ARIBA INC, 424A, 1999-06-03

ARIBA INC
424A, 1999-06-03
PREPACKAGED SOFTWARE

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<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)

ISSUED JUNE 3, 1999

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
4,000,000 SHARES

[LOGO]
COMMON STOCK

-----------------

ARIBA, INC. IS OFFERING 4,000,000 SHARES OF COMMON STOCK. THIS IS OUR INITIAL
PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE
ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $16 AND $18
PER SHARE.

-------------------

WE HAVE APPLIED TO LIST OUR COMMON STOCK ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "ARBA."

-------------------

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 5.

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PRICE $ A SHARE

-------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND
PUBLIC COMMISSIONS PROCEEDS TO ARIBA
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL.............................................. $ $ $
</TABLE>

THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

ARIBA HAS GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL
600,000 SHARES OF COMMON STOCK TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO.
INCORPORATED EXPECTS TO DELIVER THE SHARES OF COMMON STOCK TO PURCHASERS ON
, 1999.

-------------------

MORGAN STANLEY DEAN WITTER

BT ALEX. BROWN

DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED

MERRILL LYNCH & CO.

-------------------

INTERNET DISTRIBUTION OFFERED BY
DISCOVER BROKERAGE DIRECT E*TRADE SECURITIES

, 1999
<PAGE>
EDGAR description of artwork:

This graphic depicts a procurement process utilizing the Ariba ORMS and
Ariba.com network. There is a colored bar running down the left and right sides
of the graphic. The top of the left bar contains the title, "ARIBA ORMS
CUSTOMERS". Underneath this title there is a list of customers: "AMD, AUTODESK,
BRISTOL-MEYERS SQUIBB, CADENCE, CALTEX, CHEVRON, CIBC, CISCO SYSTEMS, CITIZENS,
CYPRESS, EARTHGRAINS, FEDEX, HEWLETT-PACKARD, MERCK, NESTLE, OCTEL, PHILIPS,
SEAGATE, SONOCO, TRANSAMERICA, US WEST, VISA". The top of the right bar contains
the title, "ARIBA SUPPLIER LINK MEMBERS". Underneath this title there is a list
of supplier link members: "1-800-BATTERIES, BARNESANDNOBLE.COM, BEYOND.COM,
BOISE CASCADE, BT OFFICE PRODUCTS, CAP, CHEMDEX, COM-KYL, COMPUCOM SYSTEMS,
CORPORATE EXPRESS, CORT FURNITURE RENTAL, DATA IMPRESSIONS, DELL PRODUCTS,
DIGITAL RIVER, ELECTRO RENT, ELECTRONIC SALES SYSTEMS, FATBRAIN.COM, FLOW
SYSTEMS, GRAND & TOY, HARBINGER, HEWLETT-PACKARD, IMAGEX.COM, INACOM,
INTERWORLD, LIFE TECHNOLOGIES, MICROAGE INTEGRATION, NCR SYSTEMEDIA GROUP,
NEWARK ELECTRONICS, OFFICE DEPOT, PCORDER.COM, REYNOLDS & REYNOLDS, ROWECOM,
SCIQUEST, STAPLES, TELEPRESS, US TECHNOLOGIES, W.W. GRAINGER".

Between the two bars, there is additional text and a graphic. Over the text
and graphic, there is the Ariba logo and the title, "INTERNET-BASED
BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE SOLUTIONS FOR OPERATING RESOURCES".

In the upper left-hand corner of this center section, the text reads: "BUYER
BENEFITS Ariba's business-to-business electronic commerce solution links users
to approvers and organizations to their suppliers of operating resources. Our
intranet-based Ariba ORMS network application enables an organization to
streamline and automate complex and unusual business processes. The Ariba ORMS
browser-based user interface is accessible on every desktop and is easy to use.
Using our Ariba solution, end-users can order and receive requested items more
quickly, improving overall productivity. Ariba ORMS also takes advantage of
existing investments in enterprise systems, reducing the need to manually enter
data into these systems. Ariba ORMS provides corporate-wide data analysis and
reporting tools on buying patterns. With this information, organizations can
negotiate more favorable contracts with preferred suppliers and maximize
procurement economies of scale." In the lower right-hand corner of this center
section, the text reads: "SUPPLIER BENEFITS Our Ariba solution provides
suppliers the opportunity to increase sales volume and revenues and reduce their
sales costs. Our Ariba.com network enables suppliers to utilize existing
electronic commerce systems and to differentiate and market their goods and
services in their preferred formats. Once online, suppliers can realize cost
savings and improved efficiencies resulting from automated transactions and
electronic distribution of product information. Our Ariba.com network provides
suppliers with greater access to new and existing customers through a global
presence and availability 24 hours a day, seven days a week. Ariba ORMS and our
Ariba.com network also enable buyers to channel spending to preferred suppliers,
providing these suppliers the opportunity to increase revenues that might
otherwise be lost to maverick buying."

Between these two sections of text, there is a graphic divided in half by a
line with the word, "Firewall" on it. The left part of the graphic has the
title, "INTRANETS" on top, in large, bold text. The central element of the
Intranet portion of the graphic is a box with the identifying text, "ARIBA ORMS"
appearing underneath. Two lines originate from the ARIBA ORMS box. One leads to
two boxes with the identifying text, "Accounting Systems" appearing underneath.
The other leads to a box with the identifying text, "Human Resource Management
Systems" appearing underneath.

Below the ARIBA ORMS box, there is a computer with the identifying text,
"End-User" appearing underneath. An arrow leads from the End-User computer to
another computer with the identifying text, "Approvers" appearing underneath. An
arrow leads from the Approvers computer to three sheets of paper, with the text,
"Transmit Electronic Purchase Order". An arrow leads from the three sheets of
paper to the ARIBA ORMS box.

A pipe leads from the ARIBA ORMS box, across the Firewall line, to the right
part of the graphic, which is titled, "INTERNET". The pipe leads to three boxes,
with the identifying text, "ARIBA.COM" appearing underneath. An arrow leads from
the ARIBA.COM boxes to three boxes that are set slightly apart from each other,
and each of which has the identifying text, "Suppliers" appearing underneath
them. In addition to the arrow, three lines originate from the ARIBA.COM boxes.
One line goes to each Supplier box. The topmost line has a sheet of paper with
the text, "CTML" under it. The middle line has a sheet of paper with the text,
"EDI" under it. The bottom line has a sheet of paper with the text, "HTML" under
it. An arrow leads from the three supplier boxes to a truck with the word,
"Shipment" under it. An arrow leads from the shipment truck back across the
Firewall line to the End-User computer.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 5
Special Note Regarding Forward-Looking
Statements................................... 17
Use of Proceeds................................ 18
Dividend Policy................................ 18
Capitalization................................. 19
Dilution....................................... 20
Selected Consolidated Financial Data........... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22

<CAPTION>
PAGE
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<S> <C>
Business....................................... 34
Management..................................... 49
Certain Transactions........................... 58
Principal Stockholders......................... 59
Description of Capital Stock................... 61
Shares Eligible for Future Sale................ 64
Underwriters................................... 66
Legal Matters.................................. 68
Experts........................................ 68
Additional Information......................... 68
Index to Consolidated Financial Statements..... F-1
</TABLE>

------------------------

We were incorporated in Delaware on September 17, 1996. Our principal
executive offices are located at 1314 Chesapeake Terrace, Sunnyvale, California
94089, and our telephone number is (408) 543-3800. The information on our web
site is not incorporated by reference into this prospectus.

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of the common stock.

UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

For investors outside the United States: Neither we nor any of the
underwriters have done anything that would permit this offering or possession or
distribution of this prospectus in any jurisdiction where action for that
purpose is required, other than in the United States. You are required to inform
yourselves about and to observe any restrictions relating to this offering and
the distribution of this prospectus.

In this prospectus, "Ariba," "we," "us," and "our" refer to Ariba, Inc. and
not to the underwriters. Unless otherwise indicated, all information contained
in this prospectus:

- assumes that the underwriters' over-allotment option is not exercised;

- reflects the 2-for-1 split of the common stock effected in March 1999 and
the 2-for-1 split of the common stock effected in April 1999;

- except as noted in the consolidated financial statements, gives effect to
the conversion of all outstanding shares of preferred stock into
17,845,176 shares of common stock effective upon the closing of this
offering; and

- reflects the exercise of a warrant to purchase 524,400 shares of common
stock prior to the closing of this offering.

2
<PAGE>
PROSPECTUS SUMMARY

YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES APPEARING ELSEWHERE
IN THIS PROSPECTUS.

ARIBA

Ariba is a leading provider of intranet- and Internet-based
business-to-business electronic commerce solutions for operating resources.
Operating resources are the goods and services required to operate a company,
such as information technology and telecommunications equipment, professional
services, MRO (Maintenance, Repair and Operations) supplies, facilities and
office equipment, and expense items. Operating resources are often the largest
segment of corporate expenditures, representing approximately 33% of an average
company's revenues, according to Killen & Associates.

Today, most organizations buy operating resources through paper-based
processes that have remained largely unautomated by the information technology
advances of the last 30 years. With the recent widespread adoption of internal
computer networks based on the Internet protocol, or "intranets," and the
acceptance of the Internet as a business communications platform, organizations
can now automate enterprise-wide and inter-organizational commerce activities.
As a result, Internet-based business-to-business electronic commerce is expected
to grow rapidly from $43 billion in 1998 to $1.3 trillion in 2003, exceeding
business-to-consumer electronic commerce by a factor of nine to one in 2003,
according to Forrester Research. This market is expected to create a substantial
demand for intranet- and Internet-based commerce applications. According to
International Data Corporation, the worldwide market for Internet-based
electronic commerce procurement and order management applications will
experience tremendous growth, increasing from $187 million in 1998 to $8.5
billion in 2003.

Ariba is pioneering the use of intranets and the Internet to automate the
procurement and management of operating resources. Our Operating Resource
Management System, Ariba ORMS, enables organizations to automate the procurement
cycle within their intranets, lowering the costs associated with operating
resources. Our recently launched Ariba.com network is a global
business-to-business electronic commerce network for operating resources that
enables buyers and suppliers to automate transactions on the Internet. Together,
Ariba ORMS and Ariba.com combine intranet-based network applications with an
Internet-based network to create a business-to-business electronic commerce
solution for operating resources that benefits both buyers and suppliers. Since
we began marketing Ariba ORMS in March 1997, it has been licensed by large,
multinational industry leaders and public sector organizations including
Chevron, Cisco Systems, Federal Express Corporation, Hewlett-Packard, Philips, U
S WEST and Visa.

Our objective is to create the leading Internet-based business-to-business
electronic commerce network for operating resources. Our strategy to achieve
this objective is to take advantage of the buying power of a large multinational
customer base to attract leading operating resource suppliers to our Ariba.com
network. We believe a growing number of suppliers in our Ariba.com network will
in turn draw more buyers to our network. We also believe this growth cycle will
help create a network effect, where the value to each participant in the network
increases with the addition of each new participant, increasing the overall
value of our Ariba solution.

3
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common stock offered............................ 4,000,000 shares
Common stock to be outstanding after this 41,741,396 shares
offering......................................
Use of proceeds................................. For working capital and general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... ARBA
</TABLE>

The foregoing information is based on 37,741,396 shares outstanding as of
March 31, 1999, including 524,400 shares issuable upon exercise of a warrant
that will be exercised prior to the closing of this offering. This information
does not include (1) 8,145,260 shares of common stock subject to outstanding
options under our 1996 stock plan as of March 31, 1999 and (2) 46,544 shares of
common stock issuable upon exercise of outstanding warrants. After March 31,
1999, we granted options to purchase an additional 2,847,144 shares of common
stock. See "Capitalization," "Management--1999 Equity Incentive Plan,"
"--Employee Stock Purchase Plan," "--1999 Directors' Stock Option Plan" and Note
3 of Notes to Consolidated Financial Statements.

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER SIX MONTHS ENDED
30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues............................................................ $ 760 $ 8,363 $ 1,215 $ 16,338
Gross profit (loss)....................................................... (180) 6,825 688 13,579
Operating expenses........................................................ 4,772 18,346 6,255 21,894
Loss from operations...................................................... (4,952) (11,521) (5,567) (8,315)
Net loss.................................................................. (4,679) (10,953) (5,299) (8,128)
Basic and diluted net loss per share...................................... $ (7.31) $ (1.90) $ (1.19) $ (.84)
Weighted average shares used in computing basic and diluted net loss per
share................................................................... 640 5,762 4,456 9,694
Pro forma basic and diluted net loss per share............................ $ (.47) $ (.29)
Shares used in computing pro forma basic and diluted net loss per share... 23,263 28,064
</TABLE>

Shares used in computing pro forma basic and diluted net loss per share
include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of preferred stock to common stock, as if the
conversion occurred at the date of original issuance, and the exercise of a
warrant for 524,400 shares of common stock, as if the exercise occurred
immediately after issuance on June 30, 1998.

The following table presents the consolidated balance sheet data of Ariba at
March 31, 1999. The pro forma column in the consolidated balance sheet data
below gives effect to (1) the exercise of a warrant to purchase 524,400 shares
of our common stock immediately prior to this offering at an exercise price of
$3.30 per share and (2) the conversion of each outstanding share of preferred
stock into four shares of common stock upon the closing of this offering. The
pro forma as adjusted data gives effect to the sale of the shares of common
stock that we are offering under this prospectus at an assumed initial public
offering price of $17.00 per share after deducting the estimated underwriting
discounts and commissions and estimated offering expenses. See "Use of Proceeds"
and "Capitalization."

<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..................... $ 21,433 $ 23,163 $ 85,253
Working capital....................................................... 3,843 5,573 67,663
Total assets.......................................................... 35,055 36,785 98,875
Long-term debt, net of current portion................................ 646 646 646
Total stockholders' equity............................................ 7,650 9,380 71,470
</TABLE>

4
<PAGE>
RISK FACTORS

THIS OFFERING AND AN INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK. OUR
BUSINESS AND RESULTS OF OPERATIONS COULD BE SERIOUSLY HARMED BY ANY OF THE
FOLLOWING RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY
OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.

RISKS RELATED TO OUR BUSINESS

ARIBA IS AN EARLY-STAGE COMPANY. OUR LIMITED OPERATING HISTORY MAKES IT
DIFFICULT TO EVALUATE OUR FUTURE PROSPECTS.

Ariba was founded in September 1996 and has a limited operating history. Our
limited operating history makes an evaluation of our future prospects very
difficult. We began shipping our first product, the Ariba Operating Resource
Management System, or Ariba ORMS, in June 1997 and began to operate our
Ariba.com network in April 1999. We will encounter risks and difficulties
frequently encountered by early-stage companies in new and rapidly evolving
markets. Many of these risks are described in more detail in this "Risk Factors"
section. We may not successfully address any of these risks. If we do not
successfully address these risks, our business would be seriously harmed.

THE MARKET FOR OUR SOLUTIONS IS AT AN EARLY STAGE. WE NEED A CRITICAL MASS
OF LARGE BUYING ORGANIZATIONS AND THEIR SUPPLIERS TO IMPLEMENT OUR
SOLUTIONS.

The market for Internet-based operating resource applications and services
is at an early stage of development. Our success depends on a significant number
of large buying organizations implementing Ariba ORMS and linking with suppliers
over the Internet through our Ariba.com network. The implementation of Ariba
ORMS by large buying organizations is complex, time consuming and expensive. In
many cases, these organizations must change established business practices and
conduct business in new ways. Our ability to attract additional customers for
our Ariba ORMS products will depend on using our existing customers as reference
accounts. As of March 31, 1999, only 31 customers had licensed our Ariba ORMS
solution and no customers were buying operating resources through our Ariba.com
network. Accordingly, our operating resource solutions may not achieve
significant market acceptance. Unless a critical mass of large buying
organizations and their suppliers join our Ariba.com network, our solutions may
not achieve widespread market acceptance and our business would be seriously
harmed.

WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE.

We incurred net losses of $4.7 million in fiscal 1997 and $11.0 million in
fiscal 1998. As of March 31, 1999, we had an accumulated deficit of
approximately $23.8 million. We expect to derive substantially all of our
revenues for the foreseeable future from licensing Ariba ORMS. Although these
revenues have grown in recent quarters, we may not be able to sustain these
growth rates. In fact, we may not have any revenue growth, and our revenues
could decline. Over the longer term, we expect to derive revenues from our
Ariba.com network, which is based on an unproven business model. Moreover, we
expect to incur significant sales and marketing, research and development, and
general and administrative expenses. In the future, we expect to incur
substantial non-cash costs relating to the amortization of deferred compensation
which will contribute to our net losses. As of March 31, 1999, we had an
aggregate of $17.6 million of deferred compensation to be amortized. We expect
to record additional deferred compensation with respect to stock option grants
made during April 1999 of at least $16.0 million. As a result, we expect to
incur significant losses for the foreseeable future. See "Selected Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

5
<PAGE>
OUR QUARTERLY OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. IF WE
FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR INVESTORS, THE
MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.

Our quarterly operating results have varied significantly in the past and
will likely vary significantly in the future. We believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of future performance. Our operating results will
likely fall below the expectations of securities analysts or investors in some
future quarter or quarters. Our failure to meet these expectations would likely
adversely affect the market price of our common stock.

Our quarterly operating results may vary depending on a number of factors,
including:

- Demand for both Ariba ORMS and the Ariba.com network;

- Actions taken by our competitors, including new product introductions and
enhancements;

- Delays or reductions in spending for, or the implementation of,
application software by our potential customers as companies attempt to
stabilize their computer systems prior to January 1, 2000 in order to
reduce the risk of computer system problems associated with the Year 2000;

- Ability to scale our network and operations to support large numbers of
customers, suppliers and transactions;

- Ability to develop, introduce and market new products and enhancements to
our existing products on a timely basis;

- Changes in our pricing policies or those of our competitors;

- Ability to expand our sales and marketing operations, including hiring
additional sales personnel;

- Size and timing of sales of our products and services;

- Success in maintaining and enhancing existing relationships and developing
new relationships with strategic partners, including systems integrators
and other implementation partners;

- Compensation policies that compensate sales personnel based on achieving
annual quotas;

- Ability to control costs;

- Technological changes in our markets;

- Deferrals of customer orders in anticipation of product enhancements or
new products;

- Customer budget cycles and changes in these budget cycles; and

- General economic factors.

Our quarterly revenues are especially subject to fluctuation because they
depend on the sale of a small number of relatively large orders for our Ariba
ORMS products and related services. As a result, our quarterly operating results
may fluctuate significantly if we are unable to complete one or more substantial
sales in any given quarter. In many cases, we recognize revenues from product
sales on a percentage of completion basis. Accordingly, our ability to recognize
these revenues is subject to delays associated with our customers' ability to
complete the implementation of Ariba ORMS in a timely manner. In some cases, we
recognize revenues on a subscription basis over the life of the subscriptions
specified in the contract, which is typically 12 months. Therefore, if we do not
book a sufficient number of large orders in a particular quarter, our revenues
in future periods could be lower than expected. We have not fully developed our
business model for our Ariba.com network. As this business model evolves, the
potential for fluctuations in our quarterly results could increase. Furthermore,
our quarterly revenues may be affected significantly by other revenue
recognition policies and procedures. These policies and procedures may evolve or
change over time based on applicable accounting standards and how these
standards are

6
<PAGE>
interpreted. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

We plan to increase our operating expenses to expand our sales and marketing
operations, fund greater levels of research and development, develop new
partnerships, make tenant improvements to our new facilities, increase our
professional services and support capabilities and improve our operational and
financial systems. If our revenues do not increase along with these expenses,
our business, operating results and financial condition could be seriously
harmed and net losses in a given quarter could be even larger than expected.

In addition, because our expense levels are relatively fixed in the near
term and are based in part on expectations of our future revenues, any decline
in our revenues to a level that is below our expectations would have a
disproportionately adverse impact on our operating results.

WE EXPECT TO DEPEND ON OUR ARIBA ORMS SOLUTION FOR SUBSTANTIALLY ALL OF OUR
REVENUES FOR THE FORESEEABLE FUTURE.

Our Ariba ORMS products and related services accounted for all of our
revenues in fiscal 1998 and for the six months ended March 31, 1999. We
anticipate that revenues from our Ariba ORMS products and related services will
continue to constitute substantially all of our revenues for the foreseeable
future. Consequently, a decline in the price of, or demand for, our Ariba ORMS
solution, or its failure to achieve broad market acceptance, would seriously
harm our business.

IMPLEMENTATION OF OUR ARIBA ORMS SOLUTION BY LARGE CUSTOMERS IS COMPLEX,
TIME CONSUMING AND EXPENSIVE. WE FREQUENTLY EXPERIENCE LONG SALES AND
IMPLEMENTATION CYCLES.

Ariba ORMS is an enterprise-wide solution that must be deployed with many
users within a buying organization. Its implementation by large buying
organizations is complex, time consuming and expensive. In many cases, our
customers must change established business practices and conduct business in new
ways. In addition, they must generally consider a wide range of other issues
before committing to purchase our product, including product benefits, ease of
installation, ability to work with existing computer systems, ability to support
a larger user base, functionality and reliability. Furthermore, because we are
one of the first companies to offer an Internet-based operating resource
management system, many customers will be addressing these issues for the first
time in the context of managing and procuring operating resources. As a result,
we must educate potential customers on the use and benefits of our products and
services. In addition, we believe that the purchase of our products is often
discretionary and generally involves a significant commitment of capital and
other resources by a customer. It frequently takes several months to finalize a
sale and requires approval at a number of management levels within the customer
organization. The implementation and deployment of our products requires a
significant commitment of resources by our customers and third-party and/or our
professional services organizations. Because we target large customers, our
sales cycles range from four to 24 months and average approximately nine months.

OUR ARIBA.COM NETWORK WAS ONLY RECENTLY INTRODUCED AND IS AT AN EARLY STAGE
OF DEVELOPMENT AND MARKET ACCEPTANCE. WE HAVE NOT ESTABLISHED OUR PRICING
AND REVENUE MODEL FOR OUR ARIBA.COM NETWORK.

We began operating our Ariba.com network in April 1999. As of May 31, 1999,
only one customer was buying operating resources through our Ariba.com network
from a limited number of online suppliers. Broad and timely acceptance of our
Ariba.com network, which is critical to our future success, is subject to a
number of significant risks. These risks include:

- Operating resource management and procurement on the Internet is a new
market;

- Our network's ability to support large numbers of buyers and suppliers is
unproven;

7
<PAGE>
- Our need to enhance the interface between our Ariba ORMS product and our
Ariba.com network;

- Our need to significantly enhance the features and services of our
Ariba.com network to achieve widespread commercial acceptance of our
network; and

- Our need to significantly expand our internal resources to support planned
growth of our Ariba.com network.

Although we expect to derive a significant portion of our long-term future
revenue from our Ariba.com network, we have not yet established our pricing and
revenue model for the services associated with our Ariba.com network. If we are
unable to establish a pricing and revenue model acceptable to our customers, our
Ariba.com network may not be commercially successful. This would seriously harm
our business, particularly if we experience a decline in the growth or growth
rate of revenues from our Ariba ORMS solution.

WE PLAN TO CONTRACT WITH A THIRD PARTY TO EXPAND, MANAGE AND MAINTAIN THE
COMPUTER AND COMMUNICATIONS EQUIPMENT AND SOFTWARE NEEDED FOR THE DAY-TO-DAY
OPERATIONS OF OUR ARIBA.COM NETWORK.

We plan to contract with a third party to expand, manage and maintain the
computer and communications equipment and software needed for the day-to-day
operations of our Ariba.com network. Services provided by the third party will
likely include managing our Ariba.com network web server, maintaining
communications lines and managing network data centers, which are the locations
on our network where data is stored. We are engaged in discussions with a large
third party to obtain these services but have not entered into a contract with
this party. If we do not contract with this third party, we would have to obtain
similar services from another provider or perform these functions ourselves. We
may not successfully obtain or perform these services on a timely and
cost-effective basis. If the installation of the computer and communications
equipment and software needed for the day-to-day operations of our Ariba.com
network is successfully completed by a third party, we will be entirely
dependent on that party to manage, maintain and provide security for it.

THE BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE INDUSTRY IS VERY COMPETITIVE
AND WE FACE INTENSE COMPETITION FROM MANY PARTICIPANTS IN THIS INDUSTRY. IF
WE ARE UNABLE TO COMPETE SUCCESSFULLY, OUR BUSINESS WILL BE SERIOUSLY
HARMED.

The market for our solution is intensely competitive, evolving and subject
to rapid technological change. We expect the intensity of competition to
increase in the future. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any one of which
could seriously harm our business. Competitors vary in size and in the scope and
breadth of the products and services offered. We primarily encounter competition
with respect to different aspects of our solution from Captura Software, Clarus,
Commerce One, Concur Technologies, Extensity, GE Information Services,
Intelysis, Netscape Communications and TRADE'ex Electronic Commerce Systems. We
may also encounter competition from several major enterprise software
developers, such as Oracle, PeopleSoft and SAP. In addition, because there are
relatively low barriers to entry in the operating resource management software
market, we expect additional competition from other established and emerging
companies, as the operational resource management software market continues to
develop and expand. For example, third parties that currently help implement
Ariba ORMS could begin to market products and services that compete with our
own. We could also face competition from companies who introduce an
Internet-based operating resource management solution.

Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources than us, significantly greater name recognition and a larger installed
base of customers. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our industry. In the past, we

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have lost potential customers to competitors for various reasons, including
lower prices and other incentives not matched by us. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. We also expect that competition will increase as a
result of industry consolidations.

We may not be able to compete successfully against our current and future
competitors.

WE EXPECT REVENUES FROM ARIBA ORMS TO BE CONCENTRATED IN A RELATIVELY SMALL
NUMBER OF CUSTOMERS.

In fiscal 1998, five customers accounted for more than 10% of our total
revenues and, in the six months ended March 31, 1999, two customers accounted
for more than 10% of our total revenues. We may continue to derive a significant
portion of our revenues from a relatively small number of customers in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

WE RELY ON THIRD PARTIES TO IMPLEMENT ARIBA ORMS.

We rely, and expect to rely increasingly, on a number of third parties to
implement Ariba ORMS at customer sites. If we are unable to establish and
maintain effective, long-term relationships with our implementation providers,
or if these providers do not meet the needs or expectations of our customers,
our business would be seriously harmed. This strategy will also require that we
develop new relationships with additional third-party implementation providers
to provide these services if the number of Ariba ORMS implementations continues
to increase. Our current implementation partners are not contractually required
to continue to help implement Ariba ORMS. As a result of the limited resources
and capacities of many third-party implementation providers, we may be unable to
establish or maintain relationships with third parties having sufficient
resources to provide the necessary implementation services to support our needs.
If these resources are unavailable, we will be required to provide these
services internally, which would significantly limit our ability to meet our
customers' implementation needs. A number of our competitors, including Oracle,
SAP and PeopleSoft, have significantly more well-established relationships with
these third parties and, as a result, these third parties may be more likely to
recommend competitors' products and services rather than our own. In addition,
we cannot control the level and quality of service provided by our current and
future implementation partners.

