InformationWeek

Krach: When you look at business-to-business E-commerce and these marketplaces, this is stuff not written in a book. There are three key fundamental areas where I think we really provide strong value add. The first one is providing the broadest and deepest platform out there. We are constantly building that out, listening to our customers.

The second area is the overall business model: Should it be a business unit? Should it be a new company? If it is a new company, what should the equity on it be? What should the revenue model be? What should the value-added services model be? Because this stuff hasn't been written in a book, we actually have a strategy team that goes in and works with marketplaces.

The third one is really from a cultural standpoint. I think the toughest issues are always the people issues, the change issues, the cultural issues.

InformationWeek: What is the first step?

Krach: I always say that the most important step, especially if you're building a new business unit or a new company, the No. 1 thing is to find the best CEO. That's the most important thing.

InformationWeek: What is the first technical step?

Krach: The first step is to make sure that you have your internal house in order. That typically starts off with some type of internal exchange, some type of E-procurement, because what you want to be able to do is channel all this purchasing power to your marketplace to be able to leverage that.

InformationWeek: Who do you see as your biggest competition?

Krach: We see competition from the enterprise resource planning or database companies. That's probably the biggest threat because of their installed base. But if you look at what we've been able to do from the execution standpoint, we clearly have two times the number of customers, two times the market share.

InformationWeek: Do large established competitors or smaller competitors worry you more?

Krach: We're paranoid about everything, so I worry about both. But we really fear the guys who are just starting their companies right now, because classically these guys are really driven and they are innovative. So we need to keep our eye on those guys. The one we saw that was really getting a head of steam was Tradex. We were going around to all these Net market companies and asking, Who are you looking at? They said: "We'll either roll out our own or Tradex." That was like 90% of the companies we talked to. So we said we ought to merge with these guys.

InformationWeek: Ariba started out as a software company and then developed some other services and started partnering with companies. How did that change come across, and what kind of benefits or problems has it presented?

Krach: That was a natural extension to our vision of being the leader in this global electronic trade revolution in terms of B-to-B. When we started, we said, let's come up with a very strong value proposition. We said the strategic high ground a few years out is going to be the buyer side. We believed in what we called the golden rule-the guy with the gold rules-so we focused on that. That gets all this buying power, and then that attracts the suppliers.

InformationWeek: How much business is actually done on marketplaces right now, and how does that play out in the future?

Krach: With marketplaces, it's just beginning if you look at it from the external marketplace standpoint. If you look at it from the internal E-procurement standpoint, a ton of business is being done. Cisco puts through $1.5 billion annually across the Ariba network. Bristol Myers is close to $1 billion, and Chevron is as well. That is a whole bunch. In terms of getting these marketplaces up and running from a revenue generating standpoint, that is just beginning. It is huge. It is a tsunami. It is coming, that's for sure.

InformationWeek: Regarding neutral or third-party marketplaces vs. major industries coming together to develop a marketplace, which in your mind seems to have the greatest potential, and what are the problems?

Krach: Everybody always asks me which side is going to win. I think both sides can win and there are a lot of pluses and minuses for both. Again, it comes down to execution in terms of generating a significant amount of buyers and a significant amount of suppliers. I think there's going to be some consolidation, too. That is one of the big reasons our strategy is not to go out and run a few marketplaces, but to go out there and literally power thousands of them.

InformationWeek: What advice would you give to an aspiring entrepreneur?

Krach: The most important decision you make is who is going to be your spouse. The second one is don't be afraid to jump in water over your head; believe in yourself. The third one is that it's all about the people, it's not about the technology or the market. I believe with every fiber in my body that the company with the best people wins.