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THE DAY AHEAD: Ariba is a boring ERP company in disguise

Ariba Inc. (Proposed ticker: ARBA) is mentioned by analysts as one of the "no brainer" IPOs of the week because it is one of those software/Internet infrastructure companies that fare pretty well. If you buy that thinking, you might want to read the regulatory filings.

Granted, Ariba should do well in the market. Morgan Stanley Dean Witter is the lead underwriter for Ariba's just-increased offering of 5 million shares, which are scheduled to price tonight between $20 and $22 a share.

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But once you strip away the "Internet-based business-to-business electronic commerce solutions for operating resources" tagline the company sounds a lot like an electronic resource planning (ERP) company. If it walks like an ERP company, sounds like an ERP company and has all the risks of an ERP company, chances are pretty good it's an ERP company.

Of course not a lot of folks in the press or on Wall Street have thought about this point too much, choosing to go with the vogue "e-commerce solutions provider."

ERP is the boring stuff that enables companies to track expenses, procurement, human resources and other necessary functions. ERP is the playground Oracle Corp. (Nasdaq: ORCL), Peoplesoft (Nasdaq: PSFT) and SAP (NYSE: SAP).

In fact Oracle officials mentioned Ariba on their recent earnings conference call and noted that they do see Ariba in the field. Surprisingly, Oracle didn't badmouth them Ariba either. That fact either means Oracle actually respects Ariba or doesn't see them as a threat yet. Bet on the latter. All of Oracle CEO Larry Ellison's good material is saved for SAP and Peoplesoft.

You would never know that Ariba could be lumped in with the battered ERP stocks because it uses the ORM (operating resources management) as its acronym of choice. There's a good reason for that -- ERP stocks stink lately (chart). Give Ariba credit -- it knows a tainted acronym when it sees it.

ORM may not be an exact fit with ERP in the land of acronyms, but it is a bit odd that Ariba is presenting at "HP World Conference & Expo/ERP World" in August.

Don't be fooled. Ariba has the same risks that all the ERP guys have. In regulatory filings, Ariba cited the following:

  • Year 2000 spending: Delays or reductions in spending for application software could hurt Ariba. The thinking here is clear: Information technology departments don't want to add any applications that could introduce risk to the network. Folks get fired for that.

  • Long sales cycles. "Because we target large customers, our sales cycles range from four to 24 months and average approximately nine months," the company said.

  • Competition: "We may also encounter competition from several major enterprise software developers, such as Oracle, PeopleSoft and SAP," the company said. As of March 31, only 31 customers licensed Ariba's products "ORMS solution." Peoplesoft, SAP and the Web-enabled Oracle all have longer track records with customers.

    Granted the company is trying to expand through, a buying network for its ERP, err. ORM, customers, but the company hasn't made a cent in revenue from its network. Ariba isn't exactly VerticalNet (Nasdaq: VERT) yet. "As of May 31, 1999, only one customer was buying operating resources through our network from a limited number of online suppliers," said Ariba in filings.

    So before you drop your cash on Ariba, you may want to take a look at some of the struggling ERP companies that are prime candidates to eventually acquire Ariba. ERP will become a hot buzzword again as soon as that pesky Y2K cloud passes.


    Watch the reaction to Micron Electronics' (Nasdaq: MUEI) earnings. It's not clear that the company's new products are gaining footing and revenue was a bit light. "They are all focused and dressed up for the party, but there's no music playing," said Louis Mazzucchelli, an analyst with Gerard Klauer Mattison & Co.

    And look out below for (Nasdaq: SALN). We could bash the online magazine, but why bother? Most folks know the IPO is a joke. Love the content, but hate the business. Salon is being offered through a "dutch auction" or Open IPO via underwriter W.R. Hambrecht. It will be an interesting experiment, but the bottom line is the company couldn't land a real underwriter. Salon priced at the low-end of its range at 10 1/2.