basis of current functionality until a clear road map has been published.

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© 2012 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartners research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

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