Interview mit Ariba CEO Keith Krach vom 19.10.2000 - 500 Beiträge pro Seite

[SteffenP]

Wat mut dat mut!

Der Fairniss halber räume ich dem nach Zahlen zur Zeit erfolgreichsten B2B CEO ebenfalls ein entsprechendes Forum ein. Vielleicht sollte man diese Interview mal im Zusammenhang mit dem von M.Hoffman vom 23.09.2000 und einem (sehr wahrscheinlich) noch folgenden von M.Hoffman betrachten:



Business-to-business (B2B) services company Ariba (Nasdaq: ARBA) last night became the first Internet B2B company to report a breakeven quarter. The company, which has received a lot of attention from our Rule Breaker Portfolio team, is one of the early leaders in the sector. Paul Commins (TMF Buster) sat down with CEO Keith Krach last night after the company`s after-hours earnings report.

TMF: Congratulations on another strong quarter and thanks for the opportunity to talk about it. Can I just launch into some questions for you?

Keith Krach: Go for it.

TMF: Today`s results, as you guys said in the conference call, continue the pattern of execution and financial strength that has been the key to your early lead. Positive cash flow from deferred revenue, first to break even on earnings, and highly valued stock price all give you a big advantage when it comes to future growth. Looking forward, can you give us any short-term or long-term perspective on how you might wield this advantage?

Krach: Well, I think the number one thing is to invest it back into the customer. I showed a chart at our last company meeting where I said that everything starts with customer satisfaction. That leads to customer loyalty. That leads to our acceleration in market share. That leads to our growth in revenue. That leads to these 12 quarters in a row of positive cash flow. That also leads to a high capitalization. And then we`re coming back and we`re re-investing that back in the customer.

But I really believe that its does start with that customer. It all drives from there. It`s really important that we have the whole company aligned on that. I really think that`s the key thing. We`re stepping on the gas in every one of our key areas, whether it`s sales, product development, building infrastructure and all that. And then, you know, we also made a strategic decision to grow more than just organically. We`ve done the three acquisitions in the past.

Ninety percent of what we`re going to do will be in a partnering environment. We see literally hundreds -- perhaps even thousands -- of commerce services.
TMF: Yeah, that`s the interesting thing to me. You`ve done the big three acquisitions, but, increasingly, you`re looking more toward partnerships. Looking at the merger and acquisition front, obviously, you can`t give me any specifics, but I`ll try to summarize what I think you`re saying and you can tell me if it`s fair. Any future mergers and acquisitions you do would be aligned toward providing more of the commerce services that your customers are demanding. Is that fair?

Krach: Yeah, exactly. But I also think that, in that area, 90% of what we`re gonna do will be in a partnering environment. We see literally hundreds -- perhaps even thousands -- of commerce services. It really became clear to me at our user conference down in Miami. This big ecosystem, this big Ariba economy, in terms of all these different partners, all these commerce service providers, all these suppliers, all these integrators, the ASPs, this is really what is driving the momentum of our business.

TMF: It reminds me of some reading I`ve done on Microsoft (Nasdaq: MSFT) where much of their success has come from a focus on partnering to create a large Microsoft-based value chain. They may pick up, you know, only 4% of it, but because the value chain has become so huge, this turns out to be a lot of money.

Krach: Absolutely. We kind of call it the net gravity pull. The more partners you have, it creates a denser mass, creates a stronger gravitation.

TMF: I was struck by your comment during the conference call that you want to make the Ariba platform the "operating system for B2B." In this context, how important are the UDDI [universal description, discovery, and integration] standards that came out recently? I guess this is really two questions: One, is this really the big story for the quarter? And, two, what`s the competitive environment here. I assume Commerce One (Nasdaq: CMRC), Oracle (Nasdaq: ORCL), etc. are pushing their own, alternative standards?

Krach: Well, the beauty is that UDII turbo-charges the entire industry. Now, we`re driving this standard, along with IBM (NYSE: IBM) and Microsoft, but Commerce One, SAP (NYSE: SAP), Andersen Consulting, Intel (Nasdaq: INTC), Dell (Nasdaq: DELL), WebMethods (Nasdaq: WEBM), everybody have endorsed it. Actually, the only one that hasn`t is Oracle. We asked them if they wanted to do that, but nobody there seemed to be able to make a decision. They couldn`t get ahold of Larry Ellison in time.