WE DEPEND ON SUPPLIERS FOR THE SUCCESS OF OUR ARIBA.COM NETWORK.

We expect to depend on suppliers joining our Ariba.com network. Any failure
of suppliers to join our Ariba.com network in sufficient and increasing numbers
would make our network less attractive to buyers and consequently other
suppliers. In order to provide buyers on our Ariba.com network an organized
method for accessing operating resources, we rely on suppliers to maintain
web-based catalogs, indexing services and other content aggregation tools. Our
inability to access and index these catalogs and services would result in our
customers having fewer products and services available to them through our
solution, which would adversely affect the perceived usefulness of our Ariba.com
network.

WE DEPEND ON THE INTRODUCTION OF NEW VERSIONS OF ARIBA ORMS AND ON ENHANCING
THE FUNCTIONALITY AND SERVICES OFFERED BY OUR ARIBA.COM NETWORK.

If we are unable to develop new software products or enhancements to our
existing products on a timely and cost-effective basis, or if new products or
enhancements do not achieve market acceptance, our business would be seriously
harmed. The life cycles of our products are difficult to predict because the
market for our products is new and emerging, and is characterized by rapid
technological change, changing customer needs and evolving industry standards.
The introduction of products employing new technologies and emerging industry
standards could render our existing products or services obsolete and
unmarketable.

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For example, Ariba ORMS is written in the Java computer language. If a new
software language becomes standard in our industry or is considered more robust
than Java, we may need to rewrite Ariba ORMS in another language in order to
remain competitive.

To be successful, our products and services must keep pace with
technological developments and emerging industry standards, address the
ever-changing and increasingly sophisticated needs of our customers and achieve
market acceptance.

In developing new products and services, we may:

- Fail to develop and market products that respond to technological changes
or evolving industry standards in a timely or cost-effective manner;

- Encounter products, capabilities or technologies developed by others that
render our products and services obsolete or noncompetitive or that
shorten the life cycles of our existing products and services;

- Experience difficulties that could delay or prevent the successful
development, introduction and marketing of these new products and
services; or

- Fail to develop new products and services that adequately meet the
requirements of the marketplace or achieve market acceptance.

IF WE FAIL TO RELEASE OUR PRODUCTS IN A TIMELY MANNER, OR IF OUR PRODUCTS DO
NOT ACHIEVE MARKET ACCEPTANCE, OUR BUSINESS WOULD BE SERIOUSLY HARMED.

We may fail to introduce or deliver new potential offerings on a timely
basis or at all. In the past, we have experienced delays in the commencement of
commercial shipments of our new releases. If new releases or potential new
products are delayed or do not achieve market acceptance, we could experience a
delay or loss of revenues and customer frustration. Customers may delay
purchases of Ariba ORMS in anticipation of future releases. If customers defer
material orders of Ariba ORMS in anticipation of new releases or new product
introductions, our business would be seriously harmed.

NEW VERSIONS AND RELEASES OF ARIBA ORMS MAY CONTAIN ERRORS OR DEFECTS.

Ariba ORMS is complex and, accordingly, may contain undetected errors or
failures when first introduced or as new versions are released. This may result
in loss of, or delay in, market acceptance of our products. We have in the past
discovered software errors in our new releases and new products after their
introduction. In the past, we discovered problems with respect to the ability of
software written in Java to scale to allow for large numbers of concurrent users
of Ariba ORMS. We have experienced delays in release, lost revenues and customer
frustration during the period required to correct these errors. We may in the
future discover errors, including Year 2000 errors and additional scalability
limitations, in new releases or new products after the commencement of
commercial shipments. In addition, a delay in the commercial release of the next
version of Ariba ORMS could also slow the growth of our Ariba.com network.

WE COULD BE SUBJECT TO POTENTIAL PRODUCT LIABILITY CLAIMS AND THIRD PARTY
LIABILITY CLAIMS RELATED TO PRODUCTS AND SERVICES PURCHASED THROUGH OUR
ARIBA.COM NETWORK.

Our customers use our products and services to manage their operating
resources. Any errors, defects or other performance problems could result in
financial or other damages to our customers. A product liability claim brought
against us, even if not successful, would likely be time consuming and costly
and could seriously harm our business. Although our customer license agreements
typically contain provisions designed to limit our exposure to product liability
claims, existing or future laws or unfavorable judicial decisions could negate
these limitation of liability provisions.

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We plan to have our Ariba.com network provide our customers with indices of
products that can be purchased from suppliers participating in our Ariba.com
network. The law relating to the liability of providers of listings of products
and services sold over the Internet for errors, defects or other performance
problems with respect to those products and services is currently unsettled. We
will not pre-screen the types of products and services that may be purchased
through our Ariba.com network. Some of these products and services could contain
performance or other problems. We may not successfully avoid civil or criminal
liability for problems related to the products and services sold through our
Ariba.com network. Any claims or litigation could still require expenditures in
terms of management time and other resources to defend ourselves. Liability of
this sort could require us to implement measures to reduce our exposure to this
liability, which may require us, among other things, to expend substantial
resources or to discontinue certain product or service offerings or to take
precautions to ensure that certain products and services are not available
through our Ariba.com network.

OUR SUCCESS DEPENDS ON RETAINING OUR CURRENT KEY PERSONNEL AND ATTRACTING
ADDITIONAL KEY PERSONNEL, PARTICULARLY IN THE AREAS OF DIRECT SALES AND
RESEARCH AND DEVELOPMENT.

Our future performance depends on the continued service of our senior
management, product development and sales personnel, in particular Keith Krach,
our President and Chief Executive Officer. None of these persons, including Mr.
Krach, is bound by an employment agreement, and we do not carry key person life
insurance. The loss of the services of one or more of our key personnel could
seriously harm our business. Our future success also depends on our continuing
ability to attract, hire, train and retain a substantial number of highly
skilled managerial, technical, sales, marketing and customer support personnel.
We are particularly dependent on hiring additional personnel to increase our
direct sales and research and development organizations. In addition, new hires
frequently require extensive training before they achieve desired levels of
productivity. Competition for qualified personnel is intense, and we may fail to
retain our key employees or to attract or retain other highly qualified
personnel.

IF THE PROTECTION OF OUR INTELLECTUAL PROPERTY IS INADEQUATE, OUR
COMPETITORS MAY GAIN ACCESS TO OUR TECHNOLOGY, AND WE MAY LOSE CUSTOMERS.

We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws.

We license rather than sell Ariba ORMS and require our customers to enter
into license agreements, which impose restrictions on their ability to utilize
the software. In addition, we seek to avoid disclosure of our trade secrets
through a number of means, including but not limited to, requiring those persons
with access to our proprietary information to execute confidentiality agreements
with us and restricting access to our source code. We seek to protect our
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We cannot assure you that
any of our proprietary rights with respect to our Ariba.com network will be
viable or of value in the future because the validity, enforceability and type
of protection of proprietary rights in Internet-related industries are uncertain
and still evolving.

We have no patents, and none may be issued from our existing patent
application. Our future patents, if any, may be successfully challenged or may
not provide us with any competitive advantages. We may not develop proprietary
products or technologies that are patentable.

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States. Our means of protecting our proprietary rights may not be adequate and
our competitors may independently develop similar technology, duplicate our
products or design around patents issued to us or our other intellectual
property.

There has been a substantial amount of litigation in the software industry
and the Internet industry regarding intellectual property rights. It is possible
that in the future, third parties may claim that we or our current or potential
future products infringe their intellectual property. We expect that software
product developers and providers of electronic commerce solutions will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. Any claims, with or without merit, could
be time-consuming, result in costly litigation, cause product shipment delays or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all, which could seriously harm our business.

We must now, and may in the future have to, license or otherwise obtain
access to intellectual property of third parties. For example, we are currently
dependent on developers' licenses from enterprise resource planning, database,
human resource and other system software vendors in order to ensure compliance
of our Ariba ORMS products with their management systems. We may not be able to
obtain any required third party intellectual property in the future.

IN ORDER TO MANAGE OUR GROWTH AND EXPANSION, WE WILL NEED TO IMPROVE AND
IMPLEMENT NEW SYSTEMS, PROCEDURES AND CONTROLS.

We have recently experienced a period of significant expansion of our
operations that has placed a significant strain upon our management systems and
resources. If we are unable to manage our growth and expansion, our business
will be seriously harmed. In addition, we have recently hired a significant
number of employees and plan to further increase our total headcount. We also
plan to expand the geographic scope of our customer base and operations. This
expansion has resulted and will continue to result in substantial demands on our
management resources. Our ability to compete effectively and to manage future
expansion of our operations, if any, will require us to continue to improve our
financial and management controls, reporting systems and procedures on a timely
basis, and expand, train and manage our employee work force. We are currently
implementing new systems to manage our financial and human resources
infrastructure. We may encounter difficulties in transitioning to the new
enterprise resource planning software system. Even after we implement this
system, our personnel, systems, procedures and controls may be inadequate to
support our future operations.

OUR BUSINESS COULD BE ADVERSELY AFFECTED IF THE SYSTEMS WE USE ARE NOT YEAR
2000 COMPLIANT OR IF OUR CUSTOMERS OR POTENTIAL CUSTOMERS ALTER THEIR
PURCHASING PATTERNS AS A RESULT OF THE YEAR 2000 PROBLEM.

The risks posed by Year 2000 issues could adversely affect our business in a
number of significant ways. Although we believe that our internally developed
systems and technology are Year 2000 compliant, our information technology
systems nevertheless could be substantially impaired or cease to operate due to
Year 2000 problems. Additionally, we rely on information technology supplied by
third parties, and our participating sellers also are heavily dependent on
information technology systems and on their own third-party vendor systems. Year
2000 problems experienced by us or any of these third parties could materially
adversely affect our business. Additionally, the Internet could face serious
disruptions arising from the Year 2000 problem.

Many of our customers and potential customers have implemented policies that
prohibit or strongly discourage making changes or additions to their internal
computer systems until after January 1, 2000. We will experience fewer sales if
potential customers who might otherwise purchase our Ariba ORMS product delay
the purchase and implementation of Ariba ORMS until after January 1, 2000 in an
effort to stabilize their internal computer systems in order to cope with the
Year 2000 problem or because their information

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technology budgets have been diverted to address Year 2000 issues. If our
potential customers delay purchasing or implementing Ariba ORMS in preparation
for the Year 2000 problem, our business would be seriously harmed. In addition,
because the revenues from some of our customers are recognized on a percentage
of completion basis, any implementation delays by these customers caused by
their needs to address Year 2000 issues will defer our ability to recognize this
revenue.

We cannot guarantee that any of our participating sellers or other Internet
vendors will be Year 2000 compliant in a timely manner, or that there will not
be significant interoperability problems among information technology systems.
We also cannot guarantee that buyers and suppliers will be able to utilize our
Ariba.com network without serious disruptions arising from the Year 2000
problem. Given the pervasive nature of the Year 2000 problem, we cannot
guarantee that disruptions in other industries and market segments will not
adversely affect our business. Moreover, the costs related to Year 2000
compliance, which thus far have not been material, could ultimately be
significant. In the event that we experience disruptions as a result of the Year
2000 problem, our business could be seriously harmed.

IF WE EXPAND OUR INTERNATIONAL SALES AND MARKETING ACTIVITIES, OUR BUSINESS
WILL BE SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS.

To be successful, we believe we must expand our international operations and
hire additional international personnel. Therefore, we expect to commit
significant resources to expand our international sales and marketing
activities. If successful, we will be subject to a number of risks associated
with international business activities. These risks generally include:

- Currency exchange rate fluctuations;

- Seasonal fluctuations in purchasing patterns;

- Unexpected changes in regulatory requirements;

- Tariffs, export controls and other trade barriers;

- Longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;

- Difficulties in managing and staffing international operations;

- Potentially adverse tax consequences, including restrictions on the
repatriation of earnings;

- The burdens of complying with a wide variety of foreign laws;

- The risks related to the recent global economic turbulence and adverse
economic circumstances in Asia; and

- Political instability.

WE MAY NEED TO MAKE ACQUISITIONS IN ORDER TO REMAIN COMPETITIVE IN OUR
MARKET. OUR BUSINESS COULD BE ADVERSELY AFFECTED AS A RESULT OF ANY OF THESE
FUTURE ACQUISITIONS.

In order to remain competitive, we may find it necessary to acquire
additional businesses, products or technologies. If we identify an appropriate
acquisition candidate, we may not be able to negotiate the terms of the
acquisition successfully, finance the acquisition, or integrate the acquired
business, products or technologies into our existing business and operations.
Further, completing a potential acquisition and integrating an acquired business
will cause significant diversions of management time and resources. If we
consummate one or more significant acquisitions in which the consideration
consists of stock or other securities, your equity could be significantly
diluted. If we were to proceed with one or more significant acquisitions in
which the consideration included cash, we could be required to use a substantial
portion of our available cash, including proceeds of this offering, to
consummate any acquisition. Acquisition financing may not be available on
favorable terms, or at all. In addition, we may be required to amortize

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significant amounts of goodwill and other intangible assets in connection with
future acquisitions, which would seriously harm our business.

RISKS RELATED TO THE INTERNET INDUSTRY

WE DEPEND ON INCREASING USE OF THE INTERNET AND ON THE GROWTH OF ELECTRONIC
COMMERCE. IF THE USE OF THE INTERNET AND ELECTRONIC COMMERCE DO NOT GROW AS
ANTICIPATED, OUR BUSINESS WILL BE SERIOUSLY HARMED.

Our Ariba.com network depends on the increased acceptance and use of the
Internet as a medium of commerce. Rapid growth in the use of the Internet is a
recent phenomenon. As a result, acceptance and use may not continue to develop
at historical rates and a sufficiently broad base of business customers may not
adopt or continue to use the Internet as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty, and there exist few proven services and
products.

Our business would be seriously harmed if:

- Use of the Internet and other online services does not continue to
increase or increases more slowly than expected;

- The technology underlying the Internet and other online services does not
effectively support any expansion that may occur; or

- The Internet and other online services do not create a viable commercial
marketplace, inhibiting the development of electronic commerce and
reducing the need for our products and services.

WE DEPEND ON THE ACCEPTANCE OF THE INTERNET AS A COMMERCIAL MARKETPLACE AND
THIS ACCEPTANCE MAY NOT OCCUR ON A TIMELY BASIS.

The Internet may not be accepted as a viable long-term commercial
marketplace for a number of reasons. These include:

- Potentially inadequate development of the necessary communication and
computer network technology, particularly if rapid growth of the Internet
continues;

- Delayed development of enabling technologies and performance improvements;

- Delays in the development or adoption of new standards and protocols; and

- Increased governmental regulation.

SECURITY RISKS AND CONCERNS MAY DETER THE USE OF THE INTERNET FOR CONDUCTING
ELECTRONIC COMMERCE.

A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Advances
in computer capabilities, new discoveries in the field of cryptography or other
events or developments could result in compromises or breaches of our security
systems or those of other web sites to protect proprietary information. If any
well-publicized compromises of security were to occur, it could have the effect
of substantially reducing the use of the web for commerce and communications.
Anyone who circumvents our security measures could misappropriate proprietary
information or cause interruptions in our services or operations. The Internet
is a public network, and data is sent over this network from many sources. In
the past, computer viruses, software programs that disable or impair computers,
have been distributed and have rapidly spread over the Internet. Computer
viruses could be introduced into our systems or those of our customers or
suppliers, which could disrupt our Ariba.com network or make it inaccessible to
customers or suppliers. We may be required to expend significant capital and
other resources to protect against the threat of security breaches or to
alleviate problems caused by breaches. To the extent that our activities may
involve the storage and

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transmission of proprietary information, such as credit card numbers, security
breaches, could expose us to a risk of loss or litigation and possible
liability. Our security measures may be inadequate to prevent security breaches,
and our business would be harmed if we do not prevent them.

OUR ARIBA.COM NETWORK MAY EXPERIENCE PERFORMANCE PROBLEMS OR DELAYS AS A
RESULT OF HIGH VOLUMES OF TRAFFIC.

Our Ariba.com network is currently operating on a limited basis. If the
volume of traffic on the web site for our Ariba.com network increases, our
Ariba.com network may in the future experience slower response times or other
problems. In addition, users will depend on Internet service providers,
telecommunications companies and the efficient operation of their computer
networks and other computer equipment for access to our Ariba.com network. Each
of these has experienced significant outages in the past and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems. Any delays in response time or performance problems could cause users
of our Ariba.com network to perceive this service as not functioning properly
and therefore cause them to use other methods to procure their operating
resources.

INCREASING GOVERNMENT REGULATION COULD LIMIT THE MARKET FOR, OR IMPOSE SALES
AND OTHER TAXES ON THE SALE OF, OUR PRODUCTS AND SERVICES OR ON PRODUCTS AND
SERVICES PURCHASED THROUGH OUR ARIBA.COM NETWORK.

As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
content and quality of products and services. It is possible that legislation
could expose companies involved in electronic commerce to liability, which could
limit the growth of electronic commerce generally. Legislation could dampen the
growth in Internet usage and decrease its acceptance as a communications and
commercial medium. If enacted, these laws, rules or regulations could limit the
market for our products and services.

We do not collect sales or other similar taxes in respect of goods and
services purchased through our Ariba.com network. However, one or more states
may seek to impose sales tax collection obligations on out-of-state companies
like us that engage in or facilitate electronic commerce. A number of proposals
have been made at the state and local level that would impose additional taxes
on the sale of goods and services over the Internet. These proposals, if
adopted, could substantially impair the growth of electronic commerce and could
adversely affect our opportunity to derive financial benefit from such
activities. Moreover, a successful assertion by one or more states or any
foreign country that we should collect sales or other taxes on the exchange of
goods and services through our Ariba.com network could seriously harm our
business.

Legislation limiting the ability of the states to impose taxes on
Internet-based transactions has been proposed in the U.S. Congress. This
legislation could ultimately be enacted into law or this legislation could
contain a limited time period in which this tax moratorium will apply. In the
event that the tax moratorium is imposed for a limited time period, legislation
could be renewed at the end of this period. Failure to enact or renew this
legislation could allow various states to impose taxes on electronic commerce,
and the imposition of these taxes could seriously harm our business.

RISKS RELATED TO THIS OFFERING

IN THE FUTURE WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN ORDER TO REMAIN
COMPETITIVE IN THE BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE INDUSTRY. THIS
CAPITAL MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS, IF AT ALL.

We expect the net proceeds from this offering will be sufficient to meet our
working capital and capital expenditure needs for at least the next 12 months.
After that, we may need to raise additional funds and we cannot be certain that
we will be able to obtain additional financing on favorable terms, if at all. If

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we cannot raise funds on acceptable terms, if and when needed, we may not be
able to develop or enhance our products and services, take advantage of future
opportunities, grow our business or respond to competitive pressures or
unanticipated requirements, which could seriously harm our business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
FOR INVESTORS PURCHASING SHARES IN THIS OFFERING.

Prior to this offering, you could not buy or sell our common stock publicly.
An active public market for our common stock may not develop or be sustained
after the offering. We will negotiate and determine the initial public offering
price with the representatives of the underwriters based on several factors.
This price may vary from the market price of the common stock after the
offering. You may be unable to sell your shares of common stock at or above the
offering price. The market price of the common stock may fluctuate significantly
in response to the following factors, some of which are beyond our control:

- Variations in our quarterly operating results;

- Changes in securities analysts' estimates of our financial performance;

- Changes in market valuations of similar companies;

- Announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;

- Loss of a major customer or failure to complete significant license
transactions;

- Additions or departures of key personnel; and

- Fluctuations in stock market price and volume, which are particularly
common among highly volatile securities of software and Internet-based
companies.

WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED
STOCK PRICE VOLATILITY.

In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert management's attention
and resources.

OUR STOCK PRICE COULD BE AFFECTED BY SHARES OF OUR COMMON STOCK BECOMING
AVAILABLE FOR SALE IN THE FUTURE.

Sales of a substantial number of shares of common stock in the public market
after this offering could depress the market price of the common stock and could
impair our ability to raise capital through the sale of additional equity
securities. For a description of shares of our common stock that are available
for future sale, see "Shares Eligible for Future Sale."

PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE, SUBSTANTIAL DILUTION.

We expect that the initial public offering price of our common stock will be
substantially higher than the book value per share of the outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution. In the past, we issued options to
acquire common stock at prices significantly below the initial public offering
price. To the extent these outstanding options are ultimately exercised, there
will be further dilution to investors in this offering. See "Dilution."

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WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS THAT COULD MAKE IT MORE
DIFFICULT FOR A THIRD PARTY TO ACQUIRE US.

Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. See "Description of Capital Stock--Anti-Takeover Effects of
Provisions of our Amended and Restated Certificate of Incorporation and Delaware
Law."

OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
CONTROL ARIBA AND COULD LIMIT THE ABILITY OF OUR OTHER STOCKHOLDERS TO
INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER TRANSACTIONS SUBMITTED
FOR A VOTE OF OUR STOCKHOLDERS.

Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately
60.4% of our outstanding common stock. As a result, these stockholders will be
able to exercise control over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions which could have the effect of delaying or preventing a third party
from acquiring control over us. We plan to reserve up to 10% of the shares
offered in this offering under a directed share program for employees and their
friends and family under which these persons would be able to purchase shares in
this offering at the initial public offering price. This could have the effect
of delaying or preventing a change of control of Ariba. See "Principal
Stockholders."

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results.

17
<PAGE>
USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 4,000,000 shares of
common stock we are offering will be approximately $62.1 million, or $71.6
million if the underwriters exercise their over-allotment option in full, at an
assumed initial public offering price of $17.00 per share, after deducting
underwriting discounts and commissions and after deducting estimated offering
expenses payable by Ariba. The primary purposes of this offering are to obtain
additional equity capital, create a public market for our common stock and
facilitate future access to public markets.

We intend to use the net proceeds we receive from the offering for working
capital and general corporate purposes. Although we may use a portion of the net
proceeds to acquire technology or businesses that are complementary to our
business, there are no current plans in this regard. Pending their use, we plan
to invest the net proceeds in short-term, interest-bearing, investment grade
securities.

DIVIDEND POLICY

We have not paid any cash dividends since our inception and do not intend to
pay any cash dividends in the foreseeable future.

18
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization as of March 31, 1999. The
pro forma information reflects (1) the conversion of all shares of convertible
preferred stock outstanding as of March 31, 1999 into 17,845,176 shares of
common stock on completion of this offering and (2) the exercise of a warrant to
purchase 524,400 shares of common stock at an exercise price of $3.30. The as
adjusted information reflects the foregoing as well as the sale of the shares of
common stock in this offering, at an assumed initial public offering price of
$17.00 per share and the receipt of the net proceeds from the sale of common
stock after deducting the estimated expenses and underwriting discounts and
commissions payable by Ariba.

The outstanding share information excludes:

- 8,145,260 shares of common stock issuable on exercise of outstanding
options as of March 31, 1999 with a weighted average exercise price of
$2.00 per share;

- 46,544 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $3.18 per share;

- 1,340,700 shares of stock reserved for issuance under our stock plan as of
March 31, 1999;

- 2,600,000 shares of stock reserved for issuance under our stock plan
subsequent to March 31, 1999; and

- 6,900,000 shares of stock reserved for issuance under stock plans which
will become effective upon the closing of this offering.

You should read this table with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the related notes. See "Use of Proceeds" and "Management--1999
Equity Incentive Plan," "--Employee Stock Purchase Plan," and "--1999 Directors'
Stock Option Plan."

<TABLE>
<CAPTION>
MARCH 31, 1999
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Long-term liabilities, less current portion.......................... $ 646 $ 646 $ 646
Stockholders' equity:
Convertible preferred stock, $.002 par value per share,
actual--10,000,000 shares authorized, 4,461,294 shares issued and
outstanding; pro forma and as adjusted-- 20,000,000 shares
authorized, no shares issued and outstanding..................... 9 -- --
Common stock, $.002 par value per share, actual--
80,000,000 shares authorized, 19,371,820 shares issued and
outstanding; pro forma--200,000,000 shares authorized, 37,741,396
shares issued and outstanding; as adjusted-- 200,000,000 shares
authorized, 41,741,396 shares issued and outstanding............. 39 75 83
Additional paid-in capital......................................... 49,339 51,042 113,124
Deferred stock-based compensation.................................. (17,942) (17,942) (17,942)
Accumulated other comprehensive loss............................... (35) (35) (35)
Accumulated deficit................................................ (23,760) (23,760) (23,760)
---------- ----------- -----------
Total stockholders' equity....................................... 7,650 9,380 71,470
---------- ----------- -----------
Total capitalization........................................... $ 8,296 $ 10,026 $ 72,116
---------- ----------- -----------
---------- ----------- -----------
</TABLE>

19
<PAGE>
DILUTION

The pro forma net tangible book value of our common stock as of March 31,
1999 was $9.4 million or approximately $.25 per share. Pro forma net tangible
book value per share represents the amount of our stockholders' equity, less
intangible assets, divided by 37,741,396 shares of common stock outstanding
after giving effect to the conversion of all outstanding shares of preferred
stock into shares of common stock upon completion of this offering and the
exercise of a warrant to purchase 524,400 shares of common stock at an exercise
price of $3.30.

Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering made hereby and the pro forma net tangible book value per
share of common stock immediately after completion of this offering. After
giving effect to the sale by us of 4,000,000 shares of common stock in this
offering at an assumed initial offering price of $17.00 per share, and after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses and the application of the estimated net proceeds, our pro
forma net tangible book value as of March 31, 1999, would have been $71.5
million, or $1.71 per share. This represents an immediate increase in net
tangible book value of $1.46 per share to existing stockholders and an immediate
dilution in net tangible book value of $15.29 per share to purchasers of common
stock in this offering, as illustrated in the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............................. $ 17.00
---------
Pro forma net tangible book value per share as of March 31, 1999........... $ .25
---------
Increase per share attributable to new investors........................... 1.46
---------
Pro forma net tangible book value per share after this offering.............. 1.71
---------
Net tangible book value dilution per share to new investors.................. $ 15.29
---------
---------
</TABLE>

The following table sets forth, on a pro forma basis, as of March 31, 1999,
the number of shares of common stock, purchased from Ariba, the total
consideration paid or to be paid, and the average price per share paid or to be
paid by existing stockholders and by new investors of an assumed initial
offering price of $17.00 per share, before deducting the estimated expenses and
underwriting discounts and commissions payable by Ariba:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......................... 37,741,396 90.4% $ 27,579,000 28.9% $ .73
New stockholders............................... 4,000,000 9.6 68,000,000 71.1 17.00
------------ --------- ------------- ---------
Total...................................... 41,741,396 100.0% $ 95,579,000 100.0%
------------ --------- ------------- ---------
------------ --------- ------------- ---------
</TABLE>

As of March 31, 1999, there were options outstanding to purchase a total of
8,145,260 shares of common stock at a weighted average exercise price of $2.00
per share under our 1996 Stock Plan and 1,340,700 were reserved for future
issuance. In addition, as of March 31, 1999, there were outstanding warrants to
purchase a total of 570,944 shares of common stock at a weighted average
exercise price of $3.29 per share, 524,400 of which will be exercised prior to
the closing of this offering. After March 31, 1999, we increased the number of
shares reserved for issuance under our 1996 Stock Plan by 2,600,000 shares and
granted options to purchase an additional 2,847,144 shares of common stock. To
the extent outstanding options or warrants are exercised, there will be further
dilution to new investors. See Note 3 of Notes to Consolidated Financial
Statements.

