Ariba splashes out for hosting company

Software maker Ariba plans to purchase hosting services partner Alliente, a move that would follow other business application companies in experimenting with new delivery models.

Ariba announced on Wednesday its intention to buy Alliente, a privately held company of about 100 employees that was spun off from Hewlett-Packard in 2000. Ariba did not disclose the terms of the deal.

Ariba's purchase of Alliente follows a similar move by software maker Siebel Systems, which bought software hosting firm UpShot last year. Both acquisitions give their respective buyers -traditional software companies that charge license and maintenance fees - a leg up in the increasingly popular pay-as-you-go software business.

That business model, used by both UpShot and Alliente, involves running software for customers on their own servers and managing software upgrades for a recurring fee, which cuts infrastructure and maintenance costs for clients.

Alliente, which formed a partnership with Ariba three years ago, specialises in implementing and maintaining software - including Ariba's - that's designed to streamline the purchase of business supplies. The company sells services aimed at easing many of the difficult tasks involved with e-procurement software projects, such as setting up electronic catalogs and making digital connections with suppliers.

Salesforce.com, an up-and-comer in the business application hosting market, claims the model is taking off because it's cheaper and easier than licensing software the traditional way. Salesforce filed for an initial public offering last month, a development widely viewed as a huge validation for the budding market.

Ariba said Alliente, which has just three customers, will help it take on upstarts like Ketera Technologies. Ketera recently beat off Ariba for a contract with appliance maker Maytag. Like Salesforce.com, Ketera sells its software and services for a recurring fee that covers maintenance and information technology infrastructure. Ketera charges $300,000 to $1m a year for its services, depending on the scope of the project - a cost it claims is five to 10 times less than that for a typical Ariba system.

Michael Schmitt, a vice president at Ariba, called the Maytag deal a "good illustration" of why the software maker made the acquisition. "Ariba buying Alliente gives us a better competitive footing," he said.

Schmitt said Ariba plans to retain most of Alliente's staff, including its top executives, and is still determining how to charge for the Alliente services. One pricing option, he said, is an annual fee equal to one per cent to two per cent of the amount a customer spends on business supplies.

The companies expect to complete the deal later this month.

Alorie Gilbert writes for CNET News.com