TMF: Maybe it`s an odd comparison, but I`m still thinking Microsoft and the way they became the standard operating system for PCs in the way that you`re trying to become the standard platform for B2B. Clearly, Microsoft proved that the technical side isn`t everything, but, turning to the technical side for a moment, I read in various places that you`re having trouble integrating two of your acquisitions, TradeMatrix and Trading Dynamics. Is this still a thorny issue?

Krach: No, not really. We`re doing very well in terms of the integration and having one common platform. I think that it`s given us a big advantage out there. That`s why were accelerating our market share growth in terms of the marketplaces. Trading Dynamics is proving to be totally undisputed in terms of world-class technology from an auction standpoint. I think our technology advantage is a big advantage in terms of building this network effect, this ecosystem. But, we bring more, now, than just technology to our customers. We`re bringing all these suppliers, all these commerce service providers. That`s a big part of the equation now.

I think we`re out-executing [Commerce One] in the marketplace segment.


TMF: Turning to network revenues, I think this topic is the source of much confusion in our community. This quarter you increased these from $16 million to $20 million, sequentially. In listening to last quarter`s conference call, my takeaway was that the bulk of these came from revenue-sharing agreements with commerce services providers, especially American Express (NYSE: AXP) and VeriSign (Nasdaq: VRSN) for secure payments and Descartes for logistics. That was really the dominant piece.

Krach: Right, and a big part of it is also from subscription to the overall network, as well.

TMF: These don`t go under "license revenue," they go under "network revenue"?

Krach: Yes.

TMF: Is anybody else stepping up besides the three I just mentioned? Any of the escrow or leasing partners? Anything beyond payment and shipping starting to look like the next big area in commerce services revenue sharing?

Krach: We`re seeing some things in the sourcing area that are pretty significant. We`re also seeing some things in terms of design collaboration and 3-D visualization, but those are just beginning. We`re just at the tip of the iceberg on this stuff.

TMF: That design collaboration stuff, is that coming mostly through i2 Technologies (Nasdaq: ITWO), or are you selling your own application software for this?

Krach: Well, no, it`s really a combination of partners: clearly i2, clearly MatrixOne (Nasdaq: MONE), Alventa, Agile (Nasdaq: AGIL) -- there are a whole bunch of them.

TMF: But it`s fair to say that, for this quarter, secure payment systems and logistics were the big driver for this quarter`s $20 million in commerce services revenue?

Krach: Yeah, primarily.

TMF: Now I have kind of a dumb-guy question for you. A lot of our community is confused by "sourcing" and I haven`t been able to help much. Can you explain exactly what "sourcing" means and how it is that you make money from providing this service?

Krach: Sourcing is if a buyer wants to buy some particular good or service -- and it can be very specific from a commodity standpoint -- not only would sourcing help bring lots of suppliers to that buyer, but also, most importantly, it would automate the request for quote or proposal (RFQ/RFP) process across the Internet. Makes it very efficient. This lends itself very well to reverse auctions.

For example, I was down at Bristol-Myers (NYSE: BMY) a few weeks ago. You know they were one of our early customers. I think they`ve been deployed for, like, 30,000 seats. They used the sourcing solution that we provide to actually buy a major injection molding machine that traditionally would cost them -- I could have these numbers wrong but they`re in the ballpark -- $1.4 million and they were able to get it for roughly $800,000. They were really impressed by the savings they got because they used that reverse auction technology.

TMF: A final piece of network revenues is transaction fees, in the simplest sense. I think that this is what a lot of people think of when they read about network revenues -- sales commissions. Are these important to your model, or are they really a small piece relative to the vision of value-added commerce services?

Krach: Well, what we don`t do is we don`t charge suppliers for just the normal transaction. One of the reasons is because we don`t think we provide a lot of value there, because buyers and suppliers have been doing business for, you know, many, many years. There`s gotta be a real value added there whether it is in the logistics or payment or sourcing or collaboration area. Now, if we bring a new buyer to a supplier, we have some agreements along those lines, but that`s a small piece of it.

Also from many of these marketplaces, we get a percentage of what that top-level spend is and that`s how we get compensated. And that`s just beginning now, as these marketplaces are beginning to come live, to pick up volume.

TMF: That leads to the next question. Turning to license revenues, I`ve noticed in some of your SEC documents that you charge for server capacity licenses. I`m trying to understand how these work. For Ariba Buyer, anyway, it seems like these licenses are based on how many transactions the customer, um...

Krach: Right, it`s actually officially the number of line items, capacity.

