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Chapter 53

ARIBA:
A Successful Story in E-Commerce

Zhongxian Wang
Montclair State University, USA

Ruiliang Yan
Indiana University Northwest, USA

James Yao
Montclair State University, USA

INTRODUCTION

Ariba, Inc. was born during the dot-com bubble, a
star amid countless other e-commerce companies.
In the universe of corporations, many bright me-
teors, like Commerce One, didn’t shine too long.
However, the interesting evolution of Ariba, from
a pioneer to a sufferer to a survivor, has taught us
much about survival in the competitive business to
business (B2B) software industry. Ariba’s software
would help many companies save money on their
procurements, and control expenses besides payroll.
Ariba promised to help companies improve their
bottom line. Many of Ariba’s clients today hold

positions on the coveted Fortune 100 list. Going
public in 1999, Ariba’s stock price at one time
reached $259 per share. At the time, Ariba was
still getting their feet wet; they had not yet made a
profit. The next year their stock reached $168.75,
but a negative turn in the economy lay ahead. Many
companies began to cut back on investments and in
just 9 months Ariba lost 95% of their value. This
would be disastrous to any company, and would be
the downfall of most, but Ariba made some critical
key decisions that helped continue its leadership in
the B2B world. They are one of the few companies
to not only survive the burst of the dot-com bubble,
and to this day to remain a successful company.

ABSTRACT

Ariba services major corporations, and provides services to smaller companies as well. In this chapter,
the authors will examine how Ariba, a small startup company during the Internet boom of the 90’s was
able to overcome hardships, survive market and industry downturns, and continue to thrive and survive
in such a competitive industry. The authors will also review major events and innovations that helped
the company to grow and succeed rather than to fail.

DOI: 10.4018/978-1-61520-611-7.ch053

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BACKGROUND

E-commerce was in many ways revolutionized by
Ariba Inc, a leading independent company in the
sphere of B2B commerce network providers. The
company has been evolving constantly, in coop-
eration with leading companies in the industry, in
order to deliver E-commerce platform products
to its customers/clients. Its value chain model has
been able to develop business relationships further
than anticipated, the results of which made it a
top 40 Fortune 500 company.

Ariba has overcome many obstacles, including
lawsuits, changing customer requirements, and
organizational restructuring, however still man-
aged to remain a leader in its specific niche area.
They have done so by delivering solutions and
services that meet customers’ expectations, and
have been able to cope with intense competition
by keeping up with today’s technologies as well
as developing solutions for tomorrow. Ariba was
founded in Sunnyvale CA, in September 1996, by
seven men, the most influential individual being
Steven Krach. Krach’s early career accomplish-
ments included being one of the youngest vice
presidents General Motors (Ariba, 2008). Having
struggled with the procurement process in his time
there; it became a precursor and impetus for the
birth of Ariba. Krach and his associates brain-
stormed and came up with the idea of automating
the purchasing of common supplies and services.
This is a seemingly simple idea, but one with a
huge demand and potential.

After three months of intensive research, which
included meeting with 60 Fortune 500 companies,
Ariba had a prototype developed and ready for
their initial marketing campaign. Having signed
software licensing deals with Cisco Systems, Ad-
vanced Micro Devices and Octel Communications,
prior to software completion, the pieces were put
into place for the launch of their product. Among
the early competitors to Ariba were Commerce
One, Oracle, I2, and PeopleSoft, Inc.

The objective was to become a powerhouse

company with the means and resources to provide
procurement software and network consulting
services, enabling corporations to manage their
spending more effectively. This included essen-
tially all non payroll expenses associated with
running a business. Ariba offered their clients
real-time data by providing information over
the Internet. These applications were used in
conjunction with the Ariba Supplier Network to
purchase goods and services. Ariba is customer
driven, and offered full support, including tech-
nical support, implementation, training, and
consulting. E-payment and service agreements
were made with American Express and Bank of
America. All of these were considered large and
bold undertakings for a young startup company at
that time. In June of 1999, Ariba went public at a
modest $23 per share, however traded as high as
$259 per share at times later that year (Schneider,
C. M Bruton, 2008; Haksoz and Seshadri, 2007).
A stunning success for a three year old company
which had yet to turn a profit, it benefited from
being a “first mover” in the business. However,
other Internet start-up companies were beginning
to offer similar software and services. Over time,
smaller companies began emerging with websites
that provided a place to manage procurement, some
with lower costs and fees. Facing challenges in
the market, Ariba began to be faced with difficult
challenges and had to make major decisions in
order to stay in business.

