Tuesday, March 5, 2013

Ariba vs Alibaba

The article from this week introduced us a company called Ariba, which plays the leading role in B2B business. I cannot be more familiar with the B2B concept because in China, “online marketplace” has already become normal in our daily use. China has one of the biggest B2B service provider Alibaba, as well as the its subsidiary, maybe the biggest C2C service provider, Taobao. Both as the leaders in the B2B business and competitor with each other, how can the article miss Alibaba? The truth is, although they both playing around in the same business, they apply different business model.

According to the research by Yeoman Technology Group, there are several hundred different B2B and supply chain systems active today. The B2B market represents over $230 billion in US sales. Yeoman segments the Internet B2B channel four general categories[1]:
Closed Systems:
These systems are generally buyer-driven and tightly integrate with the customer’s Internet supply chain or ERP systems. Most also has a ‘bidding’ and catalog, letting customers put jobs out to a pre-qualified community. Customers all pay a fee to use the system.
Open Systems:
These systems allow free or low cost access for buyers and sellers, positioning themselves as a B2B or industrial marketplace. They generally have significantly more users than closed systems, but lower overall deal sizes.
Bid/RFP Systems:
This group focuses primarily on providing listing and/or basic management services for bid and request posting. They tend to focus solely on the posting and listing of requests, stopping short of the management capabilities offered by closed and open systems. Many offer tracking and aggregation services as well.
Basic Listing Systems:
This group only provides basic listing and directory services for different business segments. They have little direct impact on sales, but should be watched given their history strength. Their paper directories were the standard for most industrial purchasing departments and they still average 1 million unique visitors per month for their online directory.

According to this definition, Ariba is a typical example of closed system while Alibaba is an open system. If we judge from the customer size, ariba is much smaller than Alibaba. However, because Ariba members have to pay a fee to use it, the quality and sustainability of Ariba is assured. In contrast, Alibaba is more like a supermarket. It provides a great variety of products but the quality is uneven.

The difference is mainly caused by the platforms. Ariba is founded before the dot-com bubble, in the form of local windows application. It requires its customers’ installment and maintenance. Alibaba is the web-based, which makes it effortless for users to share their information. Compared to Alibaba, Ariba has advantages when considering benefits and risks to the firm. A local SRM application like could integrate with other TMF like ERP. It can also ensure firms’ information security since the information is under firms’ own control.

As the customer size of Ariba become bigger, it become more valuable. In this May, SAP buys Ariba for $4.3 billion[2]. After the acquisition, the two companies say the acquisition will enable retailers and others to more easily discover suppliers and share product and transaction data through the Internet. This move will increase the chips of SAP when competing with Oracle. We see years ago the software industry evolved into three major groups of supply chain processes. Now these sub-processes is starting to merge to provide customers a consistent and efficient experience.

Interestingly, when last year rumors say Alibaba Group would acquire Yahoo, an article commented Alibaba should acquire Ariba[3]. The customer base alibaba will help Ariba to monetize its value. The fact is, Alibaba is not interesting in providing software services to certain customers. It keeps its process as a platform provider. Now it has expanded its business to B2C by releasing the new website TMall.

These two great companies may miss the chance to merge into a marvelous B2B service provider. However, their different paths create more possibility of shaping the supply chain network with technology. We will see which one bring more value to our customers. Maybe one day, they will meet each other again.


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