20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to the
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are included elsewhere in
this prospectus. The consolidated statement of operations data for each of the
two years in the period ended September 30, 1998, and the consolidated balance
sheet data at September 30, 1997 and 1998, are derived from our consolidated
financial statements that have been audited by KPMG LLP, independent auditors,
and are included elsewhere in this prospectus. The consolidated balance sheet
data as of March 31, 1999 and the consolidated statement of operations data for
the six months ended March 31, 1998 and 1999 are derived from unaudited
consolidated financial statements included elsewhere in this prospectus and
include, in the opinion of management, all adjustments consisting only of normal
recurring adjustments, that we consider necessary for the fair presentation of
our financial position and results of operations for those periods. Activity for
the period from September 17, 1996 (inception) to September 30, 1996 consisted
of the sale of common stock and preferred stock for approximately $6.0 million
and earned interest of approximately $1,000 on this amount.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED
SEPTEMBER 30, MARCH 31,
----------------- ----------------
1997 1998 1998 1999
------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License.................................................................. $ 630 $ 6,040 $ 807 $10,500
Maintenance and service.................................................. 130 2,323 408 5,838
------- -------- ------- -------
Total revenues......................................................... 760 8,363 1,215 16,338
------- -------- ------- -------
Cost of revenues:
License.................................................................. 13 165 17 250
Maintenance and service.................................................. 927 1,373 510 2,509
------- -------- ------- -------
Total cost of revenues................................................. 940 1,538 527 2,759
------- -------- ------- -------
Gross profit (loss)........................................................ (180) 6,825 688 13,579
------- -------- ------- -------
Operating expenses:
Sales and marketing...................................................... 2,235 10,311 3,333 11,302
Research and development................................................. 1,899 4,499 1,963 3,849
General and administrative............................................... 588 2,580 880 2,698
Amortization of stock-based compensation................................. 50 956 79 4,045
------- -------- ------- -------
Total operating expenses............................................... 4,772 18,346 6,255 21,894
------- -------- ------- -------
Loss from operations....................................................... (4,952) (11,521) (5,567) (8,315)
Other income, net.......................................................... 273 568 268 187
------- -------- ------- -------
Net loss................................................................... $(4,679) $(10,953) $(5,299) $(8,128)
------- -------- ------- -------
------- -------- ------- -------
Basic and diluted net loss per share....................................... $ (7.31) $ (1.90) $ (1.19) $ (.84)
------- -------- ------- -------
------- -------- ------- -------
Weighted average shares used in computing basic and diluted net loss per
share(1)................................................................. 640 5,762 4,456 9,694
------- -------- ------- -------
------- -------- ------- -------
Pro forma basic and diluted net loss per share............................. $ (.47) $ (.29)
-------- -------
-------- -------
Shares used in computing pro forma basic and diluted net loss per
share(2)................................................................. 23,263 28,064
-------- -------
-------- -------
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31,
1997 1998 1999
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.............................................. $ 15,471 $ 13,932 $ 21,433
Working capital................................................................................ 13,685 8,151 3,843
Total assets................................................................................... 16,800 19,242 35,055
Long-term liabilities.......................................................................... 140 647 646
Accumulated deficit............................................................................ (4,679) (15,632) (23,760)
Total stockholders' equity..................................................................... 14,517 9,959 7,650
</TABLE>

- ------------------------------

(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used to compute basic and
diluted net loss per share.

(2) Shares used in computing pro forma basic and diluted net loss per share
include the shares used in computing basic and diluted net loss per share
adjusted for the conversion of our convertible preferred stock to common
stock, as if the conversion occurred at the date of original issuance and
the exercise of a warrant for 524,400 shares of common stock, as if the
exercise occurred immediately after issuance on June 30, 1998.

21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF ARIBA SHOULD BE READ IN CONJUNCTION WITH "SELECTED CONSOLIDATED
FINANCIAL DATA" AND ARIBA'S CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS.
THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT
LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.

OVERVIEW

Ariba is a leading provider of intranet- and Internet-based business to
business electronic commerce solutions for operating resources. We were founded
in September 1996 and from that date through March 1997 were in the development
stage, conducting research and developing our initial products. In March 1997,
we began selling our Ariba ORMS products and related services and currently sell
them primarily in the United States, and to a lesser extent in Europe, through
our direct sales force.

Through March 31, 1999, our revenues have been principally derived from
licenses of our Ariba ORMS products, maintenance and support contracts and from
the delivery of implementation consulting and training services. Customers who
license our Ariba ORMS products also generally purchase maintenance contracts
which provide software upgrades and technical support over a stated term, which
is usually a twelve month period. Customers may purchase implementation services
from us, but we expect to increasingly rely on third-party consulting
organizations to deliver these services directly to our customers. We also offer
fee-based training services to our customers.

On October 1, 1997, we adopted Statement of Position, or SOP, 97-2, SOFTWARE
REVENUE RECOGNITION, which supersedes SOP 91-1, SOFTWARE REVENUE RECOGNITION.
The adoption of SOP 97-2 did not have a material effect on our operating
results. SOP 97-2 generally requires revenues earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements. Revenue allocated to software licenses is
generally recognized upon delivery of the products or ratably over a contractual
period if unspecified software products are to be delivered during that period.
Starting in fiscal 1999, our standard license agreement provides customers the
right to future unspecified software licenses. Accordingly, payments received
from our customers upon the signing of these license agreements are deferred,
and the revenue is recognized ratably over the contract period. Revenue
allocated to maintenance is recognized ratably over the maintenance term and
revenue allocated to training and other service elements is recognized as the
services are performed.

When we manage the implementation process for our customers, the services
are considered essential to the functionality of the software products.
Accordingly, both the software license revenue and service revenue is recognized
using the percentage of completion method in accordance with the provisions of
SOP 81-1, ACCOUNTING FOR PERFORMANCE OF CONSTRUCTION TYPE AND CERTAIN PRODUCTION
TYPE CONTRACTS. The implementation of our products can take several months or
more depending on the objectives of the customers, the complexity of the
customers' information technology environments and the resources directed by the
customers to the implementation projects.

Customers who license our software products receive a server capacity
license, one or more of the Ariba ORMS modules and adapters to interface with
financial, human resource and other existing enterprise systems. The fee for the
server capacity license is based on the customer's estimated annual volume of
line items of purchasing transactions. The license fees for the software modules
and adapters consist of individual prices for each module or adapter.

The volume licensing of the server capacity allows customers to scale the
total cost of their purchase of our Ariba ORMS products to their needs. The
server capacity license entitles customers to execute the

22
<PAGE>
licensed volume of line items of purchasing transactions during any annual
period following their purchase of the server license. Ariba's customers
generally purchase estimated server capacity at the time of the purchase of the
server license. Following the initial implementation of Ariba ORMS, and based on
the reporting and analysis tools available through Ariba ORMS, our customers are
able to understand their annual transaction volume more fully. Customers who
exceed their estimated volume can purchase additional server capacity. However,
there are no recurring annual license fees. To date, three customers have
purchased additional annual server capacity licenses.

Our cost of license revenues include royalties due to third parties for
integrated technology, the cost of manuals and product documentation, production
media used to deliver our products and shipping costs, including the costs
associated with the electronic transmission of software to new customers. Our
cost of maintenance and service revenues includes salaries and related expenses
for our customer support, implementation and training services organizations,
costs of third parties contracted to provide consulting services to customers
and an allocation of our facilities, communications and depreciation expenses.

Our operating expenses are classified into three general categories: sales
and marketing, research and development and general and administrative. We
classify all charges to these operating expense categories based on the nature
of the expenditures. Although each category includes expenses that are unique to
the category type, there are commonly recurring expenditures that are typically
included in these categories in our operating expenses, such as salaries,
employee benefits, incentive compensation, bonuses, sales commissions, travel
and entertainment costs, telephone, communication, rent and facilities costs,
and third-party professional services fees. The sales and marketing category of
operating expenses includes expenditures specific to the marketing group, such
as public relations and advertising, trade shows, marketing collateral materials
and customer advisory council meetings.

We allocate the total costs for overhead and facilities to each of the
functional areas that use the overhead and facilities services based on their
headcount. These allocated charges include facility rent for the corporate
office, communication charges and depreciation expense for office furniture and
equipment.

In connection with the granting of stock options to our employees, we
recorded deferred stock-based compensation totaling approximately $22.4 million
as of March 31, 1999. This amount represents the difference between the exercise
price and the deemed fair value of our common stock for accounting purposes on
the date these stock options were granted. This amount is included as a
component of stockholders' equity and is being amortized on an accelerated basis
by charges to operations over the vesting period of the options, consistent with
the method described in Financial Accounting Standards Board Interpretation No.
28. During fiscal 1998, we recorded $830,000 of stock-based compensation
amortization expense and, during the six months ended March 31, 1999, we
recorded $3.9 million of stock-based compensation amortization expense. As of
March 31, 1999, we had an aggregate of $17.6 million of deferred compensation to
be amortized. We expect to record additional deferred compensation with respect
to stock option grants made during April 1999 of at least $16.0 million. The
amortization of the remaining deferred stock-based compensation will result in
additional charges to operations through fiscal 2003. The amortization of
stock-based compensation is classified as a separate component of operating
expenses in our consolidated statement of operations.

Although revenues consistently increased from quarter to quarter, we
incurred significant costs to develop our technology and products and to recruit
and train personnel for our engineering, sales, marketing, professional services
and administration departments. As a result, we incurred significant losses
since inception, and, as of March 31, 1999, had an accumulated deficit of $23.8
million. We believe our success is contingent on increasing our customer base,
developing our Ariba ORMS products and developing our Ariba.com network. We
intend to continue to invest heavily in sales, marketing and research and
development. We therefore expect to continue to incur substantial operating
losses for the foreseeable future.

23
<PAGE>
We had 232 full-time employees as of March 31, 1999 and intend to hire a
significant number of employees in the future. This expansion places significant
demands on our management and operational resources. To manage this rapid growth
and increased demand, we must invest in and implement scalable operational
systems, procedures and controls. We must also be able to recruit qualified
candidates to manage our expanding operations. We expect future expansion to
continue to challenge our ability to hire, train, manage and retain our
employees.

Our limited operating history makes the prediction of future operating
results very difficult. We believe that period-to-period comparisons of
operating results should not be relied upon as predictive of future performance.
The prospects must be considered in light of the risks, expenses and
difficulties encountered by companies at an early state of development,
particularly companies in new and rapidly evolving markets. We may not be
successful in addressing such risks and difficulties. Although we have
experienced significant percentage growth in revenues in recent periods, we do
not believe that prior growth rates are sustainable or indicative of future
operating results.

24
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following tables set forth consolidated statement of operations data for
each of the six quarters ended March 31, 1999, as well as the percentage of our
total revenues represented by each item. This information has been derived from
our unaudited consolidated financial statements. The unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements contained in this prospectus and include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of such information. You should read this
information in conjunction with our annual audited consolidated financial
statements and related notes appearing elsewhere in this prospectus. You should
not draw any conclusions about our future results from the results of operations
for any quarter.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1998 1998 1998 1998 1999
-------- -------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License....................................................... $ 362 $ 445 $ 1,693 $ 3,540 $ 4,827 $ 5,673
Maintenance and service....................................... 126 282 770 1,145 2,025 3,813
-------- -------- -------- --------- -------- ---------
Total revenues.............................................. 488 727 2,463 4,685 6,852 9,486
-------- -------- -------- --------- -------- ---------
Cost of revenues:
License....................................................... 4 13 87 61 53 197
Maintenance and service....................................... 333 177 362 501 902 1,607
-------- -------- -------- --------- -------- ---------
Total cost of revenues...................................... 337 190 449 562 955 1,804
-------- -------- -------- --------- -------- ---------
Gross profit.................................................... 151 537 2,014 4,123 5,897 7,682
Operating expenses:
Sales and marketing........................................... 1,521 1,812 3,040 3,938 4,399 6,903
Research and development...................................... 919 1,044 1,197 1,339 1,649 2,200
General and administrative.................................... 392 488 551 1,149 1,201 1,497
Amortization of stock-based compensation...................... 13 66 404 473 1,113 2,932
-------- -------- -------- --------- -------- ---------
Total operating expenses.................................... 2,845 3,410 5,192 6,899 8,362 13,532
-------- -------- -------- --------- -------- ---------
Loss from operations............................................ (2,694) (2,873) (3,178) (2,776) (2,465) (5,850)
Other income, net............................................... 174 94 151 149 106 81
-------- -------- -------- --------- -------- ---------
Net loss........................................................ $(2,520) $(2,779) $(3,027) $(2,627) $(2,359) $(5,769)
-------- -------- -------- --------- -------- ---------
-------- -------- -------- --------- -------- ---------
</TABLE>

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
-----------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1998 1998 1998 1998 1999
-------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License....................................................... 74.2% 61.2% 68.7% 75.6% 70.4% 59.8%
Maintenance and service....................................... 25.8 38.8 31.3 24.4 29.6 40.2
-------- -------- -------- --------- -------- ---------
Total revenues.............................................. 100.0 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- --------- -------- ---------
Cost of revenues:
License....................................................... .8 1.8 3.5 1.3 .8 2.1
Maintenance and service....................................... 68.2 24.4 14.7 10.7 13.2 16.9
-------- -------- -------- --------- -------- ---------
Total cost of revenues...................................... 69.1 26.2 18.2 12.0 13.9 19.1
-------- -------- -------- --------- -------- ---------
Gross profit.................................................... 31.0 73.8 81.8 88.0 86.1 80.9
Operating expenses:
Sales and marketing........................................... 311.7 249.2 123.4 84.1 64.2 72.8
Research and development...................................... 188.3 143.6 48.6 28.6 24.1 23.2
General and administrative.................................... 80.3 67.1 22.4 24.5 17.5 15.8
Amortization of stock-based compensation...................... 2.7 9.1 16.4 10.1 16.2 30.9
-------- -------- -------- --------- -------- ---------
Total operating expenses.................................... 583.0 469.0 210.8 147.3 122.0 142.7
-------- -------- -------- --------- -------- ---------
Loss from operations............................................ (552.0) (395.2) (129.0) (59.3) (36.1) (61.8)
Other income, net............................................... 35.7 12.9 6.1 3.2 1.5 .9
-------- -------- -------- --------- -------- ---------
Net loss........................................................ (516.3)% (382.3)% (122.9)% (56.1)% (34.4)% (60.8)%
-------- -------- -------- --------- -------- ---------
-------- -------- -------- --------- -------- ---------
</TABLE>

25
<PAGE>
Our quarterly operating results are expected to vary significantly from
quarter to quarter and are difficult or impossible to predict.

SIX QUARTERS ENDED MARCH 31, 1999

REVENUES

LICENSE. Our license revenues increased in each of the six quarters ended
March 31, 1999. During this period of time we grew our total sales headcount
from 23 to 55. This contributed to an increase in the number of customers from 5
to 31 and led to increases in license revenues from the sale of our Ariba ORMS
products.

MAINTENANCE AND SERVICE. Our maintenance and service revenues also
increased in each of the six quarters ended March 31, 1999. During this period
of time we were directly involved in the implementation process at most of our
initial customers' locations and were involved in an advisory capacity with all
of our new customers. Our service revenues grew as the number of active
implementations increased during this six quarter period. Our maintenance
revenues grew in each quarter during the six quarters ended March 31, 1999, as
the revenues from the maintenance contracts that we sold to our growing customer
base were recognized over the period of the maintenance contracts.

COST OF REVENUES

LICENSE. We integrate certain technology into our Ariba ORMS products that
is developed by third party software developers. As our products are shipped to
customers, we incur royalty costs payable to these developers. Beginning in the
quarter ended March 31, 1998, we began to incur these costs, which grew from
$13,000 during that quarter to $197,000 during the quarter ended March 31, 1999.
In the second quarter of fiscal 1998, we licensed certain report writing
technology from a third-party software developer. This technology was integrated
into our product releases and product upgrades beginning in June 1998. At that
time, we shipped upgrades with this new technology to all of our previous
customers and incurred royalty costs for those shipments. As a result, our cost
of license revenues in the third quarter of fiscal 1998 was higher than the
fourth quarter of that year.

MAINTENANCE AND SERVICE. Beginning in the second quarter of fiscal 1997, we
began to hire implementation and technical support personnel. In each subsequent
quarter, we hired additional implementation and technical support personnel. In
the third quarter of fiscal 1998, we began to hire training personnel to provide
training services to customers and third-party implementation partners. During
the six quarters ended March 31, 1999, our implementation, technical support and
training personnel grew from 13 to 50. The personnel costs associated with this
headcount grew from $282,000 during the quarter ended December 31, 1997 to $1.4
million during the quarter ended March 31, 1999.

GROSS PROFIT

Our gross profit increased in each of the six quarters ended March 31, 1999.
The increases were primarily due to the increase in our customer base and the
incremental amounts of revenues that were recognized in each quarter.

OPERATING EXPENSES

SALES AND MARKETING. Our sales and marketing expenses increased in each of
the six quarters ended March 31, 1999. The increases are primarily attributable
to increased sales commissions, expanded marketing programs for trade shows and
customer advisory council meetings, the expansion of our regional sales office
and international subsidiary locations, and the hiring of additional marketing
and sales personnel. During this period of time our sales and marketing
personnel costs grew from $979,000 to $5.5 million, our sales and marketing
travel and entertainment costs grew from $191,000 to $342,000 and our sales and
marketing facility and office costs grew from $283,000 to $536,000.

26
<PAGE>
RESEARCH AND DEVELOPMENT. Our research and development expenses
consistently increased in each quarter during the six quarters ended March 31,
1999. Personnel costs are the largest component of this expense category and
grew from $604,000 during the quarter ended December 31, 1997 to $1.8 million
during the quarter ended March 31, 1999. During this period of time, we have
consistently increased the number of research and development personnel to
develop subsequent releases of our Ariba ORMS products. We primarily hire these
people from Silicon Valley. The market for qualified people in this area is
competitive, and costs associated with finding and retaining qualified personnel
are high. The increased number of personnel and the increased cost per person
have contributed to our consistent increases in research and development
expenses.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
in each of the six quarters ended March 31, 1999, as a result of the addition of
finance, information technology, legal and administrative personnel and the
purchase and implementation of our financial and human resource system
infrastructure. During this period of time our general and administrative
personnel costs grew from $262,000 to $852,000 and our professional services
costs grew from $90,000 to $365,000.

RESULTS OF OPERATIONS

Our activities for the period from September 17, 1996 (inception) to
September 30, 1996 consisted of the sale of common stock and preferred stock for
approximately $6.0 million and earned interest of approximately $1,000 on this
amount. Accordingly we have reflected this activity in our fiscal 1997 results.
If we had separately reflected our fiscal 1996 results, interest expense would
have been $1,000 less than reflected in our fiscal 1997 results. The following
table sets forth consolidated statement of operations data for each of the
comparative periods indicated as a percentage of total revenues.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
License............................................................... 82.9% 72.2% 66.4% 64.3%
Maintenance and service............................................... 17.1 27.8 33.6 35.7
--------- --------- --------- ---------
Total revenues...................................................... 100.0 100.0 100.0 100.0
--------- --------- --------- ---------
Cost of revenues:
License............................................................... 1.7 2.0 1.4 1.5
Maintenance and service............................................... 122.0 16.4 42.0 15.4
--------- --------- --------- ---------
Total cost of revenues.............................................. 123.7 18.4 43.4 16.9
--------- --------- --------- ---------
Gross profit (loss)..................................................... (23.7) 81.6 56.6 83.1
Operating expenses:
Sales and marketing................................................... 294.1 123.3 274.3 69.2
Research and development.............................................. 249.8 53.8 161.6 23.6
General and administrative............................................ 77.4 30.9 72.4 16.5
Amortization of stock-based compensation.............................. 6.6 11.4 6.5 24.8
--------- --------- --------- ---------
Total operating expenses............................................ 627.9 219.4 514.8 134.0
--------- --------- --------- ---------
Loss from operations.................................................... (651.6) (137.8) (458.2) (50.9)
Other income, net....................................................... 35.9 6.8 22.1 1.1
--------- --------- --------- ---------
Net loss................................................................ (615.7)% (131.0)% (436.1)% (49.8)%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

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<PAGE>
SIX MONTHS ENDED MARCH 31, 1998 AND 1999

REVENUES

LICENSE. License revenues increased from $807,000 for the six months ended
March 31, 1998 to $10.5 million for the six months ended March 31, 1999. This
increase is primarily attributable to an increase in sales to new customers
resulting from increased headcount in our sales force and, to a lesser extent,
the commencement of international operations. Sales to new customers accounted
for license revenues of $10.3 million for the six months ended March 31, 1999,
which includes $1.2 million of license revenues from international operations.
Total headcount in our sales department increased from 24 people at March 31,
1998 to 55 people at March 31, 1999.

MAINTENANCE AND SERVICE. Maintenance and service revenues increased from
$408,000 for the six months ended March 31, 1998 to $5.8 million for the six
months ended March 31, 1999. This increase is attributable to the increased
licensing activity described above, which has resulted in increased revenues
from customer implementations and maintenance contracts.

During the six months ended March 31, 1998, six customers accounted for more
than 10% of total revenues, and, in the six months ended March 31, 1999, two
customers accounted for more than 10% of revenues. Revenues from international
sales were insignificant for the six months ended March 31, 1998 and $1.1
million for the six months ended March 31, 1999. Our international revenues
during the six months ended March 31, 1999 were derived from sales in Canada and
The Netherlands.

COST OF REVENUES

LICENSE. Cost of license revenues increased from $17,000 for the six months
ended March 31, 1998 to $250,000 for the six months ended March 31, 1999. This
increase in the cost of license revenues is primarily attributable to royalties
and, to a lesser extent, packaging costs for shipments to new customers and
shipments of product updates to existing customers. Royalties increased from
$13,000 for the six months ended March 31, 1998 to $249,000 for the six months
ended March 31, 1999.

MAINTENANCE AND SERVICE. Cost of maintenance and service revenues increased
from $510,000 for the six months ended March 31, 1998 to $2.5 million for the
six months ended March 31, 1999. This increase is primarily attributable to
increases in the number of implementation, training and technical support
personnel, which increased from 13 people at March 31, 1998 to 50 people at
March 31, 1999.

GROSS PROFIT

Gross profit increased from $688,000 for the six months ended March 31, 1998
to $13.6 million for the six months ended March 31, 1999. The increase is
attributable to the growth in our customer base, which contributed to increased
revenues from software licenses, implementation and maintenance services.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses increased from $3.3
million for the six months ended March 31, 1998 to $11.3 million for the six
months ended March 31, 1999. The increase in the total amount of sales and
marketing expenses is attributable to increased sales commissions, an increase
in the number of sales and marketing employees and increases in marketing
program spending. Expenses relating to sales and marketing personnel, including
sales commissions, increased from $2.1 million for the six months ended March
31, 1998 to $8.8 million for the six months ended March 31, 1999. Marketing
program spending increased from $230,000 for the six months ended March 31, 1998
to $1.2 million for the six months ended March 31, 1999. We believe these
expenses will continue to increase in absolute dollar amounts in future periods
as we expect to continue to expand our sales and marketing efforts.

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<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$2.0 million for the six months ended March 31, 1998 to $3.8 million for the six
months ended March 31, 1999. The increase in the total amount of research and
development expenses is attributable to increases in the number of research and
development personnel. To date, all software development costs have been
expensed in the period incurred. We believe that continued investment in
research and development is critical to attaining our strategic objectives, and,
as a result, we expect research and development expenses to increase
significantly in future periods.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $880,000 for the six months ended March 31, 1998 to $2.7 million for the
six months ended March 31, 1999. This increase is primarily attributable to the
increase in the number of administrative personnel and professional services
fees, and, to a lesser extent, to increased communication costs, particularly to
remote offices, the implementation costs to install our financial and human
resource systems and increased facility costs. Expenses relating to general and
administrative personnel increased from $640,000 for the six months ended March
31, 1998 to $1.5 million for the six months ended March 31, 1999. Professional
services fees increased from $163,000 for the six months ended March 31, 1998 to
$683,000 for the six months ended March 31, 1999. We believe general and
administrative expenses will increase in absolute dollars, as we expect to add
personnel to support our expanding operations, incur additional costs related to
the growth of our business, and assume the responsibilities of a public company.

OTHER INCOME, NET

Other income, net consists of interest income, interest expense and other
non-operating expenses and decreased from $268,000 for the six months ended
March 31, 1998 to $187,000 for the six months ended March 31, 1999. This
decrease is attributable to increases in interest expense during the six months
ended March 31, 1999 over the same period in the previous year. This interest
expense results from capital equipment loans used to purchase computer equipment
and office furniture and equipment.

FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1998

REVENUES

LICENSE. License revenues increased from $630,000 in fiscal 1997 to $6.0
million in fiscal 1998. This increase is primarily attributable to an increase
in sales to new customers resulting from increased headcount in our sales force.
Sales to new customers accounted for license revenues of $5.5 million for fiscal
1998. Total headcount in our sales department increased from 15 people at
September 30, 1997 to 35 people at September 30, 1998. During fiscal 1997, three
customers accounted for more than 10% of total revenues and during fiscal 1998,
five customers accounted for more than 10% of total revenues.

MAINTENANCE AND SERVICE. Maintenance and service revenues increased from
$130,000 in fiscal 1997 to $2.3 million in fiscal 1998. During this period of
time our total implementation personnel resources grew from 10 to 21. As these
resources grew, our implementation revenue increased because these resources
were providing implementation services at existing and new customers. Our
maintenance revenue also increased during this period of time as our customer
base increased.

COST OF REVENUES

LICENSE. Cost of license revenues increased from $13,000 in fiscal 1997 to
$165,000 in fiscal 1998. This increase in the cost of license revenues is
primarily attributable to royalties and, to a lesser extent, packaging costs for
shipments to new customers and shipments of product updates to existing
customers. After paying no royalties in fiscal 1997, we paid $154,000 in
royalties in fiscal 1998.

MAINTENANCE AND SERVICE. Cost of maintenance and service revenues increased
from $927,000 in fiscal 1997 to $1.4 million in fiscal 1998. This increase is
primarily attributable to increases in the number of

29
<PAGE>
implementation, training and technical support personnel, which increased from
12 people at September 30, 1997 to 26 people at September 30, 1998.