Ariba finally saw a profit of $10 million in
December of 2000, which also included the
completion of three acquisitions. Soon after, in
2001, the economy began to weaken in a downward
spiral and Ariba’s stock plummeted 95%, making
a business overhaul necessary. Ariba decided to
take drastic cost-cutting measures, cutting about
a third of their staff. Because of their specialized
and niche product line, their business was able to
continue and survive the setbacks faced by other
Internet software companies. Krach resigned as
CEO in 2001, but stayed on chairman and ap-
pointed a CEO that would later cost the company

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much money and negative publicity. The bursting
of the dot-com “bubble” marked the beginning of
a relatively mild yet rather lengthy early 2000s
recession (Marshall, 2001; Sahay, 2007). In time,
Ariba, along with the rest of the B2B business
community ran into two big problems. First, the
brick-and-mortar Old Economy was stable and
could adjust more readily to economic downturns.
Secondly, companies were interested in saving
transaction fees by using alternate means of such
as word processors instead of using costly B2B
networks. However, they were less interested in
cutting their savings in terms of transaction fees
(Cerquides, López-Sánchez, Reyes-Moro, &
Rodríguez-Aguilar, 2007).

Still, Ariba persisted and would once again
regain its position as a leader in the B2B procure-
ment industry. The firm made adjustments where
necessary to still deliver the goods to their clients,
without sacrificing their own bottom line. Accord-
ing to the current CEO, Bob Calderoni, Ariba is
well positioned in the spend management market
and will continue to grow in the current tough
global economy.

The following sections explore the internal
(adaptations to a competitive environment, acquire
to advance, consulting adds value, emphasis on
the customer) and external (severe competition,
high-priced software, regulator’s investigation,
unhappy customers) factors that affect the com-
pany’s struggles and challenges.

INTERNAL FACTORS

Adaptations to a Competitive
Environment

At the height of the e-procurement frenzy, two
companies dominated the B2B space: Com-
merce One and Ariba. With the near-collapse
of the original B2B procurement model, both
companies sought new niches. Commerce One
moved towards web services in an attempt to

seek viable markets. Ariba, meanwhile, empha-
sized enterprise spending management (Kinsey,
2004). Ariba strongly believed that a software
firm’s role is to be a software tool provider. As
the B2B world divided into industry sponsored
exchanges and independent marketplaces, Ariba
avoided involvement in managing its customers’
exchanges. Conversely, Commerce One believed
that software makers had to do more than simply
provide software tools. They had formed strategic
partnerships with its customers and helped man-
age their online marketplaces (Anderson, Opie,
& Watton, 2003; Bannan, 2008). It also directed
its customers towards an international trading net-
work in order to build critical mass and facilitate
e-commerce between them.

As a new CEO, Calderoni monitored the ex-
ternal environment, where a fundamental shift in
the marketplace existed, and responded promptly
to adjust the company’s product offering. He
believed that B2B e-business had a direct and
indirect impact on all functional areas, and those
linkages with a company’s supply chain system
was critical. In effect, Ariba was changing its
focus from e-procurement, to offering products
that can increase customer satisfaction by solving
a variety of “spend-related” problems faced by
corporations (Tadeschi, 2008).

With the concept of division of labor as a
microeconomic view, Calderoni added a purchas-
ing system, general ledger, and field system into
Ariba’s line of products. The added features in
the company’s products were favored by Ariba’s
existing customers in the auto, chemical, and
manufacturing industries due to the ease of sys-
tem comparability. The need to transfer data from
legacy systems enabled these customers to remove
outdated and inaccurate data from their systems
and which also helped to improve relationships
with their customers.

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ARIBA

Acquire to Advance

According to Krach, a major component of Ariba’s
business model is partnering followed by organic
growth and acquisition, and so the company con-
tinues to follow this basic approach to help ensure
the firm’s success. Ariba acquired companies that
had the technology and resources they needed to
survive, instead of taking the time to develop them
in-house. By acquiring Agile Software, a leading
provider of Internet-based B2B communication
technology, Ariba was able to add collaboration
capability to its services, allowing its customers
to communicate and coordinate product supply,
design, and other specialized electronic-commerce
functions. Mr. Calderoni implemented an ag-
gressive acquisition strategy that significantly
expanded Ariba’s technology offerings and ser-
vice capabilities, and positioned the company as
a recognized leader in its market. One goal was
to secure top Fortune 10 companies and Global
500 companies as customers.

