B2B fails the ASP test in Australia

The hosting B2B procurement platforms in an application service provider (ASP) environment is a risk channel companies may want to reconsider, with a wealth of evidence suggesting the model doesn't work.

Electronic procurement platform vendors, such as Ariba, Commerce One and Oracle, have long touted the hosting of their procurement solutions as a "window of opportunity" for channel companies, but with expensive hosting licence fees and a market unsure about B2B benefits, the window may have already closed.

The failed materialisation of a recent agreement between prominent integrator Com Tech and B2B vendor Ariba is an example of where the model has been far from successful. Late last year, Com Tech agreed to host and sell Ariba eProcurement solutions and act as a consultant for B2B-related ventures. But only months into the joint venture, the plug was pulled.

Com Tech's Merle Singer said the decision to axe the Ariba partnership was decided last year, "due to the market conditions". However, Lloyd Vogelman, the man heading up the project, provided a clearer explanation for the split.

"We couldn't raise the substantial capital needed to buy the ASP licence," he said. "We needed a massive amount of money." Vogelman has since left Com Tech and joined Nasdaq executive recruitment firm Heidrich and Struggles.

Allan Smith, CEO of Ariba Australia, refused to speculate on the reason for the Com Tech fallout but hastened to add that the original agreement was made before his time at Ariba.

Martin Fisk, executive director of local procurement vendor Streamlink, said he is not surprised by the saga and believes it is proof that US vendors are charging Australian customers too much for software.

"If you needed $10 million for a licence when Ariba first started here, you probably need 20 per cent more now just to account for the sinking dollar," Fisk said. "How could Com Tech justify that cost back to their customers?"

Such problems have not discouraged software vendor Oracle from considering similar hosting arrangements with partners. John Pearson, who will head up the Oracle B2B strategy in Australia, said the vendor is currently developing a channel strategy involving the hosting of the Oracle Exchange platform. Pearson admits however that B2B implementations have been fraught with problems, mainly due to a misunderstanding of what such solutions should be used to achieve.

"I think people are starting to question the value of B2B in terms of procurement," he said. "Most large businesses have negotiated procurement for raw materials, so indirect goods are the only way you can add value. Our theory is that people shouldn't be looking at saving money by screwing sellers, but from collaborative development and the improvement of internal processes such as work flow or compliance to existing contracts."

Smith said there are many examples of where the strategy hasn't worked, but does not believe exorbitant licensing costs are to blame. "License fees are a grey area - but the cost is justified depending on the business model of the customer."

Smith was unable to provide customer reference sites where hosting agreements, like the venture with Com Tech, have proved successful. Instead he points out that companies like Orica and NRMA have been very successful in using the Ariba solution themselves.

"We are working with four customers hosting the Ariba platform," he said. "But this is an incredibly competitive market. We need momentum of customers before we can start going public with who they are. The ASP model is naturally behind our direct reference sites in terms of roll-out."

Oracle's Pearson agrees. "Its early days for these businesses. So customers choose not to be referenced, they want to get the engineering right before they go out beating their chests."Photograph: Martin Fisk, Streamlink executive director