GROSS PROFIT

We incurred a gross loss of $180,000 in fiscal 1997, and we earned a gross
profit of $6.8 million in fiscal 1998. This increase is attributable to a
greater amount of revenues from our growing customer base and the accrual of
anticipated losses from implementation projects in fiscal 1997 and in the first
quarter of fiscal 1998. During this period of time we entered into fixed-fee
implementation service contracts with certain customers. Fixed-fee
implementation projects can be unprofitable because of the scope of the work and
the amount of changes that can occur after the project begins. In accordance
with the provisions of SOP 81-1, ACCOUNTING FOR PERFORMANCE OF CONSTRUCTION TYPE
AND CERTAIN PRODUCTION TYPE CONTRACTS, whenever we anticipate a loss from an
implementation agreement we accrue for the estimated amount of the loss. We
believed that these fixed-fee projects would be unprofitable and accordingly
accrued for such losses.

OPERATING EXPENSES

SALES AND MARKETING. Sales and marketing expenses increased from $2.2
million in fiscal 1997 to $10.3 million in fiscal 1998. The increase is
attributable to increased sales commissions, a larger number of sales and
marketing employees and increases in marketing program spending. Expenses
relating to sales and marketing personnel, including sales commissions,
increased from $1.4 million in fiscal 1997 to $5.7 million in fiscal 1998.
Marketing program spending increased from $516,000 in fiscal 1997 to $1.7
million in fiscal 1998.

RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$1.9 million in fiscal 1997 to $4.5 million in fiscal 1998. This increase is
attributable to the growing number of research and development personnel.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $588,000 in fiscal 1997 to $2.6 million in fiscal 1998. This increase is
primarily attributable to the increase in the number of general and
administrative personnel and professional services fees, and, to a lesser
extent, to increased communication costs, particularly to remote offices, the
implementation costs to install our financial and human resource systems
infrastructure and increased facility costs from our expanded facility. Expenses
relating to general and administrative personnel increased from $433,000 in
fiscal 1997 to $1.7 million in fiscal 1998. Professional services fees increased
from $120,000 in fiscal 1997 to $428,000 in fiscal 1998.

OTHER INCOME, NET

Other income, net increased from $273,000 in fiscal 1997 to $568,000 in
fiscal 1998. This is attributable to an increase in interest income on our
deposits in our operating and investment accounts.

PROVISION FOR INCOME TAXES

We incurred operating losses for all periods from inception through March
31, 1999, and therefore have not recorded a provision for income taxes. We have
recorded a valuation allowance for the full amount of our net deferred tax
assets, as the future realization of the tax benefit is not currently likely.

As of September 30, 1998, we had net operating loss carry-forwards for
federal tax purposes of approximately $11.5 million and for state tax purposes
of approximately $8.3 million. These federal and state tax loss carry-forwards
are available to reduce future taxable income and expire at various dates into
fiscal 2012. Under the provisions of the Internal Revenue Code, certain
substantial changes in our ownership may limit the amount of net operating loss
carry-forwards that could be utilized annually in the future to offset taxable
income.

30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations through private sales of
preferred stock, with net proceeds of $23.2 million, bank loans and equipment
leases. As of March 31, 1999, we had $21.4 million in cash, cash equivalents and
short-term investments, and $3.8 million in working capital.

Net cash used in operating activities was $3.1 million in fiscal 1997 and
$4.9 million in fiscal 1998. Net cash from operating activities was $10.0
million in the six months ended March 31, 1999. Net cash flows from operating
activities in each period reflect increasing net losses and, to a lesser extent,
accounts receivable offset in part by increases in accrued compensation and
liabilities. Net cash from operating activities in the six months ended March
31, 1999 reflects $14.4 million of deferred revenue from customer payments that
were not recognized as revenue.

Net cash used in investing activities was $1.0 million in fiscal 1997, $6.5
million in fiscal 1998 and $4.1 million in the six months ended March 31, 1999.
Cash used in investing activities reflects purchases of property and equipment
in each period, purchases of short-term investments in fiscal 1998 and in the
six months ended March 31, 1999, and proceeds from the sale of short-term
investments in the six months ended March 31, 1999.

Net cash from financing activities was $19.5 million in fiscal 1997, $4.2
million in fiscal 1998, and $374,000 in the six months ended March 31, 1999.
These cash flows reflect primarily proceeds from private sales of preferred
stock.

Capital expenditures, including capital leases, were $995,000 in fiscal
1997, $2.0 million in fiscal 1998, and $2.4 million in the six months ended
March 31, 1999. Our capital expenditures consisted of purchases of operating
resources to manage our operations, including computer hardware and software,
office furniture and equipment and leasehold improvements. We expect that our
capital expenditures will continue to increase in the future. Since inception,
we have generally funded capital expenditures either through the use of working
capital or with capital leases. In connection with the relocation of our
headquarters, we are planning to make approximately $8.0 million in leasehold
improvements. We will also need to purchase additional operating resources. We
intend to enter into a loan agreement to finance these commitments. To the
extent we are unable to secure this financing, we may be required to apply a
portion of the proceeds from this offering toward these expenditures.

We expect to experience significant growth in our operating expenses,
particularly research and development and sales and marketing expenses, for the
foreseeable future in order to execute our business plan. As a result, we
anticipate that such operating expenses, as well as planned capital
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or product lines. We believe that the net
proceeds from the sale of the common stock in this offering will be sufficient
to meet our working capital and operating resource expenditure requirements for
at least the next two years. Thereafter, we may find it necessary to obtain
additional equity or debt financing. In the event additional financing is
required, we may not be able to raise it on acceptable terms or at all.

YEAR 2000 READINESS

The "Year 2000 issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.

We designed all of our products to be Year 2000 compliant when configured
and used in accordance with the related documentation, and provided that the
underlying operating system of the host machine and any other software used with
or in the host machine or our products are Year 2000 compliant. However, we have
not tested our products for Year 2000 compliance. We continue to respond to
customer questions about prior versions of our products on a case-by-case basis.

31
<PAGE>
We have defined Year 2000 compliant as the ability to:

- Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;

- Function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;

- Respond to two-digit date input in a way that resolves the ambiguity as to
century in a disclosed, defined and predetermined manner;

- Store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and

- Recognize year 2000 as a leap year.

We have tested software obtained from third parties that is incorporated
into our products, and we are seeking assurances from our vendors that licensed
software is Year 2000 compliant. To date, we have received assurances from the
vendors of our enterprise resource planning software, and technology support
software as to their Year 2000 compliance. Despite testing by us and current and
potential customers, and assurances from developers of products incorporated
into our products, our products may contain undetected errors or defects
associated with Year 2000 date functions. Known or unknown errors or defects in
our products could result in delay or loss of revenues, diversion of development
resources, damage to our reputation, increased service and warranty costs, or
liability from our customers, any of which could seriously harm our business.

Some commentators have predicted significant litigation regarding Year 2000
compliance issues, and we are aware of these lawsuits against other software
vendors. Because of the unprecedented nature of this litigation, it is uncertain
whether or to what extent we may be affected by it.

We have initiated an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware technology. We have not initiated an assessment of our
non-information technology systems, although we have received a favorable
assessment of the Year 2000 compliance of our new headquarters in Mountain View,
California. We expect to complete testing of our information technology systems
in 1999. To the extent that we are not able to test the technology provided by
third-party vendors, we are seeking assurances from these vendors that their
systems are Year 2000 compliant. We are not currently aware of any material
operational issues or costs associated with preparing our internal information
technology and non-information technology systems for the Year 2000. However, we
may experience material unanticipated problems and costs caused by undetected
errors or defects in the technology used in our internal information technology
and non-information technology systems.

We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for or
delay purchases of our products and services. As a result, our business could be
seriously harmed.

We have funded our Year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could seriously harm our business.

We have not yet fully developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 readiness of our critical
operations, and we do not anticipate the need to do

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<PAGE>
so. The cost of developing and implementing such a plan may itself be material.
Finally, we are also subject to external forces that might generally affect
industry and commerce, such as utility or transportation company Year 2000
compliance failure interruptions.

Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:

- The inability of our customers to use our products and services to procure
and manage their operating resources;

- Claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our products and services
to function properly, and any resulting settlements or judgments; and

- Our inability to manage our own business.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires
disclosure of certain information regarding operating segments, products and
services, geographic areas of operation and major customers. We are in the
process of evaluating the effects of this change on our reporting segments. We
will adopt SFAS No. 131 in fiscal 1999.

In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position, or SOP, 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. We do not expect SOP 98-1
to have a material effect on our financial position, results of operations or
cash flow. We will adopt SOP 98-1 in fiscal 2000.

In April 1998, the AcSEC issued SOP 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. Under SOP 98-5, the cost of start-up activities should be expensed
as incurred. We expect that the adoption of SOP 98-5 will not have a material
impact on our financial position, results of operations or cash flows. We will
be required to adopt SOP 98-5 in fiscal 2000.

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because Ariba
does not currently hold any derivative instruments and does not engage in
hedging activities, we expect the adoption of SFAS No. 133 will not have a
material impact on our financial position, results of operations or cash flows.
We will be required to adopt SFAS No. 133 in fiscal 2000.

QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We develop products in the United States and market our products in North
America, Europe and the Asia-Pacific region. As a result, our financial results
could be affected by factors such as changes in foreign currency exchange rates
or weak economic conditions in foreign markets. As all sales are currently made
in U.S. dollars, a strengthening of the dollar could make our products less
competitive in foreign markets. Our interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since the majority of our
investments are in short-term instruments. Due to the short-term nature of our
investments, we believe that there is no material risk exposure. Therefore, no
quantitative tabular disclosures are required.

33
<PAGE>
BUSINESS

THE PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH
FORWARD-LOOKING STATEMENTS.

OVERVIEW

Ariba is a leading provider of intranet- and Internet-based
business-to-business electronic commerce solutions for operating resources. Our
Operating Resource Management System, Ariba ORMS, enables organizations to
automate the procurement cycle within their "intranets," internal computer
networks which are based on the Internet protocol, lowering the costs associated
with operating resources. Our recently launched Ariba.com network is a global
business-to-business electronic commerce network for operating resources that
enables buyers and suppliers to automate transactions on the Internet. Together,
Ariba ORMS and Ariba.com combine intranet-based network applications with an
Internet-based network to create a business-to-business electronic commerce
solution for operating resources that benefits both buyers and suppliers. Since
we began marketing Ariba ORMS in March 1997, it has been licensed by large,
multinational industry leaders and public sector organizations including
Chevron, Cisco Systems, Federal Express Corporation, Hewlett-Packard, Philips, U
S WEST and Visa.

INDUSTRY BACKGROUND

GROWTH OF THE INTERNET AND BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE

The Internet has emerged as the fastest growing communication medium in
history. With over 97 million users at the end of 1998, growing to 320 million
users by 2002, as estimated by International Data Corporation, the Internet is
dramatically changing how businesses and individuals communicate and share
information. The Internet has created new opportunities for conducting commerce,
such as business-to-consumer and person-to-person electronic commerce. Recently,
the widespread adoption of intranets and the acceptance of the Internet as a
business communications platform has created a foundation for
business-to-business electronic commerce that will enable organizations to
streamline complex processes, lower costs and improve productivity.

With this foundation, Internet-based business-to-business electronic
commerce is poised for rapid growth and is expected to represent a significantly
larger opportunity than business-to-consumer or person-to-person electronic
commerce. According to Forrester Research, business-to-business electronic
commerce is expected to grow from $43 billion in 1998 to $1.3 trillion in 2003,
accounting for more than 90% of the dollar value of electronic commerce in the
United States. This market is expected to create a substantial demand for
Internet-based electronic commerce applications. According to International Data
Corporation, the worldwide market for Internet-based electronic commerce
procurement and order management applications is expected to experience
tremendous growth, increasing from $187 million in 1998 to $8.5 billion in 2003.

TRADITIONAL APPROACHES TO BUYING OPERATING RESOURCES

Operating resources are the goods and services required to operate a
company, ranging from significant items, such as information technology,
telecommunications equipment and professional

34
<PAGE>
services, to recurring items, such as MRO (Maintenance, Repair and Operations)
supplies, travel and entertainment expenses, and office equipment. Operating
resource expenditures are distinct from manufacturing resource expenditures,
such as raw materials and other costs of goods sold, and from human resource
expenditures, such as wages, salaries and benefits. According to Killen &
Associates, operating resource expenditures are often the largest segment of
corporate expenditures, representing approximately 33% of an average company's
total revenues.

Today, most organizations buy operating resources through paper-based or
semi-automated processes. These processes are costly, time consuming and complex
and often include the re-keying of information, lengthy approval cycles and
significant involvement of financial and administrative personnel. AMR estimates
that the cost per procurement transaction ranges from $75 to $175, often
exceeding the cost of the items being purchased. In addition, these time
consuming processes often result in fulfillment delays to end-users, leading to
productivity losses.

Beyond the time and expense associated with manual processing costs,
organizations suffer even greater costs when they cannot fully exploit
procurement economies of scale. Most organizations lack the systems that enable
them to monitor purchases and compile data necessary to negotiate better volume
discounts with preferred suppliers. In addition, most organizations suffer from
a problem known as "maverick buying," which occurs when personnel do not follow
internal guidelines as to which suppliers to use for operating resource
purchases. When preferred suppliers are not used, organizations pay a premium.
AMR estimates that maverick buying accounts for one-third of operating resource
expenditures, costing organizations a 15% to 27% premium on those purchases.

Traditional procurement processes also result in missed revenue
opportunities and additional costs to suppliers. When buyers are unable to
channel purchases to preferred suppliers, these suppliers lose revenue.
Suppliers also suffer from inefficient, error prone and manually-intensive order
fulfillment processes. Many suppliers dedicate significant resources to the
manual entry of information from faxed or phoned-in purchase orders and the
manual processing of paper checks, invoices and ship notices. Suppliers also
spend significant resources on customer acquisition and sales costs, including
the production and distribution of paper catalogs. Without fully automated and
integrated electronic commerce technologies, both buyers and suppliers incur
substantial extraneous costs in conducting commerce.

OPPORTUNITY FOR BUSINESS-TO-BUSINESS ELECTRONIC COMMERCE SOLUTIONS FOR
OPERATING RESOURCES

Over the past 30 years, information technologies have brought automation to
departmental operations such as manufacturing resource planning, financial
management, sales force automation and human resource management. However, the
information technology platforms that made departmental automation possible did
not provide enterprise-wide connectivity within organizations or connectivity
between organizations. Thus, the processes linking end-users to approvers and
organizations to suppliers for operating resources are today largely
paper-based. With the widespread implementation of intranets and the adoption of
the Internet as a business communication platform, organizations can now
automate enterprise-wide and inter-organizational commerce activities. The
availability of this technology creates a significant market opportunity for
Internet-based business-to-business electronic commerce solutions for operating
resources.

For buyers, a solution must include a user-friendly, intranet-based system
that links end-users, approvers and administrative personnel with an integrated
global network that connects buying organizations with suppliers. This system
must be flexible enough to meet the unique business process requirements of
large, multinational organizations and must be highly scalable, reliable and
rapidly deployable. It must take advantage of an organization's existing
investments in information technologies by working with and connecting to
multiple financial, human resource and enterprise resource planning systems. The
system must provide data reporting and analytical tools that enable analysis of
end-user spending patterns and provide insight into savings opportunities. For
suppliers, the solution must be easy

35
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to implement, based on open standards and build upon existing investments in
on-line catalogs and order processing technologies. Additionally, the solution
should offer suppliers the opportunity to expand their customer base by
providing access to a critical mass of buyers. Addressing these requirements for
both buyers and suppliers is critical to enabling full scale
business-to-business electronic commerce for operating resources.

THE ARIBA SOLUTION

Ariba is a leading provider of intranet- and Internet-based
business-to-business electronic commerce solutions for operating resources. Our
solution consists of two components, our intranet-based Ariba ORMS (Operating
Resource Management System) network application and our Internet-based Ariba.com
network. Ariba ORMS is a robust, scalable and reliable network application that
operates primarily within a buying organization's intranet. Ariba ORMS enables
an organization to reduce processing costs and improve productivity by
automating the procurement cycle and linking end-users throughout an
organization with internal approvers and financial systems. Ariba ORMS also
enables organizations to reduce the cost of operating resources by channeling
purchases to preferred suppliers. Our recently launched Ariba.com network is a
global business-to-business electronic commerce network for operating resources,
enabling buyers and suppliers to automate transactions on the Internet.
Together, Ariba ORMS and our Ariba.com network combine intranet-based network
applications with an Internet-based network to create a business-to-business
electronic commerce solution for operating resources benefiting both buyers and
suppliers.

We believe our solution provides the following benefits:

BENEFITS TO BUYERS:

SIGNIFICANTLY REDUCED PROCESSING COSTS AND INCREASED PRODUCTIVITY. By
automating the operating resource procurement process, our Ariba solution
allows organizations to achieve significant cost savings and productivity
enhancements. Ariba ORMS enables an organization to streamline and automate
complex and unusual business processes. Ariba ORMS also takes advantage of
existing investments in financial, human resource and enterprise resource
planning systems, which reduces or eliminates the need to manually enter
data into these systems. As a result, our Ariba solution allows
organizations to focus on value-added activities such as negotiating better
discounts with preferred suppliers. Through our solution, end-users can
order and receive requested items more quickly and with less effort,
improving overall productivity.

SUBSTANTIALLY REDUCED COSTS OF OPERATING RESOURCES. Our Ariba solution
enables organizations to maximize procurement economies of scale, lowering
the overall costs of operating resources. Ariba ORMS provides corporate-wide
data analysis and reporting tools on buying patterns, enabling organizations
to negotiate more favorable contracts with preferred suppliers. Our Ariba
solution in turn routes transactions to these preferred suppliers
automatically. Moreover, Ariba ORMS is accessible on every desktop, is
easy-to-use and streamlines the procurement process. These benefits minimize
the frustration to end-users that often results in maverick buying, further
enabling organizations to take advantage of negotiated discounts with
preferred suppliers.

BENEFITS TO SUPPLIERS:

INCREASED VOLUME AND REVENUE OPPORTUNITIES. Ariba ORMS and our Ariba.com
network enable buyers to channel spending to preferred suppliers, providing
these suppliers the opportunity to increase revenues. Our Ariba.com network
provides suppliers with greater access to new and existing customers through
a global presence and availability 24 hours a day, seven days a week. In
addition, by taking advantage of suppliers' web-based catalog capabilities,
our solution enables suppliers to differentiate and market their goods and
services in their preferred format.

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<PAGE>
REDUCED SALES COSTS. Our Ariba solution enables suppliers to reduce sales
costs in several ways. By automating transactions, suppliers can reduce the
costs associated with, and reduce the potential for error inherent in,
paper-based ordering and payment processes. Product information can be
distributed electronically, reducing the cost of printed product catalog
distribution. In addition, suppliers can utilize their existing investments
in electronic commerce systems, including catalogs and product web pages.

We believe that the benefits of Ariba ORMS and our Ariba.com network will
create a growth cycle that increases the value of our Ariba solution to both
buyers and suppliers over time. As buyers benefit from the efficiencies of our
Ariba solution, we believe suppliers will be drawn to our Ariba.com network by
the aggregated purchasing power of buyers using our network. As more suppliers
offer operating resources through the network, more buyers are encouraged to
join our network.

THE ARIBA GROWTH STRATEGY

Our objective is to create the leading Internet-based business-to-business
electronic commerce network for operating resources. Key elements of our
strategy to achieve this objective include:

TARGET LARGE MULTINATIONAL BUYERS IN A BROAD RANGE OF INDUSTRIES. We intend
to continue to target large, multinational corporations and public sector
institutions, benefiting from our first-mover advantage with many of these
organizations. We believe these organizations will be the most likely early
beneficiaries of an automated, reliable, robust and scalable procurement
solution and can provide strong customer references. Furthermore, we believe the
large spending power these organizations can channel through our Ariba.com
network will attract suppliers to the network. Finally, these organizations have
demanding requirements and rigorously test our products, assisting us in
designing a robust, reliable and scalable solution.

CREATE A NETWORK EFFECT BY ATTRACTING THE LARGEST BUYERS AND SUPPLIERS TO
OUR ARIBA.COM NETWORK. As Ariba ORMS is deployed to a critical mass of large
buyers in numerous industries, we intend to build upon the buying power of these
large organizations to attract suppliers to our Ariba.com network. We believe a
growing number of suppliers in our Ariba.com network will in turn draw more
buyers to our network. We also believe this growth cycle will help create a
network effect, where the value to each participant in the network increases
with the addition of each new participant, increasing the overall value of our
Ariba solution.

EXTEND AND BUILD UPON THE ARIBA COMMUNITY OF PARTNERS. We intend to build
upon our strategic relationships with industry leaders in the areas of
electronic commerce systems, information technology consulting, distribution and
content aggregation. We are working with these partners to accelerate our
Ariba.com network rollout, provide additional customer implementation
capabilities, expand our customer base and increase the content available on our
Ariba.com network. These relationships allow us to focus on our core area of
expertise, while taking advantage of the strengths of complementary technologies
and the influence of these industry leaders. We believe that these
relationships, as well as others that we intend to pursue, will enable the rapid
and widespread deployment of our electronic commerce solution.

PROVIDE SUPERIOR CUSTOMER SATISFACTION. We believe a loyal base of
reference customers affords us a significant competitive advantage. Therefore,
we intend to continue to focus significant resources on customer satisfaction
programs. In order to foster a culture of customer satisfaction as our highest
priority, all of our employees with variable compensation are paid in part based
on customer satisfaction as measured by an independent third party organization.
We continue to make use of a number of other programs to promote superior
customer satisfaction including our customer-driven development process and our
frequent customer advisory councils.

EXPAND GLOBAL OPERATIONS. We intend to aggressively grow our global
presence by expanding our worldwide field sales, marketing and services
organizations. To complement this strategy, we intend to

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<PAGE>
continue to globalize our operations and expand our corporate and administrative
organizations and systems. We also intend to enter into a strategic relationship
with a third party to expand the computer and communications equipment and
software required to support the day-to-day operations of our Ariba.com network
on a global basis.

ARIBA PRODUCTS AND SERVICES

Ariba provides a comprehensive intranet- and Internet-based
business-to-business electronic commerce solution for operating resources. This
solution consists of two components, Ariba ORMS and our Ariba.com network. Ariba
ORMS is a network application that operates primarily within a buying
organization's internal network. Ariba ORMS enables organizations to reduce
processing costs and improve productivity by automating the procurement cycle,
linking end-users throughout the organization with approvers and financial
systems. Ariba ORMS also enables organizations to reduce the cost of operating
resources by channeling purchases to preferred suppliers. As orders are
generated and approved, Ariba ORMS automates commerce transactions securely with
suppliers on the Internet through our Ariba.com network. Our recently launched
Ariba.com network is a global business-to-business electronic commerce network
for operating resources that enables buying organizations, suppliers and
distributors to automate transactions on the Internet. Together, Ariba ORMS and
our Ariba.com network combine intranet-based network applications with an
Internet-based network to create a business-to-business electronic commerce
solution for operating resources benefiting both buyers and suppliers.

Edgar description of artwork:

This graphic depicts the various elements of the Ariba ORMS product and the
Ariba.com network. There are two three-dimensional boxes separated by a
three-dimensional square slice labeled "Firewall." The left box is labeled
"ARIBA ORMS" on the side, and the right box is labeled "ARIBA.COM" on the side.
The left box, the center "Firewall" and the right box are connected by a
cylindrical pipe running through the center of each of them. The top of the left
box is separated into six sections. The sections are labeled as follows: "MRO,"
"Service," "Capital Equipment," "eForms," "Expense Mgmt." and "P-Card." Each of
the labels is attached to its respective section by a line. The labels are
arranged vertically in a column and are collectively labeled "Modules" in bold
print. The bottom of the left box is separated into five sections. The sections
are labeled as follows: "SAP," "PeopleSoft," "Oracle," "Authentication" and
"General API." Each of the labels is attached to its respective section by a
line. The labels are arranged vertically in a column and are collectively
labeled "Adapters" in bold print. The end of the left box displays a picture of
Ariba's web site. The graphic also contains a blow-up of this web page, which is
labeled "User-Friendly Web-based Interface." The only legible wording on the web
site is the Ariba logo in the upper left hand corner and the words "Welcome to
Ariba" in a circle in the middle of the page. The remainder of the page contains
a ring of links to other pages on Ariba's web site.

The top of the right box is separated into five sections. The sections are
labeled as follows: "Buyer Sourcing," "On-line Registration," "Catalog
Indexing," "News, Information, Services" and "Ariba Supplier Link." Each of the
labels is attached to its respective section by a line. The labels are arranged
vertically in a column and are collectively labeled "Tools" in bold print. The
bottom of the right box is separated into six sections. The sections are labeled
as follows: "Email/Fax," "XML/CXML," "CIF," "EDI," "OBI" and "HTML." Each of the
labels is attached to its respective section by a line. The labels are arranged
vertically in a column and are collectively labeled "Multi-protocol Translators"
in bold print.

ARIBA ORMS

Ariba ORMS is a robust, scalable and reliable network application that
operates primarily within a buying organization's intranet. Ariba ORMS enables
organizations to reduce processing costs and improve productivity by automating
the procurement cycle, linking end-users throughout the organization with
approvers and financial systems. Ariba ORMS also enables organizations to reduce
the cost of operating resources by channeling purchases to preferred suppliers.
Ariba ORMS is designed to connect large numbers of end-users, approvers and
administrative personnel through web-based applications that automate
procurement and finance processes. Ariba ORMS works with multiple enterprise
systems simultaneously, in addition to providing real-time electronic access to
important procurement information, such as supplier product specifications,
price lists, web sites and order status.

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The primary characteristics of Ariba ORMS are:

USER FRIENDLY, WEB-BASED INTERFACES. The browser-based user interface
enables users throughout an organization to take full advantage of Ariba
ORMS from their desktop and with minimal training. Wizards, software that
provides automated assistance, guide less experienced users through the
acquisition process, while an advanced user interface makes the system more
productive for experienced users.

ELECTRONIC BUSINESS PROCESS AUTOMATION. Ariba ORMS provides flexible
workflow capable of streamlining and automating even the most complex or
unusual business processes of large, multinational organizations. This
flexible workflow can be customized for the unique processes of an
organization and can be tailored to respond to end-user input, system events
or any extrinsic or intrinsic data in the procurement cycle.

SIMULTANEOUS INTERACTION WITH MULTIPLE ENTERPRISE SYSTEMS. Ariba ORMS works
with and connects to leading finance, human resource management and
enterprise resource planning systems from vendors such as PeopleSoft, SAP
and Oracle. In addition, Ariba ORMS provides a comprehensive API
(Application Programming Interface) to connect and work with other legacy
systems through adapters that are sold as separate products. A single Ariba
ORMS installation can connect with multiple enterprise applications
simultaneously through real-time or scheduled interfaces. These interfaces
also enable Ariba ORMS to utilize standard user authentication and directory
services such as LDAP (Lightweight Directory Access Protocol) and
Microsoft's Active Directory.

INFORMATION ACCESS. With powerful analytical and reporting tools, Ariba
ORMS enables organizations to evaluate data collected throughout the process
of acquiring, receiving and paying for operating resources. By employing
these analytical tools, an organization can analyze purchasing patterns to
streamline the procurement process, negotiate more favorable terms with
preferred suppliers and gain insight into additional savings opportunities.

