Business spend management suites, including SAP Ariba and Coupa software, offer marketplaces with App-Store like functionality. This is a well-trodden route, with Salesforce probably the most famous example to successfully do this in the B2B software space.
From the outside, it appears to be a bid by SAP Ariba, Coupa and other legacy Procure-to-Pay and Source-to-Contract suites to maintain their relevance. Maintaining their moat and preventing customers from defecting to more agile offerings on the market is a smart move.
By introducing marketplaces to their ecosystem, the big, legacy players have tacitly acknowledged that the game has changed. It’s no longer possible to manage all your digital procurement requirements in one, end-to-end suite.
Will this move enable them to grow, or at least help them to build a moat around their products and existing customers? Or, will further accelerate the move to best-of-breed or point solutions as an alternative to the traditional suite model.
Let’s take a closer look.
Can marketplaces become SAP Ariba and Coupa’s superpower?
Many Fortune 500 companies are running one of the above solutions, or perhaps a direct competitor product such as Ivalua, Jaggaer or GEP.
The cost of change is high, as is the risk of switching to another provider. Once a large, enterprise company chooses an enterprise business spend management software provider, they are unlikely to switch for several years, or even at all.
However, these organisations are also increasingly aware of newer technology entering the market. Often, these new startups offer a better user experience (UX) or a best-in-class solution to a specific problem not comprehensively covered by the legacy suites.
By offering some of these new solutions via a marketplace, it enables the established players to protect their market position while enabling customers to access innovative new technology.
Why have SAP Ariba and Coupa introduced marketplaces?
Around 2017, we started to see an increase in the number of best-of-breed procuretech startups. These companies set out to solve problems that the traditional suites either didn’t do, or didn’t do particularly well.
Third Party Risk Management (TPRM) and Supplier Relationship Management (SRM) software are two examples of categories which were not really covered at that time by the suites.
Contract Lifecycle Management (CLM) software, spend analytics and eSourcing software are all great examples of modules where the suites didn’t – and still don’t – do a particularly good job.
Customers, or prospects, were naturally looking elsewhere as alternative options came onto the market offering a cheaper, more user-friendly option.
When 2020 came around and the pandemic hit, we saw a further explosion in these point-based solutions. As traditional procurement teams struggled to get to grips with distributed teams, these intuitive and easy-to-implement software flourished. The talk was that best-of-breed software was going to destroy the existing suites’ hegemony.
As we now know, it hasn’t happened, although they’ve certainly inflicted some damage onto the old guard.
There are a number of reasons why. Resistance to change and cost or risk of switching provider are not insignificant factors. But the fact is the suites are still here, and thriving. Albeit with a smaller market share.
Through the introduction of their Marketplaces, SAP and Coupa can be the gatekeepers to the procurement tech ecosystem. In the same way as Apple and Google make a lot of money from their app stores, the industry leaders here can do the same. At the same, they can build a moat around their market share and exert a degree of control over the best-of-breed solutions.
How could marketplaces help SAP Ariba and Coupa?
Offering these solutions via a marketplace gives SAP Ariba, Coupa and their other direct competitors the opportunity to open their ecosystem to these new challengers.
Apple and Google take a 30% cut of any revenue generated through apps in their App Store and Play Store. The legacy business spend management suites can also follow a similar business model. By acting as gatekeeper, they ensure that no direct competitors have access to their marketplace.
If a best-of-breed solution in SAP Ariba or Coupa’s marketplace has ambitions to take them on directly, their wings will quickly be snipped.
By offering complementary products, it should provide an enhancement to the overall customer experience. It expands the ecosystem, while also ensuring that the point solutions communicate and integrate seamlessly with the overarching business spend management suite.
Marketplaces should also, in theory, take away an otherwise strong reason for their existing customers to consider moving to a best-of-breed ecosystem.
SAP Ariba, Coupa and their direct competitors in the legacy P2P and S2C software space are clunky and expensive compared to new market entrants. They take a long time to implement and require an extensive, usually costly IT consulting project.
Existing customers are thus unlikely to make a rash decision to move away from them, considering the cost already sunk into implementing the software.
Can marketplaces defend the incumbents’ market share?
The obvious question therefore is whether these marketplaces will help to defend the position of SAP Ariba and Coupa Software against newer market entrants who can offer a more modern platform at a fraction of the cost.
My immediate answer would be “yes” if I look at their existing customer base. These are huge, multinational, enterprise level organisations. They are predominantly further down the road with their digital transformation journey than mid-market companies, or late adopters of digital procurement technology.