In 2004, Ariba acquired Alliente Inc. and
FreeMarkets Inc. to link their spend management
software with its existing capacities as a B2B
procurement hub. The acquisition of FreeMarkets
increased Ariba’s offerings by providing global
supply management software and services. This
acquisition also positioned Ariba as a serious con-
tender in the automotive industry, adding General
Motors Corp., Daimler-Chrysler AG and Ford
Motor Co. to their customer base. By acquiring
Alliente, Ariba expanded its spend management
and procurement capabilities to include a procure-
ment out-sourcing provider (Hosford, 2007).

In December 2007, Ariba announced that it
had completed the acquisition of Procuri, Inc. a
privately held provider of on-demand supply man-
agement solutions, rounding out Ariba’s offerings
that help companies automate the procurement
process. According to Ariba CEO Bob Calderoni,
more than 70% of Procuri’s 300 customers have
under $5 billion in revenues. As a result, this

deal also gave Ariba greater access to midmarket
customers (Anonymous, 2007).

Consulting Adds Value

Calderoni believed that Ariba has survived by
expanding beyond software that focused mainly
on transactions, to encompassing additional facets
of the buying process. Calderoni hired hundreds
of consultants to advise companies on how to
buy goods and services cheaply, using Ariba’s
software. Although consulting is less profitable
than selling software, Calderoni predicted he can
successfully combine the two as an integrated
set of offerings. While consultants coach Ariba’s
clients on how to use the software effectively,
Ariba’s clients can also reply on Internet-based
purchasing systems to help them buy direct materi-
als that are core to their company’s manufacturing
processes.

In order to extend Ariba’s consulting services,
which in 2004 accounted for nearly half of the
company’s $323 million in sales, Ariba made
consultants available via email and phone for a
fraction of the price that is charged to the larger
companies who require dedicated consultants
through in site visits.

Emphasis on the Customer

In 2001, investors were looking for a change in
leadership at Ariba after the firm missed revenue
and earnings projections by a wide margin. Ariba
moved Keith Krach out of the CEO position, filling
the post with the company’s President and COO,
Larry Mueller. Mueller entered the position with a
new strategy: to halt the company’s current plans
to enter new markets, and instead opting to add
new features, including electronic payment and
invoicing, to its existing e-procurement and auc-
tion applications. Mueller heightened the focus
on improving e-procurement applications by mak-
ing heavy investments in existing e-procurement

545

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and sourcing platforms; and building technology
around the key interactions that enterprises have
with trading partners.

Mueller remained focused on bolstering
Ariba’s role as a traditional B2B transaction
platform. Ariba announced plans to invest heavily
in its Ariba Commerce Services Network and its
network-centric applications, including Network
Connect, which allowed non-Ariba customers to
come into the Ariba services network and conduct
business or procure services. The company also
organized its development, sales, and marketing
staff to focus on specific industries. Accord-
ing to Mueller, “Customer ROI is the focus.”
A focus on international expansion has boosted
revenue from outside the US from 10% in the
third quarter 2000 to 25% in the same period for
2001 (Purdum, 2007). Ariba is trying to rebuild
its fortunes as public marketplaces that use its
technology are struggling – some economists feel
this is due to the fact the industry just isn’t ready
for e-commerce.

Since joining the company in 2000, new (and
current) chairman and CEO of Ariba, Mr. Calde-
roni has successfully transformed Ariba from a
narrowly focused e-procurement vendor to a com-
prehensive spend management solutions provider
that companies of all sizes rely on to transform
the way they do business globally. Under Mr.
Calderoni’s leadership, Ariba has led the way in
developing and delivering innovative solutions
that combine technology, commodity expertise and
services to help companies streamline the procure-
ment process and drive bottom-line results.

EXTERNAL FACTORS

Severe Competition

Simply being a dot-com business survivor, how-
ever, would not ensure its continued existence
and profitability, and Ariba was at risk of losing
business to the likes of other competitors such

as SAP and Oracle. SAP, a German enterprise
resource planning software maker, joined this
market and signed on with Hewlett-Packard for a
product called mySAP.com e-business solutions.
In addition, it built a marketplace for chemical
and pharmaceutical firms by educating them
on mySAP.com, and with the result of install-
ing a large SAP user base among Fortune 500
companies.

