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SAP Business Network faces spirited challengers

SAP paid almost $15 billion for the companies that comprise its SAP Business Network, but analysts think it might not have been money well spent.

SAP spent almost $15 billion to acquire the pieces that comprise its SAP Business Network, but questions remain whether it will reap benefits from the investments.

Ariba, acquired in 2012 for $4.3 billion, provides procurement and spend-management services. Concur, purchased in 2014 for $9 billion, offers travel and expense management, while Fieldglass, a $1 billion purchase that same year, handles temporary and contract workforce management. Earlier this year, SAP knitted these companies together as the SAP Business Network headed by Concur CEO Steve Singh.

However, the company is facing competition from smaller vendors on almost all fronts, and some analysts believe that SAP's reach might exceed its grasp.

"I don't see the value proposition for SAP to pay so much money for these companies," said Duncan Jones , vice president and principle analyst at Forrester Research. "The markets aren't that big and the competition is greater, and we just don't see SAP as being able to expand those companies to get them to where they're worth that much."

One problem the SAP Business Network faces is its revenue model, which relies only on suppliers. SAP intends to make it an Amazon-like, one-stop shop for businesses, but Jones contends that this will only work for the larger enterprises.

While SAP's acquisitions have dramatically improved its appeal and competitiveness in the procurement and sourcing enterprise solutions space, it's far from 'game over.'
Debbie Wilsonresearch vice president, Gartner

"It's fine if you're a big company, but if you're slightly smaller or medium-sized, you're just not culturally comfortable with telling your suppliers what they've got to do," he said. Smaller companies are more likely to instead use a service that is free to their suppliers, he said, and will pay for the privilege of using it to send orders.

SAP Business Network faces extensive competition, according to Debbie Wilson, a research vice president specializing in procurement solutions and strategies at Gartner. "General-purpose procure to pay (P2P) vendors like Coupa, Verian, Proactis, Basware and SciQuest compete on business model, price, suite-level integration, the ability to customize, and local know-how and knowledge" she said via email. "We also see compelling competition from P2P vendors that specialize in particular workstreams, like Tangoe for telecom expense management and jCatalog for MRO [maintenance, repair, and operations] procurement."

Competition fuels innovation

Analysts agree that the competition for the SAP Business Network won't necessarily come from the network side, but in the features that the smaller, more innovative companies can add, particularly in the user experience. Making life easier for employees to do their jobs is critical, Jones said.

"That's an area where Concur is very good, Ariba is less good and SAP is dreadful, so there is a huge opportunity with putting them together [so] that the best bits from all of them come together and they end up creating something that's much more usable and smart and fun than anything SAP has ever produced before," he said. "Meanwhile, some of these small, innovative, more focused companies like Coupa and SciQuest are already doing that and they don't have the overhead of SAP and the political infighting to hold them back. So, at the moment, they're innovating faster than SAP is able to innovate."

The competitors may have a leg up on SAP because they are more in touch with the needs of today's users, according to Pierre Mitchell, chief research officer at Spend Matters, an organization that specializes in procurement and supply chain research.

"This is a perfect example of how people are buying on the app functionality, and in an increasingly consumerized world and mobile world, with a younger workforce, users are not going to have the patience to go through a much more complicated set of streams built around power buyers," Mitchell said. "This is where the newer systems like Coupa and BuyerQuest are great examples of e-procurement that are completely built for the cloud and have a very different user experience."

Coupa goes head to head with the SAP Business Network

One of these challengers, Coupa, is a small but steadily growing firm based in San Mateo, Calif., that provides cloud-based spend management software and services. Coupa received $80 million in funding in June and plans to use the extra resources for sales, marketing, and research and development that will allow it to compete head to head with the SAP Business Network, the company said.

"We are really talking about a new frame of reference when discussing competing with [Fieldglass, Concur and Ariba]," said CEO Rob Bernshteyn. "It's a way of rethinking spend management entirely. We are designed totally for the users' perspective, which is different in terms of network, UI [user interface] and functionality."

Coupa bills its offering as "savings as a service" because it claims to help businesses reduce the cost of buying things through a "frictionless" process. The company reports that its more than 500 corporate customers have saved around $5 billion.

"We began with the end user and asked what was the most frictionless way possible to manage the spend process," Bernshteyn said. "The best UI is no UI at all, and we began with that process. We are able to reach all the employees in the organization and, by getting rid of all the complexity, they experience what it's like to be on an Amazon, for example."

Although Bernshteyn maintains that Coupa is fully integrated with SAP ERP and Oracle, representing about 20% of its customers, it is not necessarily targeting SAP users when going after new business. "About 75% of the new business generated last year was white space; that is, they didn't have a spend management solution in place at all," he said.

The analysts agree that there is plenty of business ahead for all of these vendors to fight over.

"Long term, we anticipate a vibrant market that offers prospective buyers an extensive and meaningful set of choices for P2P solutions," Wilson said. "So, the bottom line is that while SAP's acquisitions have dramatically improved its appeal and competitiveness in the procurement and sourcing enterprise solutions space, it's far from 'game over.'"

SAP's acquisition of those "best of breed" companies should only feed more innovation and competition, according to Mitchell. "Whenever you have a company that gets acquired, you do tend to see the innovation dry up a little bit because a lot of their effort is focused on making sure that this thing integrates with whatever the acquirer has, because that's what the customers are asking for," he said.

"The innovations and all these cool new features tend to slow up a bit, so that fuels the smaller competitors," Mitchell added. "You would think that now there would be massive consolidation in the procurement market's commodity functionality, yet it's as vibrant as ever and there are constantly new upstarts that are coming into the market trying to get critical mass, so there are always going to be choices."

Jones agrees that SAP's acquisition strategy has encouraged competition. "These small innovative vendors either get big like Salesforce and start acting like the big companies, or they get acquired like Ariba and that makes space for new ones coming in on the outside," he said. "Enterprises don't want to be totally dependent on one vendor, so they're always going to buy from independents, but then those independents get acquired and they get replaced by new ones. So, I think there will always be competition to the SAP Business Network concept, and SAP is going to have to work out how it's going to compete rather than carrying on as if it's a monopoly vendor."

Next Steps

Read more about SAP's purchase of Ariba

Get analysis of the Concur acquisition

Learn more about Fieldglass

This was last published in July 2015

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