INTERFACE WITH OUR ARIBA.COM NETWORK. Ariba ORMS allows organizations to
automate commerce transactions with suppliers over the Internet and through
our Ariba.com network. By adhering to open standards, Ariba ORMS provides a
variety of methods for suppliers to communicate electronically with buying
organizations through our Ariba.com network. Ariba ORMS also allows
suppliers to take advantage of their existing web-based catalogs to provide
product information to buyers.

MULTI-PLATFORM ARCHITECTURE. The Ariba ORMS server currently supports
industry-standard approaches to high-performance databases and
multi-processor hardware. Ariba ORMS currently supports Microsoft Windows NT
and Unix platforms including Hewlett-Packard HP-UX and Sun Solaris.

ARIBA ORMS MODULES

Ariba ORMS modules are designed specifically for the procurement and
management of different operating resources. Each module contains powerful
reporting and data analysis tools that enable operations managers to monitor the
requisition process and identify areas for cost reductions.

The Ariba ORMS modules are:

ARIBA MRO. Ariba MRO allows organizations to manage purchases associated
with maintenance, repair and operations supplies. These items are primarily
ordered through electronic catalogs and may include office products,
information technologies and facilities items.

ARIBA SERVICES. Ariba Services are specifically designed to address the
unique data collection requirements for the procurement of professional
services, such as facility, legal, temporary and

39
<PAGE>
maintenance services. Purchasing professional services, unlike commodities,
involves a number of different variables, such as scope of services needed,
qualification of personnel and duration of the services. Ariba Services can
integrate this data to process requisitions obtained from the end-user at
various points in the requisitioning, procurement and receiving cycle.

ARIBA CAPITAL EQUIPMENT. Ariba Capital Equipment addresses the specific
needs of capital equipment purchases such as manufacturing, facilities or
information technology equipment. The procurement of capital equipment often
requires unique data such as different accounting, asset identification and
tracking information. Ariba Capital Equipment can be easily configured to
suit an organization's specific accounting and tracking needs.

ARIBA EFORMS. Ariba eForms allow organizations to create custom forms,
which can be attached to existing Ariba applications or used to create new
applications for nearly any type of operating resource request. Ariba eForms
are created using XML (eXtensible Markup Language), a robust definition
language that allows organizations to design forms that capture information
from end-users and route the information for internal approval. Each Ariba
eForm can have its own approval rules and can incorporate standard data from
Ariba ORMS including financial accounting and human resources information.

ARIBA EXPENSE MANAGEMENT. Ariba Expense Management automates the expense
reporting process associated with expenditures such as travel and
entertainment. Ariba Expense Management provides a robust set of features to
generate expense reports automatically from electronic credit card, travel
card or procurement card data feeds and can route expense reports to
functional, travel and expense managers.

ARIBA P-CARD RECONCILIATION. Ariba P-Card Reconciliation provides support
for the use of P-Cards, which are credit cards designed specifically for
business procurement. P-Cards can be allocated to a given user or an
accounting entity. Electronic P-Card statements from financial institutions
can be read automatically by Ariba ORMS and reconciled against purchases
made, flagging any exceptions or inconsistencies.

ARIBA ORMS ENTERPRISE ADAPTERS

Ariba ORMS enterprise adapters are designed specifically to connect to or
integrate with leading finance, human resource management and enterprise
resource and planning systems. Integration refers to the ability of Ariba ORMS
adapters to exchange information with an organization's enterprise systems,
eliminating the need for manual transfer of critical information from Ariba ORMS
to these systems. Ariba ORMS enterprise adapters can integrate with standard
implementations of these systems or can be configured to integrate with custom
installations of the enterprise system. These adapters enable a single Ariba
ORMS installation to integrate with multiple enterprise applications
simultaneously.

ARIBA SAP ADAPTER. Ariba SAP Adapter provides real-time and scheduled
integration with SAP applications through standard programming interfaces
for personnel, accounting, distribution, supplier and financial information.

ARIBA PEOPLESOFT ADAPTER. Ariba PeopleSoft Adapter allows real-time and
scheduled integration with PeopleSoft finance, distribution and human
resources management systems through PeopleSoft's message agent for
administrative, personnel, accounting, distribution, supplier and financial
information.

ARIBA ORACLE ADAPTER. Ariba Oracle Adapter allows real-time and scheduled
integration with Oracle applications for personnel, accounting,
distribution, supplier and financial information.

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<PAGE>
ARIBA AUTHENTICATION ADAPTER. Ariba Authentication Adapter provides
integration with standard user authentication and directory services such as
LDAP (Lightweight Directory Access Protocol) and Microsoft's Active
Directory.

ARIBA GENERAL API ADAPTER. Ariba General API Adapter provides integration
with existing and legacy enterprise systems to interface information with
Ariba ORMS on a real-time or scheduled basis.

Customers who purchase our software products receive a server capacity
license, one or more of the Ariba ORMS modules and adapters to interface with
enterprise financial and human resource systems. The license fee for the server
capacity license is based on the customer's annual volume of line items of
purchasing transactions. The license fees for the software modules and adapters
consist of individual prices for each module or adapter.

The volume licensing of the server capacity allows customers to scale the
total cost of their purchase of the Ariba ORMS system to their needs. The server
capacity license entitles customers to execute the licensed volume of line items
of purchasing transactions during any annual period following their purchase of
the server license. Ariba's customers generally purchase estimated server
capacity at the time of the purchase of the server license. Following the
initial implementation of Ariba ORMS, and based on the reporting and analysis
tools available through Ariba ORMS, our customers are able to understand their
annual transaction volume more fully. Customers who exceed their estimated
volume can purchase additional server capacity. However, there are no recurring
annual license fees. To date, three customers have purchased additional annual
server capacity licenses.

OUR ARIBA.COM NETWORK

Our Ariba.com network is an Internet-based operating resource solution
designed to provide access to large amounts of supplier product information and
to enable electronic commerce transactions over the Internet. Our Ariba.com
network bridges buyer and supplier networks on the Internet and offers catalog
and content management, order transaction routing and multi-protocol support for
numerous electronic commerce standards.

Our multi-protocol network allows buyers to send transactions from Ariba
ORMS in one standard format; it then converts the order into the supplier's
preferred transaction format, such as CXML (Commerce eXtensible Markup
Language), a format used on the Internet to describe commerce data and
documents, or EDI (Electronic Data Interchange), a format used to exchange data
and documents electronically. This feature eliminates the need for a single
standard for electronic commerce and gives suppliers the freedom to transact in
their preferred protocols.

Our Ariba.com network also allows suppliers to utilize their existing
electronic commerce systems to provide information about their products and
services. Suppliers can send electronic catalogs through standard formats such
as CIF (Catalog Interchange Format), a format commonly used to transfer catalog
information electronically, and CXML. In addition, buyers can link to a
supplier's web site using a technology called CXML Punch-out. CXML Punch-out
allows a buyer to select a product utilizing a supplier's web site while keeping
the purchasing process within our Ariba ORMS system for internal approval,
accounting and administrative controls. This feature is particularly useful for
suppliers with robust web sites, electronic product configuration systems and
large product catalogs. In addition, suppliers can take advantage of their
existing web-based catalog capabilities to differentiate and market their goods
and services.

The key components of our Ariba.com network are:

OPEN STANDARDS MULTI-PROTOCOL TRANSACTION NETWORK. Our Ariba.com network
automatically routes and translates transactions between buyers and
suppliers using most major electronic commerce standards, including: XML;
CXML; Internet EDI; VAN EDI (Value Added Networks for EDI); a subset of the
OBI standard (Open Buying on the Internet), a protocol for buying goods and
services

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<PAGE>
on the Internet; HTML (Hyper-Text Markup Language), a format commonly used
to define content for web pages; e-mail; auto-fax and CIF. This enables
buyers to conduct business with suppliers independent of the type of
electronic commerce systems used by the supplier.

WEB-BASED CONTENT ACCESS AND INDEXING. Our Ariba.com network uses a
scalable approach for content management. This approach employs indexing,
rather than content aggregation, to connect buying organizations using Ariba
ORMS to suppliers' existing web-based catalogs. This indexing approach
eliminates the need to aggregate content in a central repository, yet
provides robust and comprehensive searching tools to buyers. In addition,
our Ariba.com network allows suppliers to take advantage of existing
electronic commerce web-based catalogs through CIF, CXML and CXML Punch-out.

ARIBA SUPPLIER LINK. In December 1998, we announced our Ariba Supplier Link
program, an initiative to integrate supplier content into our Ariba.com
network. Members of Ariba Supplier Link provide buying organizations using
Ariba ORMS access to indices of millions of items from thousands of
manufacturers.

SUPPLIER SELF-MANAGEMENT AND REGISTRATION. To conduct commerce with all
buying organizations using Ariba ORMS, suppliers need only to register once
and continue to manage their relationships online, in their preferred
transaction standards and configurations without the need for additional
software.

NEWS, INFORMATION AND SERVICES. Our Ariba.com network provides news,
information and services of interest to business buyers and suppliers such
as sourcing, supplier, financial and industry information.

Our Ariba.com network is designed for high-performance databases and
multi-processing hardware and utilizes a multi-server configuration to allow
workloads to be shared across multiple servers and the site to maintain
availability of online service. We intend to enter into an outsourcing
relationship with a third party to build and operate the network and platform
infrastructure for our Ariba.com network. This network and platform
infrastructure consists of the computer and communications equipment and
software that allow buyers and suppliers to exchange information over our
Ariba.com network. It will be difficult for us to operate our Ariba.com network
if we are unable to contract with a third party as we would have to perform
these functions ourselves or obtain similar services from another provider, and
we may not successfully perform or obtain these services for our Ariba.com
network on a timely and cost-effective basis.

Although we expect to derive revenue from our Ariba.com network in the
future, we have not yet established our pricing and revenue model for the
services associated with our network. If we are unable to establish a pricing
and revenue model acceptable to our customers, our Ariba.com network may not be
commercially successful. As of May 31, 1999, only one customer was buying
operating resources through our network from a limited number of linked
suppliers.

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CUSTOMERS

We target large, multinational market leaders in a broad range of
industries. As of May 31, 1999, customers that have purchased licenses for Ariba
ORMS include:

<TABLE>
<S> <C>
Advanced Micro Devices Motorola
Boehringer-Ingelheim Nestle USA
Autodesk Octel Messaging Division of Lucent
Bristol-Myers Squibb Technologies
Cadence Design Systems Parametric Technology Corporation
Caltex Philips Electronics
Canadian Imperial Bank of Commerce Purdue University
Chevron SAirGroup
Cisco Systems Seagate Technology
Citizens Telecommunications Sonoco Products
Cypress Semiconductor Staples
Earthgrains The State of California
Federal Express Corporation Transamerica
General Motors U S WEST
Hewlett-Packard Visa International
Merck Visa USA
</TABLE>

SUPPLIERS

In December 1998, we announced our Ariba Supplier Link or "ASL" program,
which is an initiative to provide supplier content to Ariba ORMS customers
electronically. We have over 40 members in our program. These members include
individual manufacturers, distributors, resellers, content management solution
providers and sourcing organizations. Our ASL members include the following
companies:

<TABLE>
<S> <C>
Anderson Unicom Group Inacom
Barnesandnoble.com Interworld
Beyond.com Ironside Technologies
Boise Cascade Office Products Life Technologies
BT Office Products International MicroAge Integration
CAP MicroAge Toronto
Chemdex NCR Systemedia Group
Collabria Neoforma
Com-Kyl Newark Electronics
Compucom Systems Office Depot
Contact East PCNet
Corporate Express PcOrder.com
Cort Furniture Rental Reynolds and Reynolds
Data Impressions RoweCom
Dell Products Saqqara Systems
Digital River SciQuest
Electro Rent Staples
Electronic Sales Systems Technicon
EMAX Solution Partners Telepress
Fatbrain.com US Technologies
Flow Systems ViewTek
Grand & Toy W.W. Grainger
Harbinger Wood Associates
Hewlett-Packard 1.800.Batteries
ImageX.com 1Nine Systems
</TABLE>

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<PAGE>
STRATEGIC RELATIONSHIPS

To ensure that we deliver a comprehensive solution to our customers, we have
established strategic relationships with organizations in four general
categories: hardware platforms; software platforms; electronic commerce; and
systems integrators. Our hardware partners include Cisco Systems,
Hewlett-Packard and Sun Microsystems. These relationships help ensure the
reliability, scalability and performance of the Ariba solution on these
platforms. In addition, we intend to enter into an outsourcing relationship with
a third party to build and operate the network and platform infrastructure for
our Ariba.com network. Our electronic commerce partners include American
Express, Sterling Commerce and Visa International.

We have system integrator relationships with Andersen Consulting, Deloitte &
Touche, Ernst & Young, KPMG, PricewaterhouseCoopers, Cambridge Technology
Partners, Computer Sciences Corporation, Core Technologies, SRA International,
Tier Technologies and TSA Associates. These system integrators implement our
products and often assist us with sales lead generation. We have certified and
trained approximately 125 consultants in these organizations for the
implementation and operation of our products.

We rely, and expect to increasingly rely, on a number of third parties to
implement, support and recommend our products during the evaluation stage of a
customer's purchase process. If we are unable to maintain or increase the number
and quality of our relationships with providers that recommend, implement or
support operating resources management systems, our business will be seriously
harmed. A number of our competitors, including Oracle, SAP and PeopleSoft, have
significantly more established relationships with such providers and, as a
result, these firms may be more likely to recommend competitors' products and
services rather than our products and services. Furthermore, it is possible that
our current implementation partners, many of which have significantly greater
financial, technical, marketing and other resources than we have, could begin to
market software products and services that compete with our products and
services.

SALES AND IMPLEMENTATION

We sell our software primarily through our worldwide direct sales
organization. As of March 31, 1999, our direct sales force consisted of 55 sales
professionals located in 14 domestic locations and offices in Canada, the United
Kingdom and The Netherlands. Application specialists that provide pre-sales
support to potential customers on product information and deployment
capabilities complement our direct sales force. We plan to expand our direct
sales force.

During our sales process, we typically approach senior executive management
teams including the chief financial officer, chief information officer and chief
executive officer of our potential customers. We utilize sales teams consisting
of both sales and technical professionals who work with our strategic partners
to create organization-specific proposals, presentations and demonstrations that
address the specific needs of each potential customer.

Ariba provides professional services to augment the implementation efforts
of customers and systems integrators. This organization provides professional
services on the strategy, methodology and technical implementation of Ariba
ORMS. As of March 31, 1999, our professional services organization consisted of
41 employees.

We believe that strategic partnerships will assist us in gaining broad
market acceptance as well as enhance our marketing, sales and distribution
capabilities. We have therefore developed close relationships with a number of
strategic integrators and technology providers. These companies have worked with
us and participated in joint sales calls to several of our large accounts. See
"--Strategic Relationships."

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<PAGE>
MARKETING

We focus our marketing efforts toward educating our target market,
generating new sales opportunities, and creating awareness for our
business-to-business electronic commerce solutions. We conduct a variety of
marketing programs worldwide to educate our target market. We have engaged in
marketing activities such as business seminars, trade shows, press relations and
industry analyst programs and advisory councils.

Our marketing organization also serves an integral role in acquiring,
organizing and prioritizing customer and industry feedback in order to help
provide product direction to our development organizations. We formalized this
customer-driven approach by establishing advisory council meetings, made up of
numerous industry experts, to provide forums for discussing customer needs and
requirements. To date, we have held ten of these events. Our most recent
advisory council meeting was attended by over 800 people, including procurement,
information technology and finance executives. In addition to providing
information to prospective customers, advisory council meetings provide a useful
forum in which to share information, test product concepts and collect data on
customer and industry needs. We have also augmented advisory council meetings
with a detailed product management process that surveys customer and market
needs to predict and prioritize future customer requirements. We also have
marketing relationships with Andersen Consulting, Cisco Systems,
Hewlett-Packard, Sun Microsystems and Visa International. These relationships
provide collaborative resources to help extend the reach of our presence in the
marketplace. We intend to continue to pursue these programs in the future.

CUSTOMER SERVICE, TRAINING AND SUPPORT

We believe that customer satisfaction is essential for our long-term success
and offer comprehensive customer assistance programs. Our technical support
provides dependable and timely resolution of customer technical inquiries and is
available to clients by telephone, over the web or by electronic mail. We use a
customer service automation system to track each customer inquiry until it is
resolved. Our education services group delivers education and training to our
clients and partners. We offer a comprehensive series of classes to provide the
knowledge and skills to successfully deploy, use and maintain our products and
solutions. These courses focus on the technical aspects of our products as well
as real-world business issues and processes. All of our classes include lecture,
demonstration, discussion and hands-on use of our solutions. Classes are held
regularly in our training facilities at our headquarters in Sunnyvale,
California. Our customer support and training organizations consisted of 22
employees as of March 31, 1999.

RESEARCH AND DEVELOPMENT

We originally introduced Ariba ORMS in May 1997 and have released a number
of product enhancements in five subsequent major releases. We began to operate
our Ariba.com network in April 1999 and continue to provide enhancements to this
Internet platform on an ongoing basis. As of March 31, 1999, our research and
development organizations were comprised of 74 employees.

Our research and development operations are divided into two organizations,
one focusing on Ariba ORMS and the other focusing on our Ariba.com network. Our
Ariba ORMS organization has eight teams that include server and infrastructure
development, user interface and application design, tools development,
enterprise integration, quality assurance, documentation, release management and
advanced development. Our Ariba.com network organization has five teams that
include Internet applications and design, platform and infrastructure
engineering, operations, quality assurance and documentation. Both the Ariba
ORMS and our Ariba.com network organizations regularly share resources and
collaborate on code development, quality assurance and documentation.

We believe our software and Internet applications teams and core
technologies represent a significant competitive advantage. The software and
Internet applications development organizations include a number of key members
from past engineering organizations that have developed Internet applications

45
<PAGE>
and services, and have extensive experience with Java programming. We believe a
technically skilled and highly productive development organization is a key
component for the success of new product offerings. We must attract and retain
highly qualified employees to further our research and development efforts. Our
business could be seriously harmed if we are not able to hire and retain a
sufficient number of these individuals.

We cannot be sure that existing and future development efforts will be
completed within our anticipated schedules or that, if completed, they will have
the features or quality necessary to make them successful in the marketplace. In
addition, the widespread adoption of our Ariba.com network by our customers
depends in part on the adoption and implementation of the next version of our
Ariba ORMS product, which is not scheduled for commercial release until later
this year. Future delays in this release or problems in the development or
marketing of product enhancements, Internet services or applications or new
products could seriously harm the deployment of our Ariba.com network and could
harm our business. Further, despite testing by us and by current and potential
customers, errors could be found in our products. We may not be able to
successfully correct these errors in a timely and cost effective manner. If we
are not able to develop new products or enhancements to existing products or
corrections on a timely and cost-effective basis, or if these new products or
enhancements do not have the features or quality necessary to make them
successful in the marketplace, our business will be seriously harmed.

We expect that most of our enhancements to existing and future products will
be developed internally. However, we currently license certain
externally-developed technologies and will continue to evaluate
externally-developed technologies to integrate with our solutions. These
externally developed technologies, if suffering from defects, quality issues or
the lack of product functionality required to make our solutions successful in
the marketplace, may seriously impact and harm our business.

COMPETITION

The market for our solution is intensely competitive, evolving and subject
to rapid technological change. The intensity of competition is expected to
increase in the future. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any one of which
could seriously harm our business. Competitors vary in size and in the scope and
breadth of the products and services offered. We encounter competition with
respect to different aspects of our solution from a variety of vendors including
Captura Software, Clarus, Commerce One, Concur Technologies, Extensity, GE
Information Services, Intelysis, Netscape Communications and TRADE'ex Electronic
Commerce Systems. We may also encounter competition from several major
enterprise software developers, such as Oracle, PeopleSoft and SAP. In addition,
because there are relatively low barriers to entry in the operating resource
management software market, we expect additional competition from other
established and emerging companies, as the operational resource management
software market continues to develop and expand.

We believe that the principal competitive factors affecting our market
include a significant base of reference customers, breadth and depth of
solution, critical mass of buyers and suppliers, product quality and
performance, customer service, core technology, product features, ability to
implement solutions and value of solution. Although we believe that our
solutions currently compete favorably with respect to these factors, our market
is relatively new and is evolving rapidly. We may not be able to maintain our
competitive position against current and potential competitors, especially those
with significantly greater financial, marketing, service, support, technical and
other resources.

Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than us,
significantly greater name recognition and a larger installed base of customers.
In addition, many of our competitors have well-established relationships with
our current and potential customers and have extensive knowledge of our
industry. In the past, we have lost potential customers to competitors for
various reasons, including lower prices and other incentives not matched by

46
<PAGE>
us. In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address customer needs. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. We also expect that competition
will increase as a result of industry consolidations.

We may not be able to compete successfully against our current and future
competitors.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

We license rather than sell Ariba ORMS and require our customers to enter
into license agreements, which impose restrictions on their ability to utilize
the software. In addition, we seek to avoid disclosure of our trade secrets
through a number of means, including but not limited to, requiring those persons
with access to our proprietary information to execute confidentiality agreements
with us and restricting access to our source code. We seek to protect our
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We cannot assure you that
any of our proprietary rights with respect to our Ariba.com network will be
viable or of value in the future since the validity, enforceability and type of
protection of proprietary rights in Internet-related industries are uncertain
and still evolving.

We presently have one U.S. patent application pending. It is possible that
the patent that we have applied for, if issued, or our potential future patents
may be successfully challenged or that no patent will be issued from our patent
application. It is also possible that we may not develop proprietary products or
technologies that are patentable, that any patent issued to us may not provide
us with any competitive advantages, or that the patents of others will seriously
harm our ability to do business.

We rely on technology that we license from third parties, including software
that is integrated with internally developed software and used in Ariba ORMS to
perform key functions. For example, we license reporting software from Actuate.
If we are unable to continue to license any of this software on commercially
reasonable terms, we will face delays in releases of our software until
equivalent technology can be identified, licensed or developed, and integrated
into our current product. These delays if they occur could seriously harm our
business.

Ariba and the Ariba logo are registered as trademarks in the United States.
In addition, we have the following trademarks registered in one or more foreign
countries: Ariba, the Ariba logo, the Ariba "boomerang" design, ORM, ORMS and
Walk-Up UI. We also have filed applications to register these trademarks in
several countries. We have filed trademark applications in the United States for
Ariba.com and Ariba.com Network. The above mentioned trademark applications are
subject to review by the applicable governmental authority, may be opposed by
private parties, and may not issue.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents issued to us or our other intellectual property.

There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or

47
<PAGE>
potential future products infringe their intellectual property. We expect that
software product developers and providers of electronic commerce solutions will
increasingly be subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality of products in
different industry segments overlaps. Any claims, with or without merit, could
be time-consuming, result in costly litigation, cause product shipment delays or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements, if required, may not be available on terms acceptable to us or at
all, which could seriously harm our business.

EMPLOYEES

As of March 31, 1999, we had a total of 232 employees, including 74 in
research and development, 69 in sales and marketing, 63 in customer support,
professional services and training, and 26 in administration and finance. Of
these employees, 221 were located in the United States and 11 were located
outside the United States. None of our employees is represented by a collective
bargaining agreement, nor have we experienced any work stoppage. We consider our
relations with our employees to be good.

Our future operating results depend in significant part on the continued
service of our key technical, sales and senior management personnel, none of
whom is bound by an employment agreement. Our future success also depends on our
continuing ability to attract and retain highly qualified technical, sales and
senior management personnel. Competition for these personnel is intense, and we
may not be able to retain our key technical, sales and senior management
personnel or attract these personnel in the future. We have experienced
difficulty in recruiting qualified technical, sales and senior management
personnel, and we expect to experience these difficulties in the future. If we
are unable to hire and retain qualified personnel in the future, this inability
could seriously harm our business.

FACILITIES

Our principal sales, marketing, research, development and administrative
office occupies approximately 33,000 square feet in Sunnyvale, California, under
a lease that expires on August 31, 2004. In addition, we also lease sales and
support offices in the metropolitan areas of Atlanta, Amsterdam, Boston,
Chicago, Columbus, Dallas, Detroit, London, Los Angeles, Melbourne, Milwaukee,
Minneapolis, New York, St. Louis, Toronto, Washington, D.C. and Zurich. In
September 1999, we intend to move our headquarters to expanded facilities
located in approximately 130,000 square feet in Mountain View, California. Our
sublease for this facility expires in October 2006.

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<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of Ariba, and their ages as of March
31, 1999, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Keith J. Krach....................................... 42 President, Chief Executive Officer and Chairman of
the Board of Directors
Edward P. Kinsey..................................... 42 Chief Financial Officer, Vice President-- Finance &
Administration and Secretary
Robert J. DeSantis................................... 35 Vice President--International Operations
Rune C. Eliasen...................................... 44 Vice President--Customer Services
K. Charly Kleissner.................................. 42 Vice President--Engineering
Robert D. Lent....................................... 45 Vice President--Business Development
Paul L. Melchiorre................................... 38 Vice President--North American Operations
David L. Rome........................................ 50 Vice President--Marketing
Paul C. M. Touw...................................... 34 Vice President--Corporate Strategy
Paul Hegarty......................................... 34 Director
Robert C. Kagle...................................... 43 Director
John B. Mumford...................................... 55 Director
Hatim A. Tyabji...................................... 54 Director
</TABLE>

KEITH J. KRACH, a co-founder of Ariba, has served as Chairman of the Board
of Directors, Chief Executive Officer and President since our inception in
September 1996. From March 1996 to September 1996, Mr. Krach served as an
Entrepreneur in Residence at Benchmark Capital. From October 1988 to August
1995, Mr. Krach served as Chief Operating Officer of Rasna Corporation, a
mechanical computer-aided design automation software company. Prior to joining
Rasna, Mr. Krach held various positions with General Motors, including General
Manager and Vice President of GMF Robotics. Mr. Krach holds a Bachelor of
Science degree in Industrial Engineering from Purdue University and a Master of
Business Administration from Harvard Business School.

EDWARD P. KINSEY, a co-founder of Ariba, has served as Chief Financial
Officer, Secretary and Vice President of Finance and Administration since our
inception in September 1996. From October 1995 to August 1996, Mr. Kinsey served
as the Chief Financial Officer and Vice President of Finance of CenterView
Software, an Internet development tools company. From March 1994 to October
1996, Mr. Kinsey served as Corporate Controller of Rasna Corporation and, from
July 1988 to March 1994, Mr. Kinsey served in various capacities at
Zenger-Miller, Inc., a management and supervisory skills training and
development company, most recently as the Chief Financial Officer and Vice
President of Operations. Prior to 1988, Mr. Kinsey held management positions at
Peat Marwick Mitchell and at Price Waterhouse. Mr. Kinsey is a Certified Public
Accountant in California and Ohio and holds a Bachelor of Business
Administration degree in Accounting from the University of Toledo.

