The electronic data interchange concept that many bankers have been struggling with for years may get a challenge or a boost-depending on one's point of view-from an alliance taking shape in Silicon Valley.
Ariba Technologies Inc., a fast-moving young company with a highly touted system for automating corporate purchasing functions, has hooked up with several other organizations to create what it calls "the first open end-to-end enterprise solution that integrates and automates all the processes" from order request to payment.
One of the partners, Visa International, has already gotten first-hand experience with the Ariba technology, called the Operating Resource Management System. From its internal use of the system, known as ORMS, Visa expects to gain insights that can enhance its purchasing card program for businesses.
Verifone Inc., which is contributing its Internet payment software to the Ariba alliance, suggests that the comprehensiveness of ORMS can combine with the favorable economics of on-line transactions to revolutionize EDI.
Lending credence to that notion, EDI and electronic commerce software leader Sterling Commerce Inc. is contributing to Ariba's purported breakthrough. Federal Express Corp. is also on board, offering to link small and medium-size suppliers with on-line buyers using ORMS and to integrate FedEx logistics, transportation, and warehousing services with the Ariba system.
"There is an emerging opportunity to use the new purchasing card to extend business-to-business on-line payment to corporations and suppliers that cannot cost-justify EDI," said George Hoyem, vice president and general manager of the Internet commerce division of Verifone, a Hewlett- Packard Co. subsidiary.
"The purchasing card model provides smaller suppliers access to the considerable reporting and infrastructure support of the credit card industry," Mr. Hoyem added. "As the cost of a purchasing card transaction becomes more competitive with EDI, the use of purchasing cards (by businesses) could explode for applications like the Ariba ORMS using Verifone's vPOS payment software."
"We are opening a tremendous marketing opportunity for banks," Bobby Lent of Sunnyvale, Calif.-based Ariba said last week as the company was unveiling the strategy at its Operating Resource Management Supplier Summit in San Francisco.
"Visa had $1 trillion of transactions in their system last year," Mr. Lent, Ariba's vice president of strategic alliances, said in an interview. "In the U.S. alone, checks and other funds transfers totaled $70 trillion. We could be talking about an enormous shift of transactions into the credit card system."
Ariba and its allies are not the only ones to see a potential EDI- displacing gold mine in corporate purchasing. A coalition organized by American Express Co. has been trying to jump-start Internet purchasing with a technical specification called OBI, for Open Buying on the Internet.
The groups share similar principles, but OBI is more of a standards body, while Ariba is marketing a product that could be seen as competitive with those of some OBI members. The twain is unlikely to meet soon, anyway, because Visa and American Express are political as well as business adversaries.
Ariba was founded in September 1996 and last year signed its first "Fortune 1000" customers including integrated circuit manufacturer AMD and networking technology leader Cisco Systems. Visa announced its selection of ORMS in November.
Visa executive vice president Todd Chaffee said Visa and Ariba have a "shared vision of a secure, automated business-to-business e-commerce solution," which he said relates to Visa support of SET, the Secure Electronic Transactions standard for Internet credit card payments.
Ariba is well wired in California's high-tech start-up community. The vendor had significant venture capital backing and one of its directors is Hatim Tyabji, Santa Clara-based Verifone's chief executive officer, who last week announced his intention to retire at yearend-but not from his board obligations.
The research firm Killen & Associates, among others, has given the operating resource management concept high praise. Killen analyst Torrey Byles said, "Ariba is well-positioned to do what is every start-up's dream: to fundamentally change the way businesses operate."
The company uses a Killen estimate in its sales pitch: A 5% reduction in operating resource costs-the corporate purchases of office supplies and other mundane needs-can boost corporate profits by 28%.
Ariba said it wants to be explicitly "open" with its end-to-end ORMS approach. The openness is what attracted partners like FedEx, which intends to work with Ariba "to make e-commerce a reality for a wide range of supplier organizations," said Rohan Champion, the Memphis company's vice president of strategy and alliances.
"This strategy addresses the industry's growing demand for a total solution" in operating resource management, said Brad Sharp, president of Sterling Commerce's interchange software group.
"The goal of operating resource management is to provide an open, efficient, and secure environment to connect buyers and suppliers," said Ariba president Keith Krach. "We understand that no individual company can automate the entire acquisition cycle and deliver open architectures for networked commerce, so we have partnered with leaders in key areas."
The linkage to credit cards could lower the EDI hurdles that have frustrated bankers.
Mr. Lent of Ariba said a typical EDI project involves large corporations and large suppliers and takes weeks to implement. While EDI is well entrenched in the Fortune 1000, Ariba sees an opportunity to spread the benefits among the 98% of the six million U.S. businesses that Forrester Research says do not use the technology.
Issuing a paper check can cost a buying company as much as $65, and a supplier's collection cost can be as high as $35, Mr. Lent said. That can come down to pennies for the buyer and a few dollars for the seller, he added.
"We see Ariba as a bellwether of how payment technology can be applied in this area-of how the whole EDI world will tip toward the purchasing card," Mr. Hoyem said.