Nevertheless, Oracle had already anticipated
a shift in the market and made plans to capital-
ize on it. Right now, the procurement sector is
dominated by leading software companies Ariba
and Commerce One. But as the slowdown in the
U.S economy continues, Oracle is hoping the
opportunity for companies like Ariba will start
to shrink as users look to more established ones,
like Oracle, for an all around e-commerce package
(Arora, Greenwald, Kannan, Karthik, & Krishnan,
2007). Ariba had in fact provided Oracle with an
opportunity to gain market share when it cut a third
of its workforce and announced reduced earnings
during economic recent downturns.

Ariba recognized that to remain competitive,
it had to address the problem of hidden costs as-
sociated with the products they sell, in addition to
the price they charge for the software itself within
the supply chain, especially when the product was
in the later stage of its cycle. When a company
does not paying attention to the hidden costs of
new software implementation, it can creep up and
well-intentioned efforts can be result in the form
of financial penalties (Angeles & Nath, 2007;
Brown, 2008).

By August 2008, the market for supply chain
management (SCM) software market has grown.
Worldwide spending on SCM solutions reached $6
billion in 2007, which was up 17.6% from 2006.
SCM Technologies are well-positioned to address
the economic realities facing worldwide markets
where costs are skyrocketing while competition
and customer demands are intensifying (Eschinger,
2008). A number of the SCM solution vendors are
merging, and expanding their capabilities within

546

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the realm of supply chain technologies. In com-
parison, Ariba’s 2007 revenue was $160.3 million,
which significantly trailed behind Oracle and SAP,
who reported $955.2 million and $1,334.4 million
in revenue, respectively, showing that the threat
of these products cutting into Ariba’s bottom line
is a real one (Orme & Etzkorn, 2007).

High-Priced Software

Without a doubt, e-procurement is rising substan-
tially among the nation’s largest 500 companies.
Well-financed corporations are willing to invest in
Internet software and technology that can reduce
the inefficiency associated with the purchasing
and buying processes. The use of this software
can help companies to track spending and make
sure they purchase products in accordance with
contracts they have negotiated with suppliers. In
fact, businesses that spend billions each year on
supplies can often save tens of millions in costs
by implementing such technology. However, it’s
only the large firms that can devote the time and
money to installing such systems, which frequently
required that suppliers link to such systems as
well. Since the software is generally expensive
and can be complicated to install on the customer’s
system, for small- and medium-sized businesses
facing an uncertain economy, investments of this
magnitude are can be difficult to justify.

Ariba took advantage of this situation, and in
2005 announced a strategy to sell its software and
services to smaller companies on an on-demand
basis, so they can buy supplies more efficiently
online, as well. Ariba reshaped its software system
so its customers can plug into Ariba’s software
through the Internet instead of installing it on their
own systems. One major benefit of this approach,
Mr. Calderoni said, is that Ariba can sell software
to procurement managers and others in charge
of spending, without involving the company’s
information technology staff.

Regulator’s Investigation

In early 2003, Ariba became under investigation by
the Security and Exchange Commissions (SEC).
The reason for the investigation was linked to
Ariba’s accounting errors, doubtful partner deals,
and questionable e-payments items including
chartered airplanes. Among the specific allega-
tions were that Ariba failed to record a $10 million
payment from chairman Keith Krach to former
chief executive Larry Mueller as an expense. The
restatements are unusual because the chairman —
not the company — covered the expense (Lau and
Wang, 2007). Then three weeks later, Ariba had
decided to do the same for $1.2 million in char-
tered jet services that was considered as Krach’s
compensation to Mueller, who subsequently left
Ariba in July 2001. The problem is that United
States laws and regulations require that payments
by a principal holder to executives be treated as
expenses paid on behalf of the company.

In addition, Ariba reported an additional $7.5
million to its expenses. In 2000, Ariba acquired
TradingDynamic Inc., Tradex Technologies Inc.,
and SupplierMarket.com, and it reclassified stock
options, or goodwill, that it gave to employees of
these accompanies as a compensation expense. So
by combining all of these expenses, the results were
18.7 million of added expenses. Ariba was aware
that the regulator had begun an informal inquiry
into its accounting practices after the firm said it
would restate its earnings for 10 quarters.

Unhappy Customers

Ariba was subject to bad publicity after sending out
automated emails to mid-size suppliers announc-
ing their accounts had been upgraded to Premier
level status. The email listed premier supplier
benefits as well. However, the email also informed
them that as a Premier Member, they were now
required to pay associated annual fees. Many of
the small and mid-size companies viewed this as
a marketing ploy and felt they should not all of a

547

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sudden pay fees associated with their membership
(Eschinger, 2008).