ROBERT J. DESANTIS, a co-founder of Ariba, has served as Vice President of
International Operations since July 1998 and Vice President of Sales from our
inception in September 1996 to July 1998. From October 1995 to September 1996,
Mr. DeSantis worked as a consultant in the venture capital community. From
August 1990 to October 1995, Mr. DeSantis served as Vice President of Sales and
Vice President of European Operations at Rasna Corporation. Prior to joining
Rasna, Mr. DeSantis served as Director of Sales for Structural Research and
Analysis Corporation, a design analysis software company, and as a member of the
technical staff of Hughes Aircraft Company. Mr. DeSantis holds a Bachelor of
Science degree in Mechanical Engineering from the University of Rhode Island.

49
<PAGE>
RUNE C. ELIASEN has served as Ariba's Vice President of Customer Services
since March 1997. From August 1995 to February 1997, Mr. Eliasen served as Vice
President of Operations at CBT Systems, Inc., a computer training development
company. From March 1989 to August 1995, Mr. Eliasen served as the Vice
President of Operations at Rasna Corporation. Prior to joining Rasna, Mr.
Eliasen held various senior engineering management positions at General Motors
and Ford Motor Company. Mr. Eliasen holds a Bachelor of Science degree in
Aeronautical and Astronautical Engineering from Purdue University.

K. CHARLY KLEISSNER has served as Ariba's Vice President of Engineering
since July 1997. From June 1996 to July 1997, Dr. Kleissner was Vice President
of Product Development at DataMind Corporation, a data mining software tools
development company. From April 1994 to June 1996, Dr. Kleissner held various
senior engineering management positions at NeXT Software Inc., a software
development company. Prior to joining NeXT, Dr. Kleissner held various senior
engineering management positions at Digital Equipment Corporation and
Hewlett-Packard Company. Dr. Kleissner holds a Ph.D. in Computer Science from
the University of Technology, Vienna and a Master of Science degree in Computer
Science from the Institute of Technology at the University of Vienna.

ROBERT D. LENT, a co-founder of Ariba, has served as Vice President of
Business Development since December 1997. From January 1993 to September 1996,
Mr. Lent was Vice President of U.S. Marketing for Inmac, a supplier of
networking and computing equipment. Prior to joining Inmac, he held various
senior product-marketing positions at Quantum, a mass storage company, and
Softbridge Microsystems. Mr. Lent began his career with Deloitte & Touche LLP.
Mr. Lent is a Certified Public Accountant and holds a Bachelor of Science degree
in Business Administration from the University of California at Berkeley and a
Master of Business Administration with distinction from Harvard Business School.

PAUL L. MELCHIORRE has served as Ariba's Vice President of North American
Operations since May 1998. From December 1992 to May 1998, Mr. Melchiorre served
as Senior Vice President of Global Accounts for SAP America, Inc., an enterprise
software company. Prior to joining SAP, he held various sales and management
positions with MAI Systems, an accounting software company, and Automatic Data
Processing, a developer of business software. Mr. Melchiorre holds a Bachelor of
Science degree in Marketing from Villanova University and a Master of Business
Administration from Drexel University.

DAVID L. ROME has served as Ariba's Vice President of Marketing since July
1997. From March 1997 to July 1997, Mr. Rome served as Vice President of
Marketing at Calico Technology, an Internet company focused on enabling
electronic commerce for companies selling complex products and services. From
July 1990 to September 1995, Mr. Rome held several general manager positions at
Lotus Development Corporation. Prior to joining Lotus, Mr. Rome held various
senior sales and marketing management positions with Alliant Computer Systems, a
specialized computer manufacturer, and Data General Corporation, a data storage
products company. Mr. Rome holds a Bachelor of Science degree in Mechanical
Engineering from Purdue University and a Master of Business Administration from
Harvard Business School.

PAUL C. M. TOUW, a co-founder of Ariba, has served as Vice President of
Corporate Strategy since March 1997 and managed marketing and business
development for Ariba from our inception in September 1996 to March 1997. From
September 1995 to July 1996, Mr. Touw managed western area sales and business
development for Open Market, Inc., an Internet commerce software company. From
1991 to September 1995, Mr. Touw held various senior technical and sales
management positions at Rasna Corporation. Prior to joining Rasna, Mr. Touw held
analyst and senior analyst positions at Westinghouse Electric Company, AEC Able
Engineering, and BP Advanced Materials serving primarily in aerospace
engineering and analysis roles. Mr. Touw holds a Bachelor of Science degree in
Mechanical and Physics Engineering from University of the Pacific, School of
Engineering.

50
<PAGE>
PAUL HEGARTY, a co-founder of Ariba, has served as Vice President of
Engineering from our inception in September 1996 to August 1997, as Chief
Technical Officer from our inception to October 1998 and as a director since
October 1998. From June 1996 to September 1996, Mr. Hegarty served as an
Entrepreneur in Residence at Benchmark Capital. From February 1988 to May 1996,
Mr. Hegarty served in various engineering capacities at NeXT Software, Inc.,
including Vice President of Engineering. Mr. Hegarty holds Bachelor of Science
and Master of Science degrees in Electrical Engineering from Stanford
University.

ROBERT C. KAGLE has served as a director of Ariba since our inception in
September 1996. Mr. Kagle has been a Managing Member of Benchmark Capital
Management Co., L.L.C., the General Partner of Benchmark Capital Partners, L.P.
and Benchmark Founders' Fund, L.P., since its founding in May 1995. Mr. Kagle
also has been a General Partner of Technology Venture Investors since January
1984. Mr. Kagle currently serves as a director of publicly held companies eBay
Inc. and E-Loan, and is currently a Director of the National Association of
Venture Capitalists and a Trustee of Kettering University, formerly known as the
General Motors Institute. Mr. Kagle holds a Bachelor of Science degree in
Electrical and Mechanical Engineering from the General Motors Institute and a
Master of Business Administration from the Stanford Graduate School of Business.

JOHN B. MUMFORD has served as a director of Ariba since our inception in
September 1996. Mr. Mumford has served as Managing Partner of Crosspoint Venture
Partners since 1970. Mr. Mumford currently serves as a director of a number of
private companies primarily in the information technology area. Mr. Mumford is a
co-founder and director of Hello Direct, Inc., a public company, and served as a
director of Office Depot, a public company, from its formation in 1986 to April
1997. Mr. Mumford was also a founding director of Inmac Corp., a public company,
and served in this capacity until its merger with Micro Warehouse in 1996. Mr.
Mumford holds a Bachelor of Science degree in Accounting from Arizona State
University and a Master of Business Administration from the Stanford Graduate
School of Business.

HATIM A. TYABJI has served as a director of Ariba since January 1998. Mr.
Tyabji served as President and Chief Executive Officer from 1986 to 1998 and as
Chairman of the Board from 1992 to 1998 of VeriFone, Inc., a wholly-owned
subsidiary of Hewlett-Packard. Prior to joining VeriFone, Mr. Tyabji served as
President of the Information Systems Products and Technologies Group of Unisys
Corporation, formerly known as Sperry Corporation. Mr. Tyabji holds a Bachelor
of Science degree in Electrical Engineering from the College of Engineering in
Poona, India and a Master of Science degree in Electrical Engineering from the
State University of New York, Buffalo. He also has a Master of Business
Administration in International Business from Syracuse University and is a
graduate of the Stanford University Executive Program.

Ariba currently has authorized five directors. Each director holds office
until the next annual meeting of stockholders or until his successor is elected.
Our officers serve at the discretion of the board of directors. There are no
family relationships among our directors and officers.

BOARD COMMITTEES

The board of directors has an audit committee and a compensation committee.

AUDIT COMMITTEE. The audit committee makes recommendations to the board of
directors regarding the selection of independent accountants, reviews the
results and scope of audit and other services provided by our independent
accountants and reviews and evaluates the our audit and control functions. The
audit committee currently consists of Robert C. Kagle and John B. Mumford.

COMPENSATION COMMITTEE. The compensation committee reviews and makes
recommendations regarding our stock plans and makes decisions concerning
salaries and incentive compensation for our

51
<PAGE>
employees and consultants. The compensation committee currently consists of
Robert C. Kagle and Hatim A. Tyabji.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of our compensation committee serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.

DIRECTOR COMPENSATION

Directors currently do not receive any cash compensation from Ariba for
their services as members of the board of directors, although members are
reimbursed for expenses in connection with attendance at board of directors and
committee meetings. Directors are eligible to participate in Ariba's stock
plans, and beginning in 1999, employee directors will also be able to
participate in Ariba's 1999 Equity Incentive Plan and non-employee directors
will receive periodic option grants under Ariba's 1999 Directors' Stock Option
Plan. On January 21, 1998, in connection with his appointment to the board of
directors, Mr. Tyabji was granted an option to purchase 200,000 shares of our
common stock at an exercise price of $.375 per share, subject to a four-year
vesting schedule. See "Management--1999 Equity Incentive Plan."

EXECUTIVE COMPENSATION

The following table sets forth compensation information for fiscal 1998 paid
by Ariba for services by our Chief Executive Officer and our four other
highest-paid executive officers whose total salary and bonus for such fiscal
year exceeded $100,000, whom we collectively refer to as the Named Officers:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
AWARDS
ANNUAL COMPENSATION ---------------------
--------------------- NUMBER OF SECURITIES OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) UNDERLYING OPTIONS(#) COMPENSATION($)
- -------------------------------------------------- ---------- --------- --------------------- -----------------
<S> <C> <C> <C> <C>
Keith J. Krach ................................... $ 106,667 $ 33,000 -- --
President, Chief Executive Officer and Director
Edward P. Kinsey ................................. 106,667 36,333 -- --
Chief Financial Officer, Vice President--
Finance & Administration and Secretary
Robert J. DeSantis ............................... 106,667 76,605 200,000 $ 6,250
Vice President--International Sales
Rune C. Eliasen .................................. 106,667 33,000 -- --
Vice President--Customer Service
David L. Rome .................................... 90,000 60,000 -- --
Vice President--Marketing
</TABLE>

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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth each grant of stock options during fiscal
1998 to each of the Named Officers. No stock appreciation rights were granted
during the fiscal year. Each of the options listed in the table below is
immediately exercisable. The shares purchasable thereunder are subject to
repurchase by us at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in those shares. The repurchase
right lapses and the optionee vests as to 25% of the option shares upon
completion of one year of service from the date of grant and the balance in a
series of equal monthly installments over the next 36 months of service. The
option shares will vest upon a change in control, unless our repurchase right
with respect to the unvested option shares is transferred to the acquiring
entity. The option shares will also vest in certain circumstances should the
optionee's employment or service be involuntarily terminated following a change
in control. Each of the options has a ten-year term, subject to earlier
termination in the event the holder ceases providing services to us.

The percentage numbers are based on an aggregate of 3,978,000 options
granted to our employees under our 1996 Stock Plan during fiscal 1998. The
exercise price was equal to the fair market value of our common stock as valued
by the board of directors on the date of grant. The exercise price may be paid
in cash, in shares of our common stock valued at fair market value on the
exercise date or through a cashless exercise procedure as long as this procedure
would not cause us to recognize compensation expense for financial reporting
purposes. We may also finance the option exercise by accepting a full recourse
note from the optionee equal to the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise.

The potential realizable value is calculated based on a ten-year term of the
option at the time of grant. Stock price appreciation of 5% and 10% is assumed
because of SEC rules and does not represent our prediction of our stock price
performance. The potential realizable values at 5% and 10% appreciation are
calculated by assuming that the exercise price on the date of grant appreciates
at the indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL 1998 ($/SH) DATE 5% 10%
- -------------------------------- ----------- ------------------- --------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Keith J. Krach.................. -- -- -- -- -- --
Edward P. Kinsey................ -- -- -- -- -- --
Robert J. DeSantis.............. 200,000 5.0% $ 1.00 5/31/08 $ 125,779 $ 318,748
Rune C. Eliasen................. -- -- -- -- -- --
David L. Rome................... -- -- -- -- -- --
</TABLE>

In addition to the options listed in the table, stock options were granted
in fiscal 1999 to some of the Named Officers and to other executive officers
under our 1996 Stock Plan for the following number of shares and at the exercise
price of $2.375 per share: Mr. Krach, 400,000; Mr. DeSantis, 80,000; Mr.
Eliasen, 40,000; and Mr. Kinsey, 160,000. Each of the options is immediately
exercisable subject to deferral to satisfy the $100,000 limitation applicable to
incentive options. The shares purchasable under the options are subject to
repurchase by us at the original exercise price paid per share upon the
optionee's cessation of service prior to vesting in such shares. The repurchase
right lapses as to 10% of the shares upon completion of one year of service, 20%
upon completion of two years of service, 30% upon completion of three years of
service and the balance upon completion of four years of service from the grant
date.

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<PAGE>
FISCAL YEAR END OPTION VALUES

The following table sets forth for each of the Named Officers options
exercised and the number and value of securities underlying unexercised options
that are held by the Named Officers as of September 30, 1998. The heading
"Vested" refers to shares no longer subject to repurchase by us, and the heading
"Unvested" refers to shares subject to repurchase by us, in each case as of
September 30, 1998. The value of unexercised in-the-money options at 1998 fiscal
year end is based on the fair market value of our common stock at September 30,
1998, or $1.3325 per share, less the exercise price payable for these shares.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR END (#) YEAR END ($)
----------------- -----------------
NAME VESTED UNVESTED VESTED UNVESTED
- --------------------------------------------------------------------------- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Keith J. Krach............................................................. -- -- -- --
Edward P. Kinsey........................................................... -- -- -- --
Robert J. DeSantis......................................................... -- 200,000 -- $ 66,500
Rune C. Eliasen............................................................ -- -- -- --
David L. Rome.............................................................. -- -- -- --
</TABLE>

CHANGE OF CONTROL ARRANGEMENTS

The compensation committee of the board of directors, as administrator of
the 1999 Equity Incentive Plan, can provide for accelerated vesting of the
shares of common stock subject to outstanding options held by any executive
officer or director of Ariba in connection with certain changes in control of
Ariba. The accelerated vesting may be conditioned on the termination of the
individual's employment following the change in control event.

None of the Named Officers have employment agreements with us, and they may
resign and we may terminate their employment at any time.

1999 EXECUTIVE BONUS PROGRAM

We have a bonus program pursuant to which selected officers and other
full-time employees are eligible for annual cash bonuses based on our
achievement of specified objectives. For 1999, an officer's target bonus will be
awarded based on our achievement of revenue targets, customer bookings targets,
income targets and customer satisfaction targets and other individual objectives
to be determined by the compensation committee of the board of directors.

1999 EQUITY INCENTIVE PLAN

Ariba's 1999 Equity Incentive Plan was adopted by our board of directors on
April 20, 1999 and our stockholders will also be asked to approve the adoption
of the plan. We have reserved 2,400,000 shares of common stock for issuance
under the 1999 Equity Incentive Plan. Any shares not yet issued under our 1996
Stock Plan as of the date of this offering will also be available for grant
under the 1999 Equity Incentive Plan. As of January 1 of each year, commencing
with the year 2000, the number of shares we reserve for issuance under the 1999
Equity Incentive Plan will be increased automatically by 5% of the total number
of shares of common stock then outstanding or, if less, by 2,000,000 shares. As
of March 31, 1999, we had not granted any options under the 1999 Equity
Incentive Plan.

Under the 1999 Equity Incentive Plan, the eligible individuals are
employees, non-employee members of the board of directors and consultants. The
types of awards that may be made under the 1999 Equity

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<PAGE>
Incentive Plan are options to purchase shares of common stock, stock
appreciation rights, restricted shares and stock units. Options may be incentive
stock options that qualify for favorable tax treatment for the optionee under
Section 422 of the Internal Revenue Code of 1986 or nonstatutory stock options
not designed to qualify for such favorable tax treatment. With limited
restrictions, if shares awarded under the 1999 Equity Incentive Plan or the 1996
Stock Plan are forfeited, then those shares will again become available for new
awards under the 1999 Equity Incentive Plan.

The compensation committee of our board of directors administers the 1999
Equity Incentive Plan. The committee has complete discretion to make all
decisions relating to the interpretation and operation of the 1999 Equity
Incentive Plan, including the discretion to determine which eligible individuals
are to receive any award, and to determine the type, number, vesting
requirements and other features and conditions of each award.

The exercise price for incentive stock options granted under the 1999 Equity
Incentive Plan may not be less than 100% of the fair market value of the common
stock on the option grant date. The exercise price for non-qualified options
granted under the 1999 Equity Incentive Plan may not be less than 85% of the
fair market value of the common stock on the option grant date. The exercise
price may be paid in cash or in outstanding shares of common stock. The exercise
price may also be paid by using a cashless exercise method, a pledge of shares
to a broker or promissory note. The purchase price for newly issued restricted
shares awarded under the 1999 Equity Incentive Plan may be paid in cash, by
promissory note or by the rendering of past or future services.

The committee may reprice options and may modify, extend or assume
outstanding options and stock appreciation rights. The committee may accept the
cancellation of outstanding options or stock appreciation rights in return for
the grant of new options or stock appreciation rights. The new option or right
may have the same or a different number of shares and the same or a different
exercise price.

Upon certain defined events causing a change in control of Ariba, an option
or other award under the 1999 Equity Incentive Plan will become fully
exercisable or fully vested if the option or award is not assumed by the
surviving corporation or its parent or if the surviving corporation or its
parent does not substitute another award on substantially the same terms.

If a change in control occurs within 12 months after the optionee's vesting
start date, then the option or award vests as to an additional number of shares
as if the optionee had been in service 12 additional months. In addition, if a
change in control occurs more than 12 months after the optionee's vesting start
date, then the option or award vests as to the lesser of:

- 50% of the then remaining unvested portion of the option or award; or

- the excess of (1) 75% of the total number of shares originally subject to
the option or award over (2) the number of shares that had already vested.

Each option or award fully vests after a change in control if the optionee's
employment or service is terminated without his or her consent and without cause
or the optionee resigns after he or she is subject to a reduction in authority
or responsibility or a reduction in compensation or benefits.

Change in control includes:

- a merger or consolidation of Ariba after which our then current
stockholders own less than 50% of the surviving corporation;

- sale of all or substantially all of the assets of Ariba;

- a proxy contest that results in replacement of more than one-third of our
directors over a 24-month period; and

55
<PAGE>
- an acquisition of 50% or more of our outstanding stock by a person other
than a person related to Ariba, such as a corporation owned by the
stockholders of Ariba.

In the event of a merger or other reorganization, the agreement of merger or
reorganization may provide that outstanding options and other awards under the
1999 Equity Incentive Plan shall be assumed by the surviving corporation or its
parent, shall be continued by us if Ariba is the surviving corporation, shall
have accelerated vesting and then expire early, or shall be canceled for a cash
payment.

Our board of directors may amend or terminate the 1999 Equity Incentive Plan
at any time. If our board amends the plan, stockholder approval of the amendment
will be sought only if required by an applicable law. The 1999 Equity Incentive
Plan will continue in effect indefinitely unless our board decides to terminate
the plan earlier.

EMPLOYEE STOCK PURCHASE PLAN

Our board of directors adopted our Employee Stock Purchase Plan on April 20,
1999, and our stockholders will also be asked to approve the adoption of the
plan. We have reserved 4,000,000 shares of common stock for issuance under the
Employee Stock Purchase Plan. As of January 31 each year, we will increase the
number of shares we reserve for issuance under the Employee Stock Purchase Plan
automatically by 2% of the total number of shares of our common stock
outstanding or, if less, 750,000 shares.

The Employee Stock Purchase Plan is intended to qualify under Section 423 of
the Internal Revenue Code. Two overlapping offering periods each with a duration
of 24 months will commence on February 1 and August 1 each calendar year.
However, the first offering period will commence on the effective date of the
offering and end on July 31, 2001. Purchases of common stock will occur on
January 31 and July 31 each calendar year during an offering period. The
Employee Stock Purchase Plan will be administered by the compensation committee
of our board of directors. Each of our employees is eligible to participate if
he or she is employed by us for at least 20 hours per week and for more than
five months per year.

The Employee Stock Purchase Plan permits each eligible employee to purchase
our common stock through payroll deductions. Each employee's payroll deductions
may not exceed 15% of the employee's cash compensation. The initial period
during which payroll deductions will be accumulated will begin on the effective
date of this offering and end on January 31, 2000. No more than 2,000 shares may
be purchased on any purchase date. The price of each share of common stock
purchased under the Employee Stock Purchase Plan will be 85% of the lower of (1)
the fair market value per share of common stock on the date immediately before
the first date of the applicable offering period or (2) the fair market value
per share of common stock on the purchase date. In the case of the first
offering period, the price per share under the plan will be 85% of the price
offered to the public in the offering. Employees may end their participation in
the Employee Stock Purchase Plan at any time. Participation ends automatically
upon termination of employment with Ariba.

In the event of a change in control of Ariba, the Employee Stock Purchase
Plan will end and shares will be purchased with the payroll deductions
accumulated to date by participating employees. The board may amend or terminate
the Employee Stock Purchase Plan at any time. If our board of directors
increases the number of shares of common stock reserved for issuance under the
Employee Stock Purchase Plan, we must seek the approval of our stockholders.

1999 DIRECTORS' STOCK OPTION PLAN

The 1999 Directors' Stock Option Plan was adopted by our board of directors
on April 20, 1999, and our stockholders will also be asked to approve the
adoption of the plan. Under the 1999 Directors' Stock Option Plan, non-employee
members of our board of directors will be eligible for automatic option grants.

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<PAGE>
We have reserved 500,000 shares of our common stock for issuance under the
1999 Directors' Stock Option Plan. We have not yet granted any options under the
1999 Directors' Stock Option Plan. The compensation committee of the board of
directors will make any administrative determinations under the 1999 Directors'
Stock Option Plan.

The exercise price for options granted under the 1999 Directors' Stock
Option Plan may be paid in cash or in outstanding shares of common stock.
Options may also be exercised on a cashless basis through the same-day sale of
the purchased shares.

Each individual who first joins the board as a non-employee director on or
after the effective date of this offering will receive at that time an option
grant for 10,000 shares of our common stock. In addition, at each annual meeting
of our stockholders, beginning in 2000, each non-employee director will
automatically be granted at that meeting, whether or not he or she is standing
for re-election at that particular meeting, a stock option to purchase 2,500
shares of our common stock. The initial option will become exercisable for 50%
of the shares at the grant date and the balance after 12 months of board
service. Each option will have an exercise price equal to the fair market value
of our common stock on the automatic grant date. Each option will have a maximum
term of ten years, but will terminate earlier if the optionee ceases to be a
member of our board of directors. Each option will fully vest automatically upon
a change in control. Change in control has the same meaning under this plan as
it does in the 1999 Equity Incentive Plan.

Our board of directors may amend or modify the 1999 Directors' Stock Option
Plan at any time. The 1999 Directors' Stock Option Plan will terminate on April
19, 2009, unless the board of directors decides to terminate the plan sooner.

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<PAGE>
CERTAIN TRANSACTIONS

Since our inception on September 17, 1996, we have issued and sold preferred
stock to the following persons who are our principal stockholders, executive
officers or directors.

<TABLE>
<CAPTION>
SHARES OF SHARES OF
SERIES A SERIES B
PREFERRED PREFERRED
INVESTOR STOCK STOCK
- --------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Entities affiliated with Benchmark Capital Management Co., L.L.C................. 6,000,000 480,000
Crosspoint Venture Partners 1996................................................. 5,000,000 320,000
Keith J. Krach................................................................... 340,000 34,000
Hatim A. Tyabji.................................................................. -- 96,000
</TABLE>

Shares held by all affiliated persons and entities have been aggregated.
Share numbers and purchase price information are reflected on an as if converted
into shares of common stock basis. See "Principal Stockholders" for more detail
on shares held by these purchasers. Robert C. Kagle, one of our directors, is an
affiliate of each of the entities affiliated with Benchmark Capital Management
Co., L.L.C. John B. Mumford, one of our directors, is an affiliate of Crosspoint
Venture Partners 1996.

The shares of our preferred stock were sold as we were raising capital to
finance our development activies and operations. The shares of Series A
preferred stock were issued and sold on September 27, 1996 in a private
transaction to a limited number of individuals and institutional investors at a
per share purchase price of $.50 resulting in aggregate proceeds to us of $6.0
million. The shares of Series B preferred stock were issued and sold in a series
of transactions between August 15, 1997 and December 19, 1997 in private
transactions to a limited number of individuals and institutional investors at a
per share purchase price of $3.125 resulting in aggregate proceeds to us of
$14.0 million. None of the institutional investors who negotiated the terms of
these transactions were affiliated with Ariba prior to purchasing these shares.

In addition, we have granted options to some of our directors and executive
officers. See "Management--Director Compensation," "--Option Grants in Last
Fiscal Year" and "Principal Stockholders."

We intend to enter into an indemnification agreement with each of our
executive officers and directors.

We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors on the board of directors, and will continue to
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.

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<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership of
our common stock as of March 31, 1999, and as adjusted to reflect the sale of
shares offered and the conversion of all outstanding shares of preferred stock
into shares of common stock held by the following persons:

- each person who we know to own beneficially more than five percent of our
common stock;

- each of the Named Officers;

- each of our directors; and

- all directors and executive officers as a group.

The number of shares of common stock outstanding after this offering
includes 4,000,000 shares of common stock being offered for sale by us in this
offering. The percentage of beneficial ownership for the following table is
based on 37,741,396 shares of common stock outstanding as of March 31, 1999,
assuming conversion of all outstanding shares of preferred stock into common
stock and the exercise of a warrant to purchase 524,400 shares of common stock
prior to the closing of this offering, and 41,741,396 shares of common stock
outstanding after the completion of this offering assuming no exercise of the
underwriters' over-allotment option.

Under the rules of the Securities and Exchange Commission, beneficial
ownership includes voting or investment power with respect to securities and
includes the shares issuable under stock options that are exercisable within 60
days of March 31, 1999. Shares issuable under stock options are deemed
outstanding for computing the percentage of the person holding options but are
not outstanding for computing the percentage of any other person. Accordingly,
the following table includes information regarding shares issuable under stock
options exercisable with 60 days for the following persons and in the following
share amounts: Robert J. DeSantis, options exercisable for 200,000 shares;
Edward P. Kinsey, options exercisable for 42,104 shares; Rune C. Eliasen,
options exercisable for 40,000 shares; and all directors and executive officers
as a group, options exercisable for 921,580 shares.

Unless otherwise indicated, the address for each listed stockholder is: c/o
Ariba, Inc., 1314 Chesapeake Terrace, Sunnyvale, California 94089. To our
knowledge, except as indicated in the footnotes to this table and under
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock.

