Tuesday, January 17, 2012

Fishing in a Stocked Pond

Two press releases caught my eye on January 5, 2012.

The first was TRE’s announcement that it had reached the $1 billion mark in "funding" on the SMB platform. It caught my eye because it was from TRE and I’m always interested in TRE news. But it also caught my eye because I couldn’t understand how the number could be correct.

As far as I can tell, the only way for that release to be accurate is to change the language to say that $1 billion in transaction ACTIVITY has been completed. That’s different from saying $1 billion has been FUNDED. But I guess we can blame the PR folks. After all, PR folks are notoriously unconcerned with numbers, right?

The second press release that came out on the 5th was issued by the Ariba Network. Unlike TRE, Ariba buried its numbers in the middle of the release.

Quoting from the fifth paragraph, referring to Ariba, it reads in part: “Used by more than 730,000 companies around the world to transact more than $202 billion on an annual basis….”

How do you bury a sentence like that?

It’s huge!

The fact that those releases came out on the same day is not the only thing that connects them, of course.

The Ariba Network’s software has, as I understand it, a specially-constructed module that will allow an Ariba vendor to quickly and easily post its invoices for sale on the TRE platform.

Ariba and TRE have been working together virtually since TRE began operations to bring Ariba vendors onto the TRE platform and to make it as easy as possible for them to sell to TRE Buyers.

Let’s move past the obvious for a moment and ignore the 730,000 companies with $202 billion in annual transactions and consider the fact that transactions done via the Ariba Network provide a solution to the single most significant weakness in the TRE system i.e. the invoice verification process.

Prior to an Ariba Network invoice being posted for sale on TRE, the Account Debtor must acknowledge that the goods or services have been provided appropriately, that the invoice properly reflects the amount due, that the payment terms are accurate and that payment will be made in accordance with the terms.

That is the strongest affirmation of invoice validity available to a TRE Buyer.

Buying an Ariba Network invoice has obvious advantages for TRE Buyers, which means that it has obvious advantages for TRE. But the volume of Ariba invoices being sold on TRE has been decreasing rather than increasing.

Some time ago I heard that TRE was going to assign a dedicated marketing person to the Ariba relationship; specifically to try to move more Ariba volume onto the platform. If that was done it has not generated perceptible results.

To the TRE marketing people I would ask: What other pool of prospects is unified by a common operational and financial system; can be reached through a single communication channel; have available to them a ready-made auction posting tool; and bring with them a significant invoice verification advantage? And, to get back to the numbers, what other single pool of prospects is as large?

For TRE marketers, selling to Ariba is like fishing in a stocked pond. There’s never a guarantee of success but the odds are certainly skewed in your favor. And that’s worth a lot.

I’ve heard a number of explanations of why the Ariba volume on TRE has been anemic. Some of them sound reasonable, at least to a degree. But none of them would convince me that TRE shouldn’t be going after Ariba Sellers with every tool they have.

One tool that TRE might not have used, but that I suspect might be helpful, is price.

Sourcing Sellers from an identified pool, via an established communication network, with a built-in reference from Ariba, just has to be more efficient and less costly than prospecting elsewhere. And being relieved of the bulk of the cost of verification and, I would guess, having a lower cost of dealing with problem cases, also should afford TRE a meaningful advantage.

If TRE has had trouble attracting Ariba Sellers, why not offer them a better price by discounting the fees the Exchange charges to Ariba Sellers? Establishing a special class of Sellers for fee purposes has to be justifiable given the affinity-group efficiencies.

Now, let’s go back to the numbers. I know much more about the actual TRE volume numbers than I do about the Ariba numbers. For all I know, Ariba might count transaction volume like a VAT collector would count it: at each step along the way. But in the scheme of things, it doesn’t really matter. If the relevant comparison is to $101 billion in Ariba transactions rather than $202 billion, the argument still holds.

Not only is Ariba a pond stocked with the kind of fish TRE wants but it’s a very deep pond and TRE already has a license to fish there.

Several generations of marketing folks at TRE have been, for whatever reason, unsuccessful in marketing to Ariba members.

Maybe it’s time to try a different approach. Maybe it's the bait.

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