“. . . this white paper will focus on the onerous costing structure of “traditional” enterprise software vendors like Ariba, SAP and Oracle, and their consistently high implementation failure rates, as two of the primary reasons for their pending migration to the SaaS world.
In the process, I will present the findings that support my belief that the migration of these tier one vendors may actually signify a step into a Covisint-type oblivion, as they are now operating within the domain of original SaaS players like Source One. A domain within which the latter is both well-versed and “technologically seasoned.”
Publication notes from the “Riding the Crest of a Wave: How the Original SaaS Companies Have Gained the Upper Hand” White Paper
The April 9, 2009 Purchasing.com headline read “Oracle launches sourcing software on demand.” The primary reason presented by Oracle’s vice president for supply chain management Nagaraj Srinivasan, is that “the current economic climate puts the spotlight on the CPO.” And that in addition to having to “reduce supply costs,” and “better understand the financial viability of key suppliers,” in an effort to better determine potential “risk in the supply chain,” Srinivasan concluded that “CPOs are faced with pressures to cut discretionary spending.”
If you were to take these statements at face value, one might conclude that Oracle is simply responding to changing market demands based solely on an empathetic response to the challenges CPOs face in these troubling economic times.
However, and as outlined in great detail in the recent Procurement Insights Knowledge Leadership white paper (Riding the Crest of the Wave), the introduction of an on-demand program from Oracle has been a long time coming.
McCain – Obama Presidential Debate
As John McCain’s attempts to delay the first debate with Barack Obama in September 2008 under the auspices of the pending financial crisis were generally viewed as a delay tactic versus being a sincere response to a difficult situation – let’s face it, financial institution meltdowns weren’t exactly going to help the McCain cause, Oracle’s timing in terms of introducing the on-demand model for their Sourcing and Sourcing Optimization software is equally opportunistic. Especially since such a move was both necessary and inevitable.
Even putting aside for the moment the reference to a November 14th, 2005 eWeek article in my August 2007 post titled “The Ariba Interviews: Re-engineering the Future of On-Demand?” in which Renee Boucher Ferguson reported that “software companies from Microsoft Corp. to SAP AG and Oracle Corp. were also embracing the on-demand model at that time,” the truth of the matter is that the traditional licensing model, and the enterprise software around which it is structured is no longer a viable platform. And given the consistently high rate of supply chain initiative failures – at least 85 percent fall short of savings expectations, usually at the expense of millions and in some cases tens of millions of dollars – the migration of tier one vendors like Oracle, SAP and Ariba to the on-demand world should come as no surprise to anyone.
In fact, in my March 4th, 2009 post titled “There’s a slow, slow train comin’ up around the bend: Epilog for the Ariba Interviews,” I cited a March 2nd, 2009 article from the Procurement Leaders Executive Network that heralded Ariba’s transition to the SaaS or on-demand world under the headline “Ariba is in demand claims finance chief.” (Note: On the April 16th PI Window on Business broadcast I will be interviewing Ariba’s Chief Marketing Officer, Tim Minahan about the vendor’s recent on-demand transformation, followed by an interview with CFO Ahmed Rubaie on May 7th. Use the following link to access the PI Window on Business main page for show details: http://www.blogtalkradio.com/Jon-Hansen)
This is the inevitable action to which I had referred relating to Ariba’s, Oracle’s and likely SAP’s (who at the 2007 Sapphire Conference introduced a $10K trial license for their strategic sourcing model) introduction of an on-demand solution. The only issue faced by these traditional model players is how to make the change without negatively impacting their more lucrative licensing revenue stream.
More Important Questions
In the previously referenced 2007 Ariba post I had posed what I thought were the most important questions to the vendor, who at the time had just announced an on-demand contract win with Horizon Blue Cross Blue Shield of New Jersey. Specifically, “what was the driving force behind Ariba’s original decision to as they put it, re-engineer their software to adapt to the on-demand or SaaS world,” and “was there a concern that the new business model would cannibalize their traditional business rather than expand their market share into new areas?” “In short” I had asked, “how will customers (and prospective customers) respond to the strategy in the long run?”
At the time, they did not provide an answer, nor did they follow-up with one within the promised few weeks. It was not until the March 2nd, 2009 article (nearly two year’s later) that an answer was received in the form of their CFOs headline declaration of being “in demand.”
While there has been no real clear explanation for the move to an on-demand model beyond CEO Robert Calderoni’s 2007 statement that Ariba is “now putting powerful spend management results within the reach of every company, regardless of size,” one cannot help but wonder if there are other more significant reasons behind the move that are not appearing in the company’s press releases. For example, could staggering losses (between 2001 and 2005, Ariba lost $3 billion on $1 billion in sales) coupled with assertions by industry pundits such as Mike Ouellette from Canadian Business On-line whose article “ERP: Small fish, big sea” identified “hosted ERP and SaaS as a potential competitive advantage for smaller ERP providers,” precipitated Ariba’s decision to become the first tier one vendor to make the move to on-demand?
Certainly both Oracle’s and SAP’s financial performance has historically been much stronger than Ariba’s. However, this may have actually worked against the two giants in that making the transition from an expressed internal interest to the introduction of an actual SaaS solution requires a considerable deftness in terms of balancing or managing relationships with existing licensing model clients. Clients I would add, who may be inclined to ask the question; “why are we still paying sizable licensing and maintenance fees when it is becoming increasingly obvious that emerging and more powerful applications are available under the newer model.”
Let’s face it, and despite Srinivasan’s reference to the current economic crisis, the spotlight under which CPOs are operating relative to reducing supply costs, assessing and managing supply chain risks, improving cash flow and reducing discretionary spending is nothing new. You merely have to refer to any and all vendor marketing material to see that these have been long standing objectives for any organization’s supply practice.
Certainly, challenging financial times magnify their importance, but driving “more efficiency into the strategic sourcing process” is why organization’s have collectively paid (and burnt through) tens of hundreds of millions of dollars with vendors like Oracle and SAP. I mean, what were these companies trying to do before the most recent financial downturn?
As alluded to earlier, and similar to McCain’s attempts to delay the debate until he had a chance to try and demonstrate that he could “fix things,” and thus be better positioned to address the “unpleasant” grilling of a disillusioned American public, Oracle similarly seized the opportunity afforded through a struggling economy to introduce their on-demand solution in the best possible light. And while it is my humble opinion that this was the only viable option available to the vendor, it nonetheless represents the first step on the slippery slope towards becoming a radically different company. A company whose cost model will ultimately change and with it the likely paring of what will become too sizable a workforce.
Based on the above, and if I worked for Oracle, I would start sending out my resumes in short order before the competitive landscape becomes too cluttered with fellow employees.
Tomorrow Part 2: Oracle launches sourcing software on-demand: Why market adaptability may ultimately derail the transition
If you have an opinion on Oracle’s move to an on-demand model take the Procurement Insights/PI Window on Business Poll on LinkedIn (Can Ariba (and now Oracle) successfully transition to an On-Demand Model?).
In the meantime, please join me on the PI Window on Business Blog Talk Radio Show this Thursday between 12:30 and 1:00 PM EDT, as I welcome guest Tim Minahan, Chief Marketing Officer for Ariba to discuss that company’s transformation into an On-Demand solution provider.
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Procurement Insights 
Posted on April 13, 2009
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