<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY BENEFICIALLY OWNED
OWNED ------------------------
------------ BEFORE AFTER
NAME OF BENEFICIAL OWNER NUMBER OFFERING OFFERING
- ------------------------------------------------------------------------------ ------------ ----------- -----------
<S> <C> <C> <C>
Entities affiliated with
Benchmark Capital Management Co., L.L.C.(1) ................................ 6,480,000 17.2% 15.5%
Crosspoint Venture Partners 1996(2) .......................................... 5,320,000 14.1 12.7
Robert C. Kagle(1)............................................................ 6,480,000 17.2 15.5
John B. Mumford(2)............................................................ 5,320,000 14.1 12.7
Keith J. Krach................................................................ 5,261,200 13.9 12.6
Robert J. DeSantis............................................................ 1,921,600 5.1 4.6
Edward P. Kinsey(3)........................................................... 1,228,104 3.3 2.9
Paul Hegarty.................................................................. 1,194,580 3.2 2.9
Rune C. Eliasen............................................................... 680,000 1.8 1.6
David L. Rome................................................................. 640,000 1.7 1.5
Hatim A. Tyabji............................................................... 296,000 * *
All directors and executive officers as a group (13 persons).................. 25,772,960 66.7 60.4
</TABLE>

- ------------------------

* Less than 1%.

59
<PAGE>
(1) Includes 5,689,152 shares held by Benchmark Capital Partners, L.P. and
790,848 shares held by Benchmark Founders' Fund, L.P. Mr. Kagle, a director
of Ariba, is a General Partner of Benchmark Capital Management Co., L.L.C.,
which is the general partner of each of Benchmark Capital Partners, L.P. and
Benchmark Founders' Fund, L.P. Mr. Kagle disclaims beneficial ownership of
the shares held by Benchmark Capital Partners, L.P. and Benchmark Founders'
Fund, L.P. except to the extent of his pecuniary interest therein arising
from his general partnership interest. The address of Benchmark Capital
Management Co., L.L.C., is 2480 Sand Hill Road, Suite 200, Menlo Park, CA
94025.

(2) Mr. Mumford, a director of Ariba, is a Managing Member of Crosspoint
Associates 1996, which is the general partner of Crosspoint Venture Partners
1996. Mr. Mumford disclaims beneficial ownership of the shares held by
Crosspoint Venture Partners 1996 except to the extent of his pecuniary
interest therein arising from his ownership interest. The address of
Crosspoint Venture Partners 1996 is The Pioneer Building, 2925 Woodside
Road, Woodside, CA 94062.
(3) Includes 20,000 shares held by Lisa J. Kinsey as Custodian for Katelind
Irene Kinsey under the Uniform Transfers to Minors Act and 20,000 shares
held by Lisa J. Kinsey as Custodian for Grant Stephen Kinsey under the
Uniform Transfers to Minors Act.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 200,000,000 shares of common stock,
$.002 par value, and 20,000,000 shares of preferred stock, $.002 par value,
after giving effect to the amendment and restatement of our amended and restated
certificate of incorporation to delete references to Series A, Series B and
Series BB preferred stock, which will occur upon conversion of such preferred
stock into common stock upon the closing of this offering, and the subsequent
authorization of shares of undesignated preferred stock, as described below.

COMMON STOCK

As of March 31, 1999, there were 37,216,996 shares of common stock
outstanding after giving effect to the conversion of our Series A, Series B and
Series BB preferred stock into common stock at a one-to-four ratio that were
held of record by approximately 159 stockholders. There will be 41,741,396
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and assuming no exercise after March 31, 1999 of
outstanding options, after giving effect to the sale of the shares of common
stock to the public offered, the conversion of our Series A, Series B and Series
BB preferred stock into common stock at a one-to-four ratio and the exercise of
a warrant to purchase 524,000 shares of common stock prior to the closing of
this offering.

Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available at times and in
amounts as the board may determine from time to time. See "Dividend Policy." The
holders of common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Upon the liquidation, dissolution or winding up
of Ariba, the holders of our common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The common stock has no
preemptive or conversion rights and is not subject to redemption. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this offering will be
fully paid and nonassessable.

PREFERRED STOCK

On the closing of this offering, our amended and restated certificate of
incorporation will authorize 20,000,000 shares of preferred stock. The board of
directors has the authority to issue the preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions of each series,
such as dividend rights, dividend rates, conversion rights, voting rights, terms
of redemption, redemption prices, liquidation preferences and the right to
increase or decrease the number of shares of any series, without further vote or
action by the stockholders. The board of directors may issue preferred stock
with voting or conversion rights that may have the effect of delaying, deferring
or preventing a change in control of Ariba and could adversely affect the market
price of the common stock and the voting and other rights of the holders of
common stock. We currently have no plans to issue any of the preferred stock.

WARRANTS

As of March 31, 1999, there were warrants outstanding to purchase 570,944
shares of common stock with a weighted average exercise price of $3.29. A
warrant to purchase 14,544 shares expires three years from the date of this
offering. A warrant to purchase 32,000 shares expires on October 31, 2003. A
warrant to purchase 524,400 shares expires upon the closing of this offering,
and we anticipate that it will be exercised prior to this offering.

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<PAGE>
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND DELAWARE LAW

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

The amended and restated certificate of incorporation provides that all
stockholder actions must be effected at a duly called meeting and not by a
consent in writing. As described above, the amended and restated certificate of
incorporation permits the board of directors to issue preferred stock with
voting or other rights without stockholder action. Commencing at our first
annual meeting of stockholders following this offering, our amended and restated
certificate of incorporation provides for the board of directors to be divided
into three classes with staggered three-year terms. These provisions, which
require the vote of stockholders holding at least 66 2/3% of the voting power of
the capital stock to amend, may have the effect of deterring hostile takeovers
or delaying changes in our management. See "Risk Factors--We Have Implemented
Certain Anti-Takeover Provisions That Could Make It More Difficult for a Third
Party to Acquire Us."

DELAWARE TAKEOVER STATUTE

We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to various exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder. This restriction applies unless:

- the transaction is approved by the board of directors prior to the date
the stockholder became an interested stockholder;

- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (1) persons who are
directors and also officers and (2) employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or

- on or subsequent to the date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.

Section 203 defines business combination to include:

- any merger or consolidation involving the corporation and the interested
stockholder;

- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;

- any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder,
subject to various exceptions;

- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or

- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

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<PAGE>
In general, Section 203 defines an interested stockholder as any entity or
person who owns 15% or more of the outstanding voting stock of the corporation,
and any entity or person affiliated with or controlling or controlled by the
entity or person.

REGISTRATION RIGHTS

After this offering, the holders of approximately 29,850,556 shares of
outstanding common stock will be entitled to rights with respect to the
registration of these shares under the Securities Act. The holders of
registration rights are those investors that purchased shares of our Series A,
Series B and Series BB preferred stock, as well as some of our present and
former officers. Under the terms of the agreements between us and the holders of
these registrable securities, if we propose to register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, the holders are entitled to
notice of the registration and are entitled to include these shares in the
registration. Some of the stockholders benefiting from these rights may also
require us to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to use
reasonable efforts to effect a registration. Further, holders may require us to
file additional registration statements on Form S-3 at our expense. These rights
are subject to conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares included in that
registration under certain circumstances.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the common stock is BankBoston, N.A.

63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock.
Therefore, future sales of substantial amounts of our common stock in the public
market could adversely affect market prices prevailing from time to time.
Furthermore, because only a limited number of shares will be available for sale
shortly after this offering due to existing contractual and legal restrictions
on resale as described below, sales of substantial amounts of our common stock
in the public market after the restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.

Upon completion of this offering, we will have 41,741,396 shares of common
stock outstanding, assuming no exercise of options and warrants outstanding as
of March 31, 1999, other than a warrant to purchase 524,400 shares of common
stock that will be exercised prior to the closing of the offering, and the
conversion of all outstanding shares of preferred stock. Of these shares,
4,000,000 shares sold in this offering will be freely transferable without
restriction or registration under the Securities Act, except for any shares
purchased by one of our existing "affiliates," as that term is defined in Rule
144 under the Securities Act. The remaining 37,216,996 shares of common stock
existing are "restricted shares" as defined in Rule 144. Restricted shares may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 701 of the Securities Act. As a
result of the contractual restrictions described below and the provisions of
Rules 144 and 701, additional shares will be available for sale in the public
market as follows: (1) none of the restricted shares will be eligible for
immediate sale on the date of this prospectus and (2) all of the restricted
shares will be eligible for sale upon expiration of lock-up agreements 120 days
after the date of this prospectus subject to Rule 144.

LOCK-UP AGREEMENTS

Ariba, our directors and executive officers and certain of our stockholders
and option holders have each agreed not to offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock, for
a period of 120 days after the date of this prospectus, without the prior
written consent of Morgan Stanley & Co. Incorporated, subject to limited
exceptions. Morgan Stanley & Co. Incorporated, however, may in its sole
discretion, at any time without notice, release all or any portion of the shares
subject to lock-up agreements.

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
this offering, a person, or persons whose shares are aggregated, who owns shares
that were purchased from us, or any affiliate, at least one year previously, is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of our then-outstanding shares of common stock, which
will equal approximately 412,000 shares immediately after this offering, or the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding the filing of a notice of the sale on
Form 144. Sales under Rule 144 are also subject to manner of sale provisions,
notice requirements and the availability of current public information about us.
Any person, or persons whose shares are aggregated who is not deemed to have
been one of our affiliates at any time during the three months preceding a sale,
and who owns shares within the definition of "restricted securities" under Rule
144 that were purchased from us, or any affiliate, at least two years
previously, would be entitled to sell the shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.

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<PAGE>
RULE 701

Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities originally purchased from us by our employees, directors, officers,
consultants or advisers prior to the date we become subject to the reporting
requirements of the Securities Exchange Act of 1934, or the Exchange Act, under
written compensatory benefit plans or written contracts relating to the
compensation of these persons. In addition, the Securities and Exchange
Commission has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Exchange Act, along with the shares acquired upon exercise of the options,
including exercises after the date of this prospectus. Securities issued in
reliance on Rule 701 are restricted securities and, subject to the contractual
restrictions described above, beginning 90 days after the date of this
prospectus, may be sold by persons other than affiliates subject only to the
manner of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with its minimum holding period requirements.

REGISTRATION RIGHTS

Upon completion of this offering, the holders of approximately 29,850,556
shares of common stock, or their transferees, will be entitled to various rights
with respect to the registration of these shares under the Securities Act.
Registration of these shares under the Securities Act would result in these
shares becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of the registration, except for shares
purchased by affiliates. See "Description of Capital Stock--Registration
Rights."

STOCK OPTIONS

As of March 31, 1999, options to purchase a total of 8,145,260 shares of
common stock under our 1996 Stock Plan were outstanding and exercisable. All of
the shares subject to options are subject to lock-up agreements. As of March 31,
1999, warrants to purchase up to 570,944 shares of common stock were outstanding
and exercisable. An additional 1,340,700 shares of common stock were available
for future option grants under the 1996 Stock Plan. On April 20, 1999, we
adopted, subject to stockholder approval, the 1999 Equity Incentive Plan to
replace the 1996 Stock Plan, with an increase of shares available for issuance
of 2,400,000 shares, plus an additional number of shares equal to 5% of the
shares outstanding on January 1 of each year or, if less, 2,000,000 shares each
year. In addition, on April 20, 1999, we adopted, subject to stockholder
approval, the Employee Stock Purchase Plan, and reserved 4,000,000 shares of
common stock for issuance, and the 1999 Directors' Stock Option Plan, and
reserved 500,000 shares of common stock for issuance. See "Management--1999
Equity Incentive Plan," "--Employee Stock Purchase Plan," "--1999 Directors'
Stock Option Plan" and Note 6 of Notes to Consolidated Financial Statements.

We intend to file registration statements under the Securities Act covering
all shares of common stock subject to outstanding options or issuable pursuant
to our 1999 Equity Incentive Plan and 1999 Directors' Stock Option Plan, and
4,000,000 shares of common stock issuable under our Employee Stock Purchase
Plan. We expect to file the registration statement covering shares issuable
pursuant to the Employee Stock Purchase Plan on the effective date of this
offering and to file the registration statement covering shares offered under
the 1999 Equity Incentive Plan and 1999 Directors' Stock Option Plan
approximately 30 days after the closing of this offering. Subject to Rule 144
volume limitations applicable to affiliates, shares registered under any
registration statements will be available for sale in the open market, beginning
90 days after the date of the prospectus, except to the extent that the shares
are subject to vesting restrictions with us or the contractual restrictions
described above. See "Management--1999 Equity Incentive Plan," "--Employee Stock
Purchase Plan" and "--1999 Directors' Stock Option Plan."

65
<PAGE>
UNDERWRITERS

Under the terms and subject to conditions contained in an underwriting
agreement, the underwriters named below, for whom Morgan Stanley & Co.
Incorporated, BT Alex. Brown Incorporated, Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated are acting as representatives, have severally agreed to purchase,
and Ariba has agreed to sell to the underwriters, the respective number of
shares of common stock set forth opposite the names of such underwriters below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Morgan Stanley & Co. Incorporated..........................................................
BT Alex. Brown Incorporated................................................................
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................................................

----------
Total................................................................................. 4,000,000
----------
----------
</TABLE>

The underwriters are offering the shares of common stock subject to their
acceptance of the shares from Ariba and subject to prior sale. The underwriting
agreement provides that the obligations of the several underwriters to pay for
and accept delivery of the shares of common stock offered by us in this offering
are subject to the approval of legal matters by their counsel and to other
conditions. The underwriters are obligated to take and pay for all of the shares
of common stock offered by us in this offering, other than those covered by the
over-allotment option described below, if any such shares are taken.

The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus and part to certain dealers at a price that represents a
concession not in excess of $ per share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $ per share to other underwriters or to certain dealers. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.

Ariba has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of 600,000
additional shares of common stock at the public offering price set forth on the
cover page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered by us in this offering. To the extent such option is
exercised, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of common stock as the number set forth next to such underwriter's name
in the preceding table bears to the total number of shares of common stock set
forth next to the names of the underwriters in the preceding table.

The underwriters have informed Ariba that the underwriters do not intend
sales to discretionary accounts to exceed five percent of the total number of
shares of common stock offered by them.

Ariba has applied to list the common stock on the Nasdaq National Market
under the symbol "ARBA."

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 400,000 shares of common stock offered by us in
this offering for employees of Ariba and their friends and family. The number of
shares of common stock available for sale to the general public will be reduced
to

66
<PAGE>
the extent such persons purchase such reserved shares. Any reserved shares which
are not so purchased will be offered by the underwriters to the general public
on the same basis as the other shares offered hereby.

Ariba, our directors and executive officers and certain of our stockholders
and option holders have each agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, he, she or it
will not, during the period ending 120 days after the date of this prospectus:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or

- enter into any swap or other agreement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the common
stock.

The restrictions described in the previous paragraph do not apply to:

- the issuance by Ariba of shares of common stock upon the exercise of an
option or a warrant or the conversion of a security outstanding on the
date of this prospectus of which the underwriters have been advised in
writing; or

- transactions by any person other than Ariba relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering, if the syndicate repurchases previously
distributed shares of common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.

Ariba and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

PRICING OF THE OFFERING

Prior to this offering, there has been no public market for the shares of
common stock. Consequently, the initial public offering price will be determined
by negotiations between us and the representatives of the underwriters. Among
the factors to be considered in determining the initial public offering price
will be:

- the future prospects of Ariba and its industry in general;

- sales, earnings and certain other financial operating information of Ariba
in recent periods; and

- the price-earnings ratios, price-sales ratios, market prices of securities
and certain financial and operating information of companies engaged in
activities similar to those of Ariba.

The estimated initial public offering price range set forth on the cover
page of this prospectus is subject to change as a result of market conditions
and other factors.

67
<PAGE>
LEGAL MATTERS

The validity of the issuance of the common stock offered by us in this
offering will be passed upon for us by Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, Menlo Park, California. Members of Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, participating in the consideration
of legal matters relating to the common stock offered by us in this offering are
the beneficial owners of 12,800 shares of our common stock. Legal matters in
connection with this offering will be passed upon for the underwriters by
Fenwick & West LLP, Palo Alto, California.

EXPERTS

The consolidated financial statements as of September 30, 1997 and 1998 and
for each of the years in the two-year period ended September 30, 1998 have been
included in this registration statement in reliance upon the report of KPMG LLP,
independent auditors, given and upon the authority of said firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
us and our common stock, reference is made to the registration statement and the
exhibits and schedules filed as a part of the registration statement. Statements
contained in this prospectus concerning the contents of any contract or any
other document referred to are not necessarily complete; reference is made in
each instance to the copy of the contract or document filed as an exhibit to the
registration statement. Each such statement is qualified in all respects by
reference to that exhibit. The registration statement, including exhibits and
schedules, may be inspected without charge at the Commission's principal office
in Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Commission. The Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the site is http://www.sec.gov.

68
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Form of Independent Auditors' Report................................................. F-2

Consolidated Balance Sheets.......................................................... F-3

Consolidated Statements of Operations and Other Comprehensive Income (Loss).......... F-4

Consolidated Statements of Stockholders' Equity...................................... F-5

Consolidated Statements of Cash Flows................................................ F-6

Notes to Consolidated Financial Statements........................................... F-7
</TABLE>

F-1
<PAGE>
When the recapitalization, which includes a stock split, referred to in Note
6 of the Consolidated Financial Statements has been consummated, we will be in a
position to render the following report.

/s/ KPMG LLP

FORM OF INDEPENDENT AUDITORS' REPORT

The Board of Directors

Ariba, Inc.:

We have audited the accompanying consolidated balance sheets of Ariba, Inc.
and subsidiaries (the Company) as of September 30, 1997 and 1998, and the
related consolidated statements of operations and other comprehensive income
(loss), stockholders' equity, and cash flows for each of the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ariba, Inc. and subsidiaries as of September 30, 1997 and 1998, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.

Mountain View, California

April 22, 1999, except as to
Note 6, which is as of
, 1999

F-2
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31, 1999
-------------------- ----------------------
1997 1998 ACTUAL PRO FORMA
--------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 15,471 $ 8,305 $ 14,615 $ 16,345
Short-term investments.................................... -- 5,627 6,818 6,818
Restricted cash........................................... -- -- 800 800
Accounts receivable....................................... 222 2,600 6,316 6,316
Prepaid expenses and other current assets................. 135 255 2,053 2,053
--------- --------- --------- -----------
Total current assets.................................... 15,828 16,787 30,602 32,332
Property and equipment, net................................. 861 2,217 4,075 4,075
Other assets................................................ 111 238 378 378
--------- --------- --------- -----------
$ 16,800 $ 19,242 $ 35,055 $ 36,785
--------- --------- --------- -----------
--------- --------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 896 $ 962 $ 1,445 $ 1,445
Accrued compensation and related liabilities.............. 115 1,704 3,759 3,759
Accrued liabilities....................................... 560 1,264 2,396 2,396
Deferred revenue.......................................... 332 4,409 18,759 18,759
Current portion of long-term debt......................... 240 297 400 400
--------- --------- --------- -----------
Total current liabilities............................... 2,143 8,636 26,759 26,759
Long-term debt, net of current portion...................... 140 647 646 646
--------- --------- --------- -----------
Total liabilities....................................... 2,283 9,283 27,405 27,405
--------- --------- --------- -----------
Commitments
Stockholders' equity:
Convertible preferred stock, $.002 par value;
actual--10,000,000 shares authorized; 4,127,900,
4,461,294 and 4,461,294 shares issued and outstanding as
of September 30, 1997 and 1998, and March 31, 1999;
liquidation preferences of $18,914, $23,214 and $23,214
in aggregate as of September 30, 1997 and 1998 and March
31, 1999; pro forma--20,000,000 shares authorized; no
shares issued and outstanding........................... 8 9 9 --
Common stock, $.002 par value; actual--80,000,000 shares
authorized; 18,227,400, 19,092,040 and 19,371,820 shares
issued and outstanding as of September 30, 1997 and 1998
and March 31, 1999, respectively; pro forma--200,000,000
shares authorized; 37,741,396 shares issued and
outstanding............................................. 36 38 39 75
Additional paid-in capital................................ 19,302 28,218 49,339 51,042
Deferred stock-based compensation......................... (150) (2,735) (17,942) (17,942)
Accumulated other comprehensive income (loss)............. -- 61 (35) (35)
Accumulated deficit....................................... (4,679) (15,632) (23,760) (23,760)
--------- --------- --------- -----------
Total stockholders' equity.............................. 14,517 9,959 7,650 9,380
--------- --------- --------- -----------
$ 16,800 $ 19,242 $ 35,055 $ 36,785
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License....................................... $ 630 $ 6,040 $ 807 $ 10,500
Maintenance and service....................... 130 2,323 408 5,838
--------- --------- --------- ---------
Total revenues.............................. 760 8,363 1,215 16,338
--------- --------- --------- ---------
Cost of revenues:
License....................................... 13 165 17 250
Maintenance and service....................... 927 1,373 510 2,509
--------- --------- --------- ---------
Total costs of revenues..................... 940 1,538 527 2,759
--------- --------- --------- ---------
Gross profit (loss)............................. (180) 6,825 688 13,579
--------- --------- --------- ---------
Operating expenses:
Sales and marketing........................... 2,235 10,311 3,333 11,302
Research and development...................... 1,899 4,499 1,963 3,849
General and administrative.................... 588 2,580 880 2,698
Amortization of stock-based compensation...... 50 956 79 4,045
--------- --------- --------- ---------
Total operating expenses.................... 4,772 18,346 6,255 21,894
--------- --------- --------- ---------
Loss from operations............................ (4,952) (11,521) (5,567) (8,315)
Other income, net............................... 273 568 268 187
--------- --------- --------- ---------
Net loss........................................ $ (4,679) $ (10,953) $ (5,299) $ (8,128)
--------- --------- --------- ---------
Other comprehensive income (loss):
Unrealized gain (loss) on short-term
investments................................. -- 61 -- (80)
Foreign currency translation adjustment....... -- -- -- (16)
--------- --------- --------- ---------
Other comprehensive income (loss)............... -- 61 -- (96)
--------- --------- --------- ---------
Comprehensive loss.............................. $ (4,679) $ (10,892) $ (5,299) $ (8,224)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic and diluted net loss per share............ $ (7.31) $ (1.90) $ (1.19) $ (0.84)
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used in computing basic and diluted net
loss per share................................ 639,587 5,761,912 4,455,761 9,694,493
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED ACCUMULATED
STOCK COMMON STOCK ADDITIONAL DEFERRED OTHER
---------------------- ---------------------- PAID-IN STOCK-BASED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME (LOSS)
--------- ----------- --------- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock......... -- $ -- 14,537,600 $ 28 $ 180 $ (200) $ --
Issuance of Series A convertible
preferred stock, net of
issuance costs of $12.......... 3,112,800 6 -- -- 6,208 -- --
Issuance of Series B convertible
preferred stock, net of
issuance costs of $30.......... 1,015,100 2 -- -- 12,656 -- --
Issuance of common stock--options
exercised...................... -- -- 5,339,000 10 258 -- --
Repurchase of common stock....... -- -- (1,649,200) (2) -- -- --
Amortization of stock-based
compensation................... -- -- -- -- -- 50 --
Net loss......................... -- -- -- -- -- -- --
--------- ----- --------- --- ----------- ------------- ---
Balances, September 30, 1997..... 4,127,900 8 18,227,400 36 19,302 (150) --
Issuance of Series B convertible
preferred stock, net of
issuance costs of $3........... 144,000 -- -- -- 1,798 -- --
Issuance of Series BB convertible
preferred stock, net of
issuance costs of $7........... 189,394 1 -- -- 2,493 -- --
Issuance of common stock--options
exercised...................... -- -- 1,109,640 2 499 -- --
Repurchase of common stock....... -- -- (245,000) -- (12) -- --
Deferred stock-based
compensation................... 3,541 (3,541) --
Amortization of stock-based
compensation................... -- -- -- -- -- 956 --
Issuance of warrants for common
stock.......................... -- -- -- -- 504 -- --
Issuance of warrants for
preferred stock................ -- -- -- -- 93 -- --
Other comprehensive income....... -- -- -- -- -- -- 61
Net loss......................... -- -- -- -- -- -- --
--------- ----- --------- --- ----------- ------------- ---
Balances, September 30, 1998..... 4,461,294 9 19,092,040 38 28,218 (2,735) 61
Issuance of common stock--options
exercised (unaudited).......... -- -- 1,461,300 3 1,872 -- --
Repurchase of common stock
(unaudited).................... -- -- (1,181,520) (2) (3) -- --
Deferred stock-based compensation
(unaudited).................... -- -- -- 19,252 (19,252)
Amortization of stock-based
compensation (unaudited)....... -- -- -- -- -- 4,045 --
Other comprehensive loss
(unaudited).................... -- -- -- -- -- -- (96)
Net loss (unaudited)............. -- -- -- -- -- -- --
--------- ----- --------- --- ----------- ------------- ---
Balances, March 31, 1999
(unaudited).................... 4,461,294 $ 9 19,371,820 $ 39 $ 49,339 $ (17,942) $ (35)
--------- ----- --------- --- ----------- ------------- ---
--------- ----- --------- --- ----------- ------------- ---

TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
Issuance of common stock......... $ -- $ 8
Issuance of Series A convertible
preferred stock, net of
issuance costs of $12.......... -- 6,214
Issuance of Series B convertible
preferred stock, net of
issuance costs of $30.......... -- 12,658
Issuance of common stock--options
exercised...................... -- 268
Repurchase of common stock....... -- (2)
Amortization of stock-based
compensation................... -- 50
Net loss......................... (4,679) (4,679)
------------ -------------
Balances, September 30, 1997..... (4,679) 14,517
Issuance of Series B convertible
preferred stock, net of
issuance costs of $3........... -- 1,798
Issuance of Series BB convertible
preferred stock, net of
issuance costs of $7........... -- 2,494
Issuance of common stock--options
exercised...................... -- 501
Repurchase of common stock....... -- (12)
Deferred stock-based
compensation................... -- --
Amortization of stock-based
compensation................... -- 956
Issuance of warrants for common
stock.......................... -- 504
Issuance of warrants for
preferred stock................ -- 93
Other comprehensive income....... -- 61
Net loss......................... (10,953) (10,953)
------------ -------------
Balances, September 30, 1998..... (15,632) 9,959
Issuance of common stock--options
exercised (unaudited).......... -- 1,875
Repurchase of common stock
(unaudited).................... -- (5)
Deferred stock-based compensation
(unaudited).................... -- --
Amortization of stock-based
compensation (unaudited)....... -- 4,045
Other comprehensive loss
(unaudited).................... -- (96)
Net loss (unaudited)............. (8,128) (8,128)
------------ -------------
Balances, March 31, 1999
(unaudited).................... $ (23,760) $ 7,650
------------ -------------
------------ -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
ARIBA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1997 1998 1998 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................. $ (4,679) $ (10,953) $ (5,299) $ (8,128)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 112 644 196 496
Amortization of stock-based compensation............. 50 956 79 4,045
Non-cash warrant expense............................. -- 521 7 13
Loss on disposition of property and equipment........ 22 4 -- --
Changes in operating assets and liabilities:
Accounts receivable................................ (222) (2,378) 69 (3,716)
Prepaid expenses and other assets.................. (246) (171) (119) (674)
Accounts payable................................... 896 66 (145) 483
Accrued compensation and related liabilities....... 115 1,589 197 2,055
Accrued liabilities................................ 560 704 74 1,116
Deferred revenue................................... 332 4,077 1,177 14,350
--------- --------- --------- ---------
Net cash provided by (used) in operating
activities......................................... (3,060) (4,941) (3,764) 10,040
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment.................. (995) (896) (275) (2,033)
Proceeds from the sales of short term investments.... -- -- -- 1,369
Purchases of short-term investments.................. -- (5,566) -- (2,640)
Allocation to restricted cash........................ -- -- -- (800)
--------- --------- --------- ---------
Net cash used in investing activities................ (995) (6,462) (275) (4,104)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Borrowings under long-term debt...................... 400 -- -- --
Repayments under long-term debt...................... (20) (544) (139) (219)
Proceeds from sale of convertible preferred stock,
net................................................ 18,872 4,292 1,798 --
Proceeds from sale of common stock................... 276 501 156 598
Repurchase of common stock........................... (2) (12) (2) (5)
--------- --------- --------- ---------
Net cash provided by financing activities............ 19,526 4,237 1,813 374
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents... 15,471 (7,166) (2,226) 6,310
Cash and cash equivalents at beginning of period....... -- 15,471 15,471 8,305
--------- --------- --------- ---------
Cash and cash equivalents at end of period............. $ 15,471 $ 8,305 $ 13,245 $ 14,615
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during period for interest................. $ 14 $ 120 $ 75 $ 52
--------- --------- --------- ---------
--------- --------- --------- ---------
Non-cash investing and financing activities:
Assets recorded under capital leases............... $ -- $ 1,108 $ 1,108 $ 321
--------- --------- --------- ---------
--------- --------- --------- ---------
Warrants issued for financing commitments.......... $ -- $ 93 $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Ariba, Inc. (Ariba or the Company) is a provider of intranet- and
Internet-based business-to-business electronic commerce solutions for operating
resources. Ariba's Operating Resources Management System (ORMS) is a robust,
scalable and reliable network application that operates primarily within a
buying organization's intranet. Ariba ORMS enables organizations to automate the
procurement cycle by linking enclosures throughout the organization with
approvers and financial systems and by channeling purchases to preferred
suppliers, enabling reduced operating costs and improved productivity. The
recently launched Ariba.com network is a global business-to-business electronic
commerce network for operating resources, enabling buyers and suppliers to
automate transactions on the Internet.

