Ariba CEO Says B2B Hype Over, Now
Back to Basics
By Siobhan Kennedy
NEW YORK (Reuters) - The new CEO of Ariba Inc.
(NasdaqNM:ARBA - news) said on Tuesday it was time for the
business-to-business software company to put the early, heady days of
B2B e-commerce behind it and get back to basics.
``The message you're getting here is we're going to focus on our roots
and on our basics,'' Chief Executive Larry Mueller said during a press
conference on day one of Ariba's LIVE 2001 user conference in Las
Vegas.
Mueller, who was named CEO on Monday, said the days of ``B2B
aerobics'', ``Where we move the numbers up and to the right, up and to
the right,'' were over.
``Many of us bought into this over the past two years ... and in tech, where the expectations were
especially high, the reset has been especially painful,'' Mueller said.
Since the end of September, when the B2B bubble began to burst, Ariba's stock has lost about 95
percent of its value, significantly underperforming its peers in the Standard & Poor's software index,
which is itself down 27 percent over the same period.
Shares in Ariba, whose software brings buyers and suppliers together in online exchanges over the
Web, closed up $1.24, or more than 16.4 percent, to $8.97 on the Nasdaq.
Back To Basics
The ``basics'' Mueller was referring to is Ariba's so-called ''indirect procurement'' software, that lets
companies buy basic products and services online. Ariba already owns around 35 percent of that
market, Mueller said. ``But we have a terrific opportunity to expand that.''
But indirect procurement only accounts for about 20 percent of a company's total spending. The
remainder goes on direct goods, or the raw materials that businesses need to build their products.
That was the reason Ariba wanted to buy Agile Software Inc., which has software that lets buyers and
suppliers collaborate over the Web. But pressure from the slowing U.S. economy, coupled with
Ariba's ever-decreasing share price, forced the company to scrap the deal last month.
For that reason, analysts attending the conference in Las Vegas were expecting to hear how Ariba
intended to build out that Agile-style software, either on its own, or with partners.
But many were disappointed.
``Given Agile, given the write-off of its marketplace software, where specifically is Ariba going? There
was no real content there,'' said Mark Verbeck, an analyst with Epoch Partners.
Brent Thill, an analyst with Credit Suisse First Boston, agreed: ``There was nothing new so far,'' he
said.
``The core component of Ariba's software for the second half of this year was built on Agile, and now
Agile's over, they have to explain Plan B,'' Thill said.
But as Tuesday's press conference continued, it became clear that there was no Plan B.
``The merger's off,'' Mueller said, referring to the deal with Agile. ``We have no intention to go into
manufacturing collaboration, and no intention to go into design collaboration.''
Crunch Point
The CEO's comments come at a critical time for Ariba, as the once high-flying B2B software vendor
struggles to get back on its feet.
Last month, Ariba posted a loss before charges of $48.3 million, or 20 cents per share, for its fiscal
second quarter ended March 31, instead of the small profit Wall Street was expecting.
At the same time it cut a third of its work force and scrapped its merger with Agile, a deal that was
considered key to its future.
Gathered in Las Vegas for its user conference, Ariba executives were trying their best to put things
straight.
Mueller said Ariba's No. 1 priority would be its customers.
``Along the way for Ariba, there have been many fans and they made a lot of noise,'' Mueller said,
taking a swipe at the hundreds of dot-com firms and start ups which bought Ariba's software and who
have since gone out of business.
Ariba got carried away and was distracted by the hype those dot-coms created, Mueller admitted.
``But I am not distracted now,'' he said.
But analysts said that will be a tough call, especially given the competition Ariba faces, including from
software giants Oracle Corp. (NasdaqNM:ORCL - news), SAP AG (SAPG-p.DE) (NYSE:SAP -
news), i2 Technologies Inc. (NasdaqNM:ITWO - news) and Commerce One Inc.
(NasdaqNM:CMRC - news).
Lost Focus
But not every analyst was downbeat. Bruce Richardson, an analyst with industry research firm AMR
Research in Boston, said Ariba still had a massive opportunity in the indirect procurement space.
``I think the smartest thing they're doing is recognizing there's real value in the e-procurement space,''
Richardson said.
``They're having to back-track and go back to basics because they lost focus and forgot how strategic
their own indirect procurement software was.''
Richardson cited the example of pharmaceutical company Bristol Myers Squibb, whom he said was
saving between $400 million and $600 million a year using Ariba's software to buy its goods over the
Web.
``Every company in the Fortune 1000 or 2000 could use a system like this,'' Richardson said.
Richardson said companies like i2 and Commerce One rushed into direct purchasing software because
they thought that was where the big money was.
``That's true, but it's also the part that's going to be the hardest to do,'' he said.
CSFB's Thill said he also thought Ariba had a chance, but that success wouldn't come overnight.
``This is not a story where we're going to see it spike back up next quarter,'' Thill said. ``But the
market it's addressing is still in its infancy, so I think they have time. |