TMF: Is this software licensing model unique to Ariba? I guess here`s how I see it and you can tell me if I`m on target: It builds some transaction fees into license revenue, regardless of whether you actually generate any marketplace fees or not, if people are plugging into marketplaces through Ariba Buyer. Is that unique to you? Is it a key competitive advantage?

Krach: I think it`s fairly unique. Where it came from was from one of our early customer advisory councils where we asked our customers and prospective customers how should we price the product. And, one thing that was clear. They said: "We want this on everybody`s desktop, number one, so don`t base it on number of seats or anything like that. It`s gotta be a value-based price." So that a VISA, which is smaller than a Federal Express (NYSE: FDX), can get it for a lower price. So the surrogate that these guys recommended was the number of line-items of transactions on an annual basis. And that`s proved to be a very successful model for us.

TMF: In a sense, it gives you almost a commission fee, really, if you think about it from a marketplace standpoint.

Krach: But they pay it up front.

TMF: But if they go over a certain level...

Krach: Yeah, then they come back and buy more capacity.

TMF: I`ve got one last big one for you. Probably the biggest topic of B2B conversation in our community is the big Ariba versus Commerce One battle. Many people characterize it as software sales, Ariba, versus commission revenue from marketplace ownership, Commerce One. But it`s not clear to me that this is really the case. Can you help us understand in plain English, without all the B2B jargon, what the key differences are between the two companies` revenue models?

Krach: Well, I think we`re out-executing them in the marketplace segment. For our marketplace customers, we get a percentage of revenues just like they do. So the question is who can get marketplaces up and running and who can win the most customers, and that`s where we`re really winning, because we`ve really accelerated our market share.

You look at a lot of their early customers like MCI WorldCom (Nasdaq: WCOM) -- I think one of their first customers and an equity investor in Commerce One -- they have totally standardized and rolled out on Ariba now. Same with Sabre (NYSE: TSG). Same with Pfizer (NYSE: PFE). So, I think it really boils down to that execution side. That`s why we`re winning.

TMF: So all the emphasis on differences in the revenue models is probably an over-emphasis? It`s more a question of execution?

Krach: Yeah. Well, one of the things that they`re trying to do is charge suppliers for transactions, and that`s going over like a lead balloon. That hinders liquidity.

TMF: Thanks for your time. I really appreciate the chance to talk.

Krach: Paul, my pleasure. All the best.


Ich hoffe auf rege Beteiligung sei es Interpretation, Zustimmung oder Anerkennung der von K.Krach getätigten Äußerungen!

Gruß Steffen

[SteffenP]

Is Ariba Executing?

Yesterday`s earnings release from Ariba extends a recent pattern of strength in execution and sustains its position as the most compelling business model among business-to-business e-commerce enablers. The raw numbers, though, don`t do much to validate this vision as a concrete success. This is particularly true of the lack of growth in Network Revenues. Everything still looks to be on track, but the last coffin nail has not been driven.

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By Paul Commins (TMF Buster)
October 19, 2000

One of our Break Down August finalists, business-to-business Internet marketplace enabler Ariba (Nasdaq: ARBA), announced earnings yesterday afternoon for the quarter ending September 30th. As this company remains on our Breaker radar screen, let`s see what these results tell us about Ariba`s progress. To further illuminate the unfolding B2B drama, I`ll splice in some comments from our phone interview yesterday with Ariba CEO Keith Krach.

When we wrote about Ariba in August, it had just come off of a blowout quarter in which they had shocked the world by more than doubling total revenues, sequentially, to reach just over $80 million for the quarter. Yesterday`s announcement shows just a 67% jump to $135 million for this most recent quarter. I guess most people only get to shock the world once or twice, if they`re lucky.

In the enterprise software world, it`s hard to make much sense of quarterly jumps in software licensing revenue, due to seasonality in corporate purchasing decisions. But when it comes to the other big piece of Ariba`s business -- revenues derived from live e-market commerce -- we may be able to learn something. More specifically they should tell us something about the growth in use of Ariba e-marketplaces.

So let`s break Ariba`s revenue down into traditional software revenue versus revenue derived from marketplace business (all values in millions of dollars):

Quarter end: 9/30 6/30 3/31
Software 115 65 34
Marketplace 20 16 6
Total 135 81 40

So, after growing 150% last quarter, from $6 to $16 million, marketplace revenues grew only 24% this quarter, to $20 million. This strikes me as not so hot. Certainly, this is a number to keep a close eye on in future quarters. It`s way too early for this flavor of revenue growth to slow down to this degree, if Ariba is to make good on its huge market capitalization.