The cost of change and disruption, as well as the potential risk, is going to be much higher for these organisations. In that sense, I believe that marketplaces will reduce the chances of an existing Ariba or Coupa customer jumping ship to a more agile competitor.
They can access best-in-class spend analytics or supplier risk management software through a marketplace, to give two examples of where the traditional suites are not as strong. Let’s now consider that they are also able to access other, best-of-breed products such as specialist e-sourcing or contract management software. This changes the game and makes an even-more compelling reason not to move away from the foundational platform powering their procurement tech stack.
One of the gripes often heard about the suites – other than cost and UX – is that they do everything kind of average but nothing best-in-class. Opening up the ecosystem to applications which outperform their own modules is risky, but also potentially a smart way to build a moat around their suites.
What are the alternatives to SAP Ariba and Coupa?
So, I’m pretty bullish that marketplaces will help the suites to retain their existing customer base and discourage them from switching to a direct competitor.
Where I’m not so convinced is for companies at the start of their digital procurement journey.
Is there still a compelling reason for them to buy SAP Ariba, Coupa, or one of their direct competitors in the business spend management space? I would argue here that the answer is “no”.
Beyond their use in large corporations, I don’t see how these legacy software suites can justify their price tag. When we look at what’s in the market nowadays, there are plenty of ways to build an alternative suite of products to service your digital procurement transformation.
Let’s look at three potential strategies:
1. Going full best-of-breed
This is definitely the more nuclear option, and also the riskiest. Opting for a best-of-breed approach of non-modular or unconnected applications, you’re giving yourself the flexibility to choose the best-of-the-best solution for each aspect of your digital procurement requirements.
In theory, most best-of-breed technology will connect with each other through their APIs. However, while each software solution may connect and communicate with the other, this does not guarantee a seamless transfer or a single source of truth for all your data.
Also, many best-of-breed applications are still early-stage startups. Many have not yet achieved sustainable growth and profitability.
Will they all still be here in 5 years’ time?
Probably not.
Although, that being said, Coupa was also loss-making in the fiscal year up to its sale!
2. Newer, modular suite-based products
The lowest risk option is to opt instead for a more modern suite which has not been around for as long as the legacy brands. Many of these solutions also offer a modular, “Lego-based” offering where you can purchase one module and then add to them over time.
Let’s take as an example that you’re keen to start off with accounts payable automation software. Then, over time, you want to build on this success and expand with an intake, e-procurement or sourcing module.
Many of these products are also aimed more at the mid-market or the lower end of the enterprise segment. This is true from a pricing, features, speed of implementation, and also the level of complexity.
Regardless of their marketplace offering, I don’t feel that Coupa and SAP Ariba are competitive in this market segment. Despite their best efforts to gain a foothold here, I suspect that this will be the first battleground they will start to lose.
3. Partnerships and alliances of different point-based solutions
This is an interesting one, and an area I’m really bullish about.
Full disclosure: this is actually part of our business at Procurement Software. I help procuretech startups with their outbound marketing and their partnerships & alliances strategy. I’m deeply convinced that this is their best way to battle the suites and come out on top.
Best-of-breed procurement tech solutions must club together and sell their products as an alliance. By having a joined-up sales strategy and technical consulting to ensure seamless integration, they can offer a serious direct competitor product to SAP Ariba and Coupa software.
I’m thinking here that, for example, an alliance of an eSourcing, procure-to-pay (P2P), data analytics, CLM, SRM, supply chain risk and sustainability reporting solution can offer a full stack alternative. Of course, not every customer will buy every module.
But then, they don’t necessarily buy everything that SAP Ariba and Coupa tries to sell to them either. The difference is with this approach, the customer gets best-in-class procurement tools rather than a jack-of-all trades procurement software suite.
Will marketplaces as a business model win out?
The truth is that nobody knows for sure what the future holds.
My prediction is that SAP Ariba, Coupa and their competitors are certainly not going anywhere. They will still be key players in a few years’ time, albeit perhaps somewhat less relevant.
Their decision to introduce a marketplace model was a very smart move, given the backdrop of more nimble, agile competitors entering the market. I believe this will help them with retention of their existing customer base. It also protects them against well-funded best-of-breed procurement startups who could challenge their position as market leaders.
However, I also think that these marketplaces will not be enough to prevent them from losing market share. This is especially in the mid-market and lower end of the enterprise segment.
The key question for me is to what extent the best-of-breed solutions providers get their heads together to form alliances. If one of two powerful alliances are able to form between tools which are best-in-class, the suites could also be challenged in the enterprise segment where they currently dominate.
