CNET también está disponible en español.

Ir a español

Don't show this again

Tech Industry

Ariba's Krach: As bullish as ever

Keith Krach, the chairman and chief executive of Ariba, recently etched his name into the record books when his company became the first Internet-only business-to-business concern to turn an operating profit.

   
Keith Krach, the chairman and chief executive of Ariba, recently etched his name into the record books when his company became the first Internet-only business-to-business concern to turn an operating profit.

During this season of Wall Street's discontent, that's no small achievement. And in the process of reporting its fiscal first-quarter results, Ariba even increased its forecast for the second quarter and fiscal year.

But that hasn't yet injected new life into his company's stock price. Wall Street skeptics point out that with the company's growth slowing, Ariba also must put to rest lingering questions about its transition to term licensing.

Under this new revenue model, Ariba takes money up front and allows a customer to use software for a set period of time. But that has some company watchers concerned because of the possibility that it may introduce some unpredictability into Ariba's sales. The double-barrel upshot: The company's shares have taken a shellacking.

Krach in a recent interview talked about prospects for Ariba, the state of B2B and the competition with archrival Oracle.

With the slowdown in IT spending hurting many tech companies, Ariba was one of the few companies last week that was able to boost its earnings and sales targets. What did Ariba see in December in terms of demand?
We didn't see any slowdown in the month of December. It was really important to us to be able to raise guidance. We wanted to send a clear signal and raise guidance on our top and bottom lines. We wanted to be clear that we are well positioned in this economy. A lot of it comes down to whether our products can generate a substantial return on investment (ROI) and have an obvious impact on the bottom line for the customer and tangible ROI.

We believe we are sitting in the catbird seat with our (software) solutions.Are you saying Ariba is immune to a slowdown?
No, but we didn't see any type of slowdown and we see continued strong demand and growth over the second half.

Who is Ariba seeing in the field as competition these days?
I don't think we're seeing anyone in the e-procurement space yet. We did see some of Oracle when Ray Lane was there, but Oracle's presence has vaporized.

Oracle would dispute that. Do you think your assessment is based on something Oracle is doing, or would you attribute its lack of presence to Ray Lane leaving?
I think it was Ray Lane. He was driving them.

Analysts have recently questioned the state of your relationship with i2 Technologies. The Ariba, IBM, i2 partnership has been a boon to your business, but observers indicate there may be trouble ahead with Ariba and i2. The product plans of the two companies also seem to conflict. What's your assessment?
The i2 partnership is good. We have agreed to partner where it makes sense on e-commerce platforms. But our footprints are expanding into each other's areas. It's really not different from many partnerships.

What's your outlook for the B2B industry?
I'm as bullish as I've ever been. The global economy will be converging on B2B over the next several decades. Over the next several years, businesses will be automating processes. We believe we are sitting in the catbird seat with our solutions.

Ariba is primarily a software company today, but the plan is to garner transaction fees from your network in the future. What's the level of current network revenue, and what's your ideal split in the future?
Network revenue in the quarter was up to $25 million from $20 million. We see that growing to be 50-50 in two to three years.

Consortium exchanges have gotten a lot of press, but are still just getting off the ground. How do you see these industrial exchanges developing?
We're seeing a lot of development now, but the question is, what's going to be the focus, and who are the network leaders going to be? These exchanges will morph and take many forms. In some cases, they'll be a convergence.

I focus on the company and the basics. As long as we provide value for the customer, shareholder value will follow.Many have said that B2B isn't really going to take off until Old Economy companies say that they will only do transactions over the Web. Do you agree with that?
We don't have any delusions of grandeur for ramping these exchanges up. It's like building a company. And like a company you have to have a strong value proposition, strong, tangible returns, and be able to retain customers and grow revenue. Some exchanges will morph and others will work once they're connected to a broader network of suppliers.

What's your take on B2B stocks?
I get that question a lot, but I'm not a market expert. I focus on the company and the basics. As long as we provide value for the customer, shareholder value will follow.

On your earnings conference call, there was a lot of discussion about Ariba's term licensing agreements. How do these work?
Under term licensing, we get recurring revenue two to three years down the road. Customers license our solutions for two to three years, which lowers costs up front. We also sell additional services. It's a great time to do it.

Isn't this revenue mostly up front?
Yes, but we get recurring revenue on renewal.

That's Wall Street's worry--that customers won't renew or competition will gain ground. Two to three years is an eternity, and the revenue may not be predictable.
We wouldn't do it if we didn't have strong confidence in our solutions.