In our interview, Keith Krach says that the bulk of these Marketplace Revenues are still coming from revenue-sharing agreements with secure payment and logistics providers, but that he sees virtually unlimited growth possibilities on the horizon:
Buster: Any future mergers and acquisitions you do would be aligned towards providing more of the commerce services that your customers are demanding. Is that fair?

Krach: Yeah, exactly. But I also think that, in that area, 90% of what we`re gonna do will be in a partnering environment. We see literally hundreds, perhaps even thousands of commerce services. It really became clear to me at our user conference down in Miami. This big eco-system, this big Ariba economy, in terms of all these different partners, all these commerce service providers, all these suppliers, all these integrators, the ASPs, this is really what is driving the momentum of our business.
Krach also mentions, in the interview, multi-company collaboration on product design and sourcing as two future commerce services offerings that are just starting to get hot. The collaboration piece will, in part, be supplied by strong partner i2 Technologies (Nasdaq: ITWO). Although i2 and Ariba compete in the market platform space, their relationship on the collaboration services front is complimentary, and fits nicely with Ariba`s vision of providing commerce services via partnership.

To explain the other emerging addition to Ariba`s commerce services banquet, sourcing, here`s some detail from the interview:
Buster: Can you explain exactly what "sourcing" means and how it is that you make money from providing this service?

Krach: Sourcing is if a buyer wants to buy some particular good or service -- and it can be very specific from a commodity standpoint -- not only would sourcing help bring lots of suppliers to that buyer, but also, most importantly, it would automate the request for quote or proposal (RFQ/RFP) process across the Internet. Makes it very efficient. This lends itself very well to reverse auctions.

For example, I was down at Bristol Meyers a few weeks ago. You know they were one of our early customers. I think they`ve been deployed for, like, 30,000 seats. They used the sourcing solution that we provide to actually buy a major injection molding machine which traditionally would cost them -- I could have these numbers wrong but they`re in the ballpark -- $1.4 million and they were able to get it for roughly $800,000. They were really impressed by the savings they got because they used that reverse auction technology.
From this sourcing example, it`s clear that Ariba intends to cut in on the essential business of more focused business-to-business auction providers like FreeMarkets (Nasdaq: FMKT). And, in this case the added service was achieved largely through acquisition (of SupplierMarket.com) as opposed to through partnership, showing Ariba still has some carnivore left in it.

On the whole, though, Ariba does seem to be distinguishing itself from Commerce One (Nasdaq: CMRC) one by staying relatively autonomous, and just positioning itself as the hub in a huge ring of partners and customers -- from buyers to sellers, from commerce service providers to systems integrators. Commerce One, on the other hand, has a bulkier model, which goes for more control, themselves, of the software, systems consulting, and integration pie, with the potential consequence that the overall pie won`t grow as much.

In yesterday`s conference call with analysts, Ariba`s COO Larry Mueller gave his own take on the competition, in general, and on Commerce One`s recent joint software development effort with back-office enterprise software king SAP (NYSE: SAP):
Larry Mueller: Well, we`ve actually seen a decrease (in visibility) from Oracle (Nasdaq: ORCL), and, it`s interesting, the SAP/Commerce One relationship has really been one that developed from a foundation of weakness. So you take some of the weaknesses that SAP had in delivering any kind of network and the weakness Commerce One had in delivering any type of real functional buyer application and they formed a joint relationship and we don`t really see exactly where that`s going. And when we get involved with customer situations, they are really quite confused by it themselves and a good example is some of the very significant wins we`ve had in very strong SAP accounts in back office ERP. We continue to win those deals quite aggressively.
Reading between the lines, it sounds like Mueller is claiming that customers prefer to look for the best marketplace provider for marketplace applications, the best ERP vendor for back-office applications, and to let a third-party integrator make the connections. This would match his claim that Oracle is declining as a threat, since pre-integrated, end-to-end, one-stop shopping is the hallmark of Oracle`s e-business strategy.

If Mueller is right, Ariba`s early strength in execution could turn into long-term dominance of the business-to-business commerce arena via the role of dominant trading hub. Krach even said, in yesterday`s conference call, that he wants to make Ariba`s platform the "operating system of business-to-business e-commerce," stoking Microsoft comparisons.

Of course, Commerce One, which announces earnings today, has its own hub, its Global Trading Web, and its own ideas about which strategy will dominate in the long run. On balance, I`d say yesterday`s Ariba report continues to offer the most compelling vision, but that the reported revenue from commerce services does not yet confirm the tangible success of this vision.

Let us hear your thoughts on the Ariba discussion board.