Mark Perera

In wrapping Spend Matters observations on Ariba’s latest quarter, there are a few points from the earnings report and conference call still worth exploring in more detail. The first is centered on Ariba’s “land and expand” revenue growth strategy, especially in the downstream (i.e., P2P) area. On the call, Bob Calderoni remarked that “we continue to add downstream customers at a healthy clip, and this is key because downstream deals are the solutions that ultimately drive future network volume [emphasis added]. This is another reason we’re very excited about the Network Business, and our long-term expectation[s for it].” Reading between the lines of this statement is not difficult. Ariba is likely to be aggressive in P2P pricing in order to win customer business and profit from the high margin network fees — and potentially other revenue streams — associated with transaction and dollar volumes down the road. Sound like a Gillette razor blade or Nespresso strategy (i.e., under price the initial solution to make industry leading margins on the back-end)? You bet.