Procurement transformation is usually about incrementalism. For a function that’s fairly conservative — and stands to lose more by making individual mistakes than it stands to gain from individual successes — this is a reasonable approach. But sometimes step changes happen fast. And sometimes, it happens with suppliers to procurement organizations, too.
The rapid rise of Amazon Business has been one of these changes, whether that’s perceived as good or bad. But for SAP Ariba customers, another one on the same order of magnitude in the past 12 months has been the adoption of suppliers transacting with free accounts. Pardon the frankness, but Ariba used to get a lot of, well, stuff that you step on when walking the streets of Paris without looking down for a network-based business that charged suppliers for connectivity (included along with a bunch of other things, mind you).
We dished out some of this ourselves. And we’ve covered this topic extensively.
Many of the these past screams and criticisms from smaller suppliers (and analysts) were justified. Smaller suppliers, including those transacting infrequently but receiving higher dollar value POs and sending large invoices, were the ones that yelled the most (rightly so), especially in cases where they did not want to use the Ariba Network to connect to other buying organizations or as a tool to market themselves.
But SAP Ariba finally listened, introducing what it described as Light Enablement in 2016, a first step down the “free path” for suppliers. Light enablement would eventually give way to Light Accounts, which added additional features, and Ariba continues to build out capabilities each quarter.
Light Enablement was a rapid success in terms of adoption. As of March this year, at SAP Ariba LIVE, Alex Atzberger reported that 33,000 suppliers had transacted $18 billion in spend with light enablement, and that 15% of Light Enablement customers had upgraded to paid versions of the network. Fast-forward less than a year to November 2017, when SAP Ariba told Spend Matters that now 75,000 suppliers have adopted “free” accounts (now “Light Accounts”) and that freely transacting suppliers have now opened up $9 trillion in overall PO spend volume.
Even if we pair that number down massively on an invoice level (as most PO dollars will not result in actual invoices being raised against them in a short time horizon), it is still a sizeable number, one we’d conservatively estimate at somewhere in the neighborhood of a $50 billion invoice run rate, as of Q4, and accelerating at a triple-figure annualized growth rate. (The open PO dollar volume gives us some forward-looking indication invoice volume to come).
To put that in perspective, Coupa reported in its latest investor presentation (November 2017) that it processed $267 billion in spend in the trailing 12 months. SAP Ariba’s own overall trailing network numbers are roughly $1.75 trillion range, based on its latest reports.
We caution that one should take all of these reported numbers with a grain of salt, as there are no apples-to-apples comparative definitions of what constitutes commerce or network volume between providers. And EDI-based networks trump all these numbers by an order of magnitude still (although SAP Ariba is already in the early stages of going after this market with a new cXML, network-based approach targeting the high tech and CPG supply chains initially, which it introduced earlier this year).
Moreover, some providers have, well, exaggerated volume in the past.
But in looking at the evolution of the Ariba Network, one thing is abundantly clear: tens of thousands of SAP Ariba suppliers are voting individually whether or not they want to pay fees for value-added services as paid members (or not). And they’re doing so in increasing numbers.
In addition, note that while the user count roughly doubled over the last six months, the spend volume has gone up roughly 500 times. Obviously there has been some pent up demand to transact some large spend POs (including direct spend and mega CapEx spend) that were historically kept off of the old supplier network pricing plan that can now come over, even if those POs need to be “fat fingered” into the system.
But back to what matters. Two years ago, suppliers had no vote on fees or no fees. Now they do.
That’s no excuse for the past when suppliers had no choice on the Ariba Network, but it’s massive progress.
The future of the SAP Ariba Network and the connectivity models of its competitors — including how comparing different networks and platform offerings requires peeling multiple layers of the connectivity and enablement onion — is a topic that we’ll continue to explore as 2018 draws to a close.
But for now, we’ll raise our first glass of eggnog of the year (the vegan kind for Jason) to Atzberger and the SAP Ariba team for not only doing the right thing by introducing a free network option but for doing so in a meaningful and sustainable way.
With the growth and numbers to back it up.