Last spring SAP, the big German business software company, agreed to pay $4.3 billion for a company called Ariba, which runs an online marketplace for businesses selling to other businesses. The deal was for a 20 percent premium to Ariba's stock price, and more than six times the usual multiple of earnings for an enterprise software acquisition. For a deal like that to make sense, SAP must have been thinking about ways Ariba could create new strategic businesses for the company.
The deal became final in early October, and the heads of the two companies are starting to state their aim. Ariba, it is hoped, will turn a business marketplaces into a kind of corporate social network. The equivalent of status updates on Facebook will be awareness of goods that are available, the status of payments or of products in transit.
There are, of course, no guarantees this will come true, but it is an interesting idea.
There will be a lot of headline statistics on the way there. “We are committed to being a triple-digit growth business in the cloud,†said William McDermott, SAP's American co-chief executive. “We're up to the challenge.â€
In the third quarter of this year SAP's revenue from cloud computing subscriptions did grow 1,475 percent from a year earlier, to 63 million euros, about $81 million. That was, however, less than 2 percent of SAP's overall revenue, which still relies mostly on old-fashioned software.
Adding Ariba, which had $474 million in revenue in 2011, will certainly bolt a big number on to SAP's cloud revenues, which at least for awhile will look like strong growth. In the long run, however the acquisition has to come up with something substantial to meet Mr. McDermott's commitment.
There is, of course, the benefit to Ariba of being part of a much bigger organization. Purchasing of supplies and services from third parties by the world's 2,000 largest companies, Mr. McDermott said, amounts to about $12 trillion annually. “That isn't limited to SAP†with Ariba, he said (it's not even close), “but we will continue to pursue it.â€
In addition, by hooking the knowledge of what supplies are being purchased to mobile devices and real-time analysis software, two other new businesses for SAP, the opportunity exists to create new products.
Robert Calderoni, the former chief of Ariba and now a member of SAP's managing board who will oversee the business, said the real profit would come from becoming less of a place of mere transactions, and more a global network of vendors and corporate buyers. Both sides will have a high level of awareness about things like product availability and payment status. Ultimately, he said, SAP wants it to be “a community we create,†in which it collects high fees by enabling transactions.
“Our first customer liked our software. Our second customer liked our software, and that it had someone on it,†Mr. Calder oni said. As this builds, he said, Ariba can move from collecting a very modest commission (about 0.06 percent of the transaction) to “hundreds of basis points,†or several percent, by managing awareness and fulfillment, the way Amazon does between consumers and third-party sellers.
The connection to SAP should also help Ariba get to bigger numbers of both buyers and sellers. At present there are about 733,000 vendors on Ariba, and growing by 1,000 companies a week, according to Mr. Calderoni.
If SAP does acquire a truly large volume of cloud transactions, it could even end up in a kind of content business, offering industries, financial traders and government economic insight into buying and logistics. “It becomes a predictive tool,†Mr. McDermott said.
For now, the acquisition may seem like more consolidation in the cloud, which has been lead over the past year by SAP, Oracle, and Salesforce.com. That may be interesting from a financial or evolut ionary perspective. The real value is in making something altogether new. That is probably several triple-digit years away.