FUTURE RESEARCH DIRECTIONS

A number of the challenges Ariba faced from its
start to the present time allowed them to evolve
over time. Ariba has been able to face these chal-
lenges head on and continue to be the leading B2B
software provider for the past 11 years. During
the collapse of the dot-com era Ariba suffered a
blow economically, as did others in the industry,
and in effect had reduced the company’s size by
half (Lau and Wang, 2007), as did everyone else.
However, they were able to build upon their core
competencies and maintain key personnel, man-
aging knowledge that formed the basis of their
competitive advantage.

They were also able to stay ahead of the com-
petition through strategic mergers which enhanced
their products and services. These mergers should
be credited to its CEOs, Presidents, and Board of
Directors. Ariba would continue to enhance its
products with the availability of constant upgrades
and varieties of new products.

With incredible technology growth and its
global demand, came the opportunity for Ariba
to expand and acquire a more precise goal and
target. Ariba has painted a vision of a world in
which spend management would be affordable and
available to all types of companies, and released
an initial set of integrated, on-demand solutions
designed to make this happen (Purdum, 2007).
In keeping this promise, Ariba would make on-
demand products and subscription-based purchas-
ing software and services available to meet the
needs of those mid-market customers not wanting
to make huge upfront investments. This strategy
of meeting the needs of various types of clients
was in some way risky, but Ariba has thrived
on making strategic, yet controversial decisions
throughout the years. Having gone through ups
and downs during the years, they still managed to

regain a leadership position even though markets
and needs have evolved and changed. Overall, they
have been able to provide customers with superb
services and innovative products, and reliability
is what keeps old customers, and helps to bring
in new customers.

There is never a guarantee of success in
business. Successful companies also must be
surrounded by a committed and devoted manage-
ment team, supported by well-trained employees.
Are these together a recipe for success? We may
never know for sure, but taking advice from a
company which has been successful since its start,
weathered some very tough times, and was able
to survive and stay above the rest before seeking
out the next realm of opportunity, is certainly an
approach that appears to be sound.

CONCLUSION

Ariba achieved recognition for its Supplier Net-
work, an e-business center where millions of
buyers and suppliers can electronically transact
business online, with the goal of more efficient
procurement. In addition, Ariba developed spend
management software, and is taking the network
mainstream. Ariba’s application-driven strategy
of an open platform, hosted and implemented by
partners with vertical-market domain expertise,
has helped to secure them a dominant position in
the B2B e-commerce application marketplace.

It is interesting to note that while many firms
who came up around the time of Ariba and offered
competing solutions, Ariba is one of the few that
has survived and thrived, using continually new
strategies to stay in business, providing a better
customer experience, and utilizing advances in
technology and ideas that no other companies
dared to try. Ariba has been, and remained a
pioneer and a leader in an exceedingly competi-
tive and changing marketplace. Due to increased
globalization and deregulation, for a company to
succeed, it must have leverage over the impact of

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competitive forces. Ariba has done a great job in
setting themselves apart from their competitors
by strategically aligning themselves with their
partners, and also expanding its service offerings
to a wider range of customers. Ariba’s software
offerings help companies focus on profitability,
and together with its wide array of service op-
tions, are customizable for both larger and smaller
companies. The firm’s products are concrete and
customizable, depending on a client’s needs. In
addition, the product offerings are offered on
a common platform, allowing information to
travel accurately and quickly through the supply
chain.

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KEY TERMS AND DEFINITIONS

Acquisitions: Acquiring control of a corpora-
tion, called a target, by stock purchase or exchange,
either hostile or friendly.

Business to Business (B2B): The exchange
of products, services, or information between
businesses.

E-Commerce (electronic commerce or EC):
The buying and selling of goods and services on
the Internet.

E-Payments (online payments, Electronic
Payments, Internet Payments, Web Payments,
and e Payment): An electronic payment made
via a web browser for goods and services using
credit or debit cards.

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E-Procurement: A system utilizing Internet
technology to streamline the purchases of goods
and products to reduce costs.

Supplier Network: It works with a network
of screened and qualified small-scale producers
and committed medium-sized suppliers.

Supply Chain Management (SCM): The
process of strategically managing flows of goods,
services and knowledge, along with relationships
within and among organizations, to realize greater
economic value.