The Company was incorporated on September 17, 1996, under the laws of the
state of Delaware and commenced operations on that date. The Company is
headquartered in Sunnyvale, California, and has offices throughout the United
States. Subsequent to year end, the Company established three wholly-owned
subsidiaries, namely Ariba Canada, Inc., Ariba Technologies U.K. Limited and
Ariba Technologies Nederland B.V., which are located in Canada, the United
Kingdom and The Netherlands, respectively.

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared using
an inception date of October 1, 1996, as no significant operating activities
occurred between September 17, 1996, the date of incorporation, and September
30, 1996. Such activity consisted of the sale of common and preferred stock for
$6,000,000 and interest earned of $1,000 and has been included in the fiscal
1997 consolidated financial statements. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported results of operations during the reporting period.
Actual results could differ from those estimates.

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, the accompanying
unaudited consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements, and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the Company's financial position as of

F-7
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
March 31, 1999, and the results of its operations and its cash flows for the six
months ended March 31, 1998 and 1999.

FOREIGN CURRENCY TRANSLATION

The functional currency for the Company's international subsidiaries is the
local currency of the country in which it operates. Assets and liabilities are
translated using the exchange rate at the balance sheet date. Revenues,
expenses, gains, and losses are translated at the exchange rate on the date
those elements are recognized. Any translation adjustments are included in other
comprehensive income (loss).

CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS AND RESTRICTED CASH

The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents. As of September 30, 1997 and
1998, cash equivalents consist of money market funds in the amount of
$15,392,000 and $8,288,000 respectively.

The Company classifies its short-term investments as "available-for-sale."
Such investments are recorded at fair value based on quoted market prices, with
unrealized gains and losses, which are considered to be temporary, recorded as
other comprehensive income (loss) until realized.

In March 1999, the Company entered into a new facilities operating lease
agreement (see Note 5). As part of this agreement, the Company is required to
hold a certificate of deposit as a form of security. As of March 31, 1999, the
certificate of deposit amounted to $800,000, and this is classified as
restricted cash.

FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

The carrying value of the Company's financial instruments, including cash
and cash equivalents, short-term investments, accounts receivable and long-term
debt approximates fair market value. Financial instruments that subject the
Company to concentrations of credit risk consist primarily of cash and cash
equivalents, short-term investments and trade accounts receivable. Management
believes the financial risks associated with these financial instruments are
minimal. The Company maintains its cash and cash equivalents and short term
investments with high quality financial institutions. The Company's customer
base consists of businesses throughout North America. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral on accounts receivable, as the Company's customers are large,
well-established companies. To date, the Company has had no write-offs of
accounts receivable.

F-8
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Significant customer information is as follows:

<TABLE>
<CAPTION>
% OF TOTAL REVENUES ACCOUNTS RECEIVABLE
------------------------ ------------------------
1997 1998 1997 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Customer A...................................................... 39% -- -- --
Customer B...................................................... 28% -- -- --
Customer C...................................................... 26% -- 45% --
Customer D...................................................... -- 21% -- --
Customer E...................................................... -- 18% -- 25%
Customer F...................................................... -- 13% -- --
Customer G...................................................... -- 13% -- 43%
Customer H...................................................... -- 11% -- --
</TABLE>

CAPITALIZED SOFTWARE

Costs related to the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility (in the form of a working model) of the product has
been established, at which time such costs are capitalized, subject to expected
recoverability. To date, the Company has not capitalized any development costs
related to software products since the time period between technological
feasibility and general release of a product is not significant and related
costs incurred during that time period have not been material.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the equipment, generally three to five years. Equipment recorded
under capital leases and leasehold improvements are amortized using the
straight-line method over the shorter of the respective lease term or the
estimated useful life of the asset.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of any asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

F-9
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
REVENUE RECOGNITION

On October 1, 1997 the Company adopted Statement of Position (SOP) 97-2,
SOFTWARE REVENUE RECOGNITION, which supersedes SOP 91-1, SOFTWARE REVENUE
RECOGNITION. The adoption of SOP 97-2 did not have a material effect on the
Company's operating results. SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements to be allocated to each
element based on the relative fair values of the elements. License revenue
allocated to software products generally is recognized upon delivery of the
products or ratably over a contractual period if unspecified software products
are to be delivered during that period. Revenue allocated to maintenance is
recognized ratably over the maintenance term and revenue allocated to training
and other service elements is recognized as the services are performed.

If the services are considered essential to the functionality of the
software products, both the software product revenue and service revenue are
recognized using the percentage of completion method in accordance with the
provisions of SOP 81-1, ACCOUNTING FOR PERFORMANCE OF CONSTRUCTION TYPE AND
CERTAIN PRODUCTION TYPE CONTRACTS. Such contracts are generally on a time and
materials basis with a few fixed fee contracts entered into in fiscal 1997 and
1998. The contracts are not subject to renegotiation and range from 5 to 18
months in duration. Revenues and costs are recognized based on the labor hours
incurred to date compared to total estimated labor hours for the contract.
Contract costs include all direct material, direct labor and indirect costs
related to contract performance. Selling, general, and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are recorded in the period in which such losses become probable based
on the current contract estimates. Billings in excess of recognized revenues are
included in deferred revenue and amounted to $332,000 and $898,000 as of
September 30, 1997 and 1998, respectively.

Cost of license revenue primarily includes product, delivery and royalty
costs. Cost of maintenance and service revenue consists primarily of labor costs
for engineers performing implementation services and technical support and
training personnel and facilities and equipment costs.

INCOME TAXES

The Company utilizes the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance is recorded to reduce deferred tax
assets to an amount whose realization is more likely than not. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

F-10
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
STOCK-BASED COMPENSATION

The Company uses the intrinsic value-based method of accounting for all of
its employee stock-based compensation plans. Expense associated with stock-based
compensation is being amortized on an accelerated basis over the vesting period
of the individual award consistent with the method described in Financial
Accounting Standards Board (FASB) Interpretation No 28.

ACCUMULATED OTHER COMPREHENSIVE INCOME

In June 1997, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes
standards of reporting and display of comprehensive income and its components of
net income and "Other Comprehensive Income" in a full set of general purpose
financial statements. "Other Comprehensive Income" refers to revenues, expenses,
gains and losses that are not included in net income but rather are recorded
directly in stockholders' equity. SFAS 130 was adopted by the Company in 1998.
Tax effects of comprehensive income (loss) are not considered material.

NET LOSS PER SHARE

Basic net loss per share is computed using the weighted-average number of
vested outstanding shares of common stock. Diluted net loss per share is
computed using the weighted-average number of shares of vested common stock
outstanding and, when dilutive, unvested common stock outstanding, potential
common shares from options and warrants to purchase common stock using the
treasury stock method and from convertible securities using the as-if-converted
basis. All potential common shares have been excluded from the computation of
diluted net loss per share for all periods presented because the effect would be
antidilutive. Pursuant to the Securities and Exchange Commission (SEC) Staff
Accounting Bulletin No. 98, common stock and convertible preferred stock issued
for nominal consideration, prior to the anticipated effective date of the IPO,
are included in the calculation of basic and diluted net loss per share as if
they were outstanding for all periods presented. To date, the Company has not
had any issuances or grants for nominal consideration. Diluted net loss per
share does not include the effect of the following common equivalent shares:

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Shares issuable under stock options.................................. 653,200 3,568,960
Shares of unvested stock subject to repurchase....................... 14,781,800 10,290,760
Shares issuable pursuant to warrants to purchase common and
convertible preferred stock........................................ -- 570,944
Shares of convertible preferred stock on an "as if converted"
basis.............................................................. 16,511,600 17,845,176
</TABLE>

The weighted-average exercise price of stock options outstanding was $.14
and $.77 as of September 30, 1997 and 1998, respectively. The weighted average
purchase price of unvested stock was $.05 and $.06 as of September 30, 1997 and
1998, respectively. The weighted average exercise price of warrants was $3.29 as
of September 30, 1998.

F-11
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires disclosure of certain
information regarding operating segments, products and services, geographic
areas of operation, and major customers. Management is in the process of
evaluating the financial reporting impact of this pronouncement. The Company
will adopt SFAS No. 131 in fiscal 1999.

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because the
Company does not currently hold any derivative instruments and does not engage
in hedging activities, the Company expects the adoption of SFAS No. 133 will not
have a material impact on its financial position, results of operations or cash
flows. The Company will be required to adopt SFAS No. 133 in fiscal 2000.

In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
SOP 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED
FOR INTERNAL USE. SOP 98-1 establishes the accounting for costs of software
products developed or purchased for internal use, including when such costs
should be capitalized. The Company does not expect SOP 98-1 to have a material
effect on its financial position, results of operations or cash flows. The
Company will adopt SOP 98-1 in fiscal 2000.

In April 1998, the AcSEC issued SOP 98-5, REPORTING ON THE COSTS OF START-UP
ACTIVITIES. Under SOP 98-5, the cost of start-up activities should be expensed
as incurred. The Company expects that the adoption of SOP 98-5 will not have a
material impact on its financial position, results of operations or cash flows.
The Company will be required to adopt SOP 98-5 in fiscal 2000.

2. FINANCIAL STATEMENT COMPONENTS

SHORT-TERM INVESTMENTS

The following is a summary of available for sale securities as of September
30, 1998 (in thousands):

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ------------- --------------- ---------
<S> <C> <C> <C> <C>
Government bonds............................................... $ 8,387 $ 61 -- $ 8,448
Money market funds............................................. 5,467 -- -- 5,467
--
----------- --- ---------
13,854 61 -- 13,915
Less amounts classified as cash equivalents.................... 8,288 -- -- 8,288
--
----------- --- ---------
Securities available for sale.................................. $ 5,566 $ 61 -- $ 5,627
--
--
----------- --- ---------
----------- --- ---------
</TABLE>

As of September 1998, the weighted average portfolio duration and
contractual maturity was 15 months. The Company had no short-term investments as
of September 30, 1997.

F-12
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

2. FINANCIAL STATEMENT COMPONENTS (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment consisted of the following as of September 30, 1997
and 1998 (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment and purchased software............................ $ 668 $ 1,648
Office equipment..................................................... 130 300
Furniture and fixtures............................................... 175 609
Leasehold improvements............................................... -- 416
--------- ---------
973 2,973
Less accumulated depreciation and amortization....................... 112 756
--------- ---------
$ 861 $ 2,217
--------- ---------
--------- ---------
</TABLE>

Certain computer and office equipment are recorded under capital leases that
aggregated $1,108,000 as of September 30, 1998. Accumulated amortization on the
assets recorded under capital leases aggregated $277,000 as of September 30,
1998.

OTHER INCOME, NET

Other income, net, consists of the following (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Interest income, net................................................... $ 289 $ 568
Other expense.......................................................... (16) --
--------- ---------
$ 273 $ 568
--------- ---------
--------- ---------
</TABLE>

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

In September 1996 and May 1997, the Company issued 3,112,800 shares of
Series A convertible preferred stock at $2.00 per share. From August 1997
through December 1997, the Company issued 1,159,100 shares of Series B
convertible preferred stock at $12.50 per share. In April 1998, the Company
issued 189,394 shares of Series BB convertible preferred stock at $13.20 per
share.

F-13
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
The rights, preferences, and privileges of the holders of Series A, B and BB
convertible preferred stock are as follows:

- The holders of Series A, B and BB preferred stock are entitled to receive
annual dividends at the rate of $.16, $1.00 and $1.06 per share,
respectively, payable when and if declared by the Company's Board of
Directors, in preference and priority to any payments of dividends to
holders of the Company's common stock. The dividend rights are not
cumulative. No dividends have been declared or paid on preferred stock
since inception of the Company.

- Shares of Series A, B and BB preferred stock have a liquidation preference
of $2.00, $12.50 and $13.20 per share, respectively; plus any declared but
unpaid dividends. Shares of Series A also have pro rata liquidation rights
with the common stock in any remaining assets after distribution to common
stockholders, up to a total of $8.00 per share.

- Each share of preferred stock is convertible into four shares of common
stock, subject to adjustment for certain dilutive issuances, splits, or
combinations. Conversion will occur upon written consent of the holders of
preferred stock and automatically upon an initial public offering at a
price of not less than $3.125 per share, which price increases ratably at
approximately 10% annually beginning with the issuance date of the Series
B preferred stock, and with aggregate proceeds equal to or exceeding
$7,500,000.

- Holders of Series A, B and BB preferred stock vote equally with shares of
common stock on an "as if converted" basis.

- Holders of Series A, B and BB preferred stock possess certain registration
rights and the right to participate in future financings.

- The Company has authorized and designated 3,112,800, 1,167,100 and 200,000
shares as Series A-1, B-1 and BB-1 preferred stock, respectively, and such
shares have rights and preferences similar to the Series A, B and BB
preferred stock, except that they are not entitled to antidilution
protection.

WARRANTS

In November 1997, in connection with a lease line arrangement, the Company
issued warrants to purchase 8,000 shares of the Company's Series B convertible
preferred stock at a price of $12.50 per share, the fair value on the date of
issuance. The warrants are immediately exercisable and expire October 31, 2003.
The fair value of the warrants of $62,000 was calculated using the Black-Scholes
option pricing model and is being amortized to interest expense over the term of
the lease, 42 months.

In June 1998, in connection with a marketing arrangement, the Company issued
warrants to purchase 524,400 shares of the Company's common stock at a price of
$3.30 per share. The warrants are immediately exercisable and expire on the
earliest of (i) January 1, 2002, (ii) the effective date of the Company's
initial public offering, (iii) on a sale or transfer by the Company of all or
substantially all of its assets or (iv) on the acquisition of the Company by
another entity. The fair value of the warrants of

F-14
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
$504,000 was calculated using the Black-Scholes option pricing model and is
included in sales and marketing expense for the year ended September 30, 1998.

In August 1998, in connection with an additional lease line arrangement, the
Company issued warrants to purchase 3,636 shares of the Company's Series BB
convertible preferred stock at a price of $13.20 per share, the fair value on
the date of issuance. The warrants are immediately exercisable and expire on the
earliest of (i) August 26, 2005 or (ii) three years from the effective date of
the Company's initial public offering. The fair value of the warrants of $31,000
was calculated using the Black-Scholes option pricing model and is being
amortized to interest expense over the term of the lease, 42 months.

COMMON STOCK

In September 1996, 14,537,600 shares of common stock were issued to the
Company's founders at $.001 per share. Upon issuance, the Company had the right
to repurchase 100% of these shares at $.001 per share. These shares were issued
subject to vesting based upon continued employment, with the repurchase right
generally expiring ratably through September 2000. As of September 30, 1998,
6,045,200 shares of common stock issued to the Company's founders were subject
to repurchase. Certain shares immediately vest upon a change in control of the
Company, in an amount equal to the lesser of 50% of unvested shares or the
number of unvested shares, that when added to the vested shares, equals 75% of
shares purchased by that stockholder. Based on management's estimate of the fair
value of these shares, the Company recorded $200,000 of deferred stock-based
compensation expense. This amount is being amortized over the four-year vesting
period.

The Company has a right of first refusal to repurchase all vested shares of
common stock at the then current fair market value. All unvested shares of
common stock may be repurchased by the Company at the original issuance price
upon an individual's termination of service with the Company. The right of first
refusal expires upon an initial public offering of the Company's common stock.

1996 STOCK OPTION PLAN

The Company's 1996 Stock Option Plan (the 1996 Stock Plan) authorizes the
granting of incentive and nonstatutory common stock options to employees,
directors, and consultants at exercise prices no less than 85% of the fair
market value of the common stock on the grant date, as determined by the Board
of Directors. Stock options generally vest 25% after one year of service and
thereafter ratably over 36 months of service and generally have a term of 10
years. The 1996 Stock Plan also allows for exercise of unvested options. Shares
of common stock issued to employees upon exercise of unvested options are
subject to repurchase by the Company at the original exercise price. The
Company's ability to repurchase these shares expires at a rate consistent with
the vesting schedule of each option. Any right to repurchase shares upon an
employee's termination of service lapses and all shares vest if the Company is
subject to a change in control unless the Company's repurchase right is assumed
by the acquiring entity. As of September 30, 1998, 4,245,560 shares of common
stock were issued upon the exercise of unvested options subject to repurchase.
Approximately 10,244,000 shares of common stock have been reserved for issuance
under the

F-15
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
1996 Stock Plan as of September 30, 1998. As of September 1997 and 1998, the
Company has 4,268,200 and 495,800 shares available for grant, respectively.

On October 5, 1998 and March 15, 1999, the Board of Directors increased the
number of authorized shares of common stock for issuance under the 1996 Stock
Plan by 4,600,000 and 2,200,000 shares, respectively.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is recognized
for any of its stock options when the exercise price of each option equals or
exceeds the fair value of the underlying common stock as of the grant date for
each stock option. With respect to the stock options granted since inception
through March 1999, the Company recorded deferred stock-based compensation of
$22,374,000 for the difference at the grant date between the exercise price and
the fair value of the common stock underlying the options. This amount is being
amortized in accordance with FASB Interpretation No. 28 over the vesting period
of the individual options, generally 4 years.

Had compensation cost been determined in accordance with SFAS No. 123 for
all of the Company's stock-based compensation plans, net loss and net loss per
share would have been changed to the amounts indicated below (in thousands,
except per share data):

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Net loss:
As reported......................................................... $ (4,679) $ (10,953)
Pro forma........................................................... (4,685) (11,000)

Basic and diluted net loss per share:
As reported......................................................... (7.31) (1.90)
Pro forma........................................................... $ (7.32) $ (1.91)
</TABLE>

The fair value of each stock option is estimated on the date of grant using
the minimum value method with no expected dividends and the following
weighted-average assumptions:

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
2.50 2.60
Expected life......................................................... years years
Risk-free interest rate............................................... 6.00% 5.50%
Volatility (for nonemployees)......................................... 60% 60%
</TABLE>

F-16
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the 1996 Stock Plan is as follows:

<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------- SIX MONTHS ENDED MARCH
1997 1998 31, 1999
------------------------ ------------------------ ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period............. -- $ -- 653,200 $ .14 3,568,960 $ .77
Granted...................................... 6,020,200 .06 4,272,400 .76 6,146,800 2.53
Exercised.................................... (5,323,000) .05 (1,101,640) .45 (1,461,300) 1.32
Forfeited.................................... (44,000) .05 (255,000) .44 (109,200) .23
----------- ----------- -----------
Outstanding at end of period................... 653,200 .14 3,568,960 .77 8,145,260 2.01
----------- ----------- -----------
----------- ----------- -----------
Exercisable at end of period................... 653,200 .14 3,568,960 .77
----------- -----------
----------- -----------
Weighted-average fair value of options granted
during the period at market.................. 6,020,200 .01 1,034,000 .07
Weighted-average fair value of options granted
during the period at less than market........ -- -- 3,238,400 1.18
</TABLE>

The following table summarizes information about stock options outstanding
as of September 30, 1998:

<TABLE>
<CAPTION>
OUTSTANDING
-------------------------------------- EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
- ------------------------------------------ ---------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$.05...................................... 380,000 8.75 $ .05 380,000 $ .05
.31 - .38................................. 806,960 9.20 .35 806,960 .35
.50 - 1.00................................ 1,629,000 9.63 .88 1,629,000 .88
1.33...................................... 753,000 9.81 1.33 753,000 1.33
---------- ----------
.05 - 1.33................................ 3,568,960 9.47 .77 3,568,960 $ .77
---------- ----------
---------- ----------
</TABLE>

F-17
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

3. CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about shares subject to
repurchase as of September 30, 1998:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED-
RANGE OF REMAINING AVERAGE
EXERCISE NUMBER OF CONTRACTUAL REPURCHASE
PRICES SHARES LIFE (YEARS) PRICE
- ------------------------------------------ ------------ ------------- -------------
<S> <C> <C> <C>
$.001 - $.05.............................. 9,227,720 8.17 $ .02
$.31 - $.38............................... 846,040 9.19 .35
$.50 - $1.00.............................. 217,000 9.58 .83
------------
$.001 - $1.00............................. 10,290,760 8.29 $ .06
------------
------------
</TABLE>

4. INCOME TAXES

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets as of September 30, 1997 and 1998, are as
follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves.................................................... $ 426 $ 1,095
Depreciation and amortization............................................ 20 87
Deferred start-up costs.................................................. 530 310
Net operating loss carryforwards......................................... 1,508 4,386
--------- ---------
Total gross deferred tax assets........................................ 2,484 5,878
Less valuation allowance............................................... 2,484 5,878
--------- ---------
Net deferred taxes..................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>

The Company has provided a valuation allowance due to the uncertainty of
generating future profits that would allow for the realization of such deferred
tax assets.

F-18
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

4. INCOME TAXES (CONTINUED)

The reconciliation between the amount computed by applying the U.S. federal
statutory tax rate of 34% to income taxes and the actual provision for income
taxes as of September 30, 1997 and 1998 follows (in thousands):

<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Income tax at statutory rate............................................. $ (1,591) $ (3,724)
Nondeductible expenses................................................... 6 416
Net operating loss and temporary differences for which no benefit was
realized............................................................... 1,585 3,308
--------- ---------
Total................................................................ $ -- $ --
--------- ---------
--------- ---------
</TABLE>

As of September 30, 1998, the Company has net operating loss carryforwards
for federal and state tax purposes of approximately $11,500,000 and $8,300,000,
respectively. These federal and state carryforwards begin to expire in 2012 and
2004, respectively.

The Internal Revenue Code of 1986, and applicable state tax laws, impose
substantial restrictions on the ability of the Company to utilize net operating
losses and tax credit carryforwards in the event of an "ownership change," as
defined in Section 382 of the Internal Revenue Code. The Company's federal and
state tax losses and tax credit carryover incurred through that date of change
are subject to an annual limitation.

5. LONG-TERM DEBT AND LEASE COMMITMENTS

The Company leases certain equipment and its facilities under various
noncancelable operating leases. The leases expire from 1999 to 2004. The Company
also leases certain computer equipment under capital leases. Future minimum
lease payments under operating leases as of September 30, 1998, are as follows
(in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
- ----------------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
1999............................................................................... $ 361 $ 1,333
2000............................................................................... 361 951
2001............................................................................... 310 851
2002............................................................................... -- 851
2003............................................................................... -- 828
Thereafter......................................................................... -- 729
--------- -----------
Total minimum lease payments....................................................... 1,032 $ 5,543
-----------
-----------
Less amount representing imputed interest.......................................... 88
---------
Present value of minimum lease payments............................................ 944
Less current portion............................................................... 297
---------
Capital lease obligations, less current portion.................................... $ 647
---------
---------
</TABLE>

F-19
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

5. LONG-TERM DEBT AND LEASE COMMITMENTS (CONTINUED)
Rental expense was $371,000 and $865,000 for the years ended September 30,
1997 and 1998, respectively.

On November 22, 1996, the Company entered into an equipment line of credit
for $400,000 with a financial institution and $380,000 was outstanding under the
line of credit as of September 30, 1997. In August 1998, the Company repaid the
entire amount outstanding under the line of credit and the line of credit was
terminated.

In November 1997, the Company entered into a lease line arrangement with a
lending company in which the Company can obtain financing for up to $2,000,000.
The lease term commences on January 1, 1998, and is for 42 months. Warrants to
purchase up to 8,000 shares of Series B preferred stock, at an exercise price of
$12.50 per share, were issued in conjunction with the lease line agreement (see
Note 3).

In August 1998, the Company entered into an additional lease line
arrangement with a lending company in which the Company can obtain financing for
up to $1,000,000. The lease term commences on August 26, 1998, and is for 42
months. Warrants to purchase up to 3,636 shares of Series BB preferred stock, at
an exercise price of $13.20 per share, were issued in conjunction with the lease
line agreement (see Note 3).

In March 1999, the Company entered into a new facilities operating sublease
agreement. The lease term commences on May 1, 1999 and is for 90 months. Lease
payments are made on an escalating basis with the total future minimum lease
payments amounting to approximately $32,319,000 over the lease term. The Company
must also contribute $1,316,000 toward initial improvement costs. In addition,
the Company has also entered into a sub-sublease agreement for the same
facilities. The Company has subleased part of the facilities from May 1, 1999
for a period of 8 months. Minimum sub-sublease receipts total approximately
$269,000.

6. SUBSEQUENT EVENTS

INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

In April 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission (SEC), that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering (IPO). If the offering is
consummated under the terms presently anticipated, all of the outstanding shares
of the Company's convertible preferred stock will automatically convert into
shares of common stock on a one-for-four basis, upon closing of the proposed
IPO. The conversion of the convertible preferred stock and exercise of the
common stock warrants for 524,400 shares has been reflected in the accompanying
unaudited pro forma consolidated balance sheet.

STOCK SPLIT

On both March 16, 1999 and on April 20, 1999, the Board of Directors
approved a two-for-one stock split of the Company's common stock thus effecting
an overall four-for-one stock split as of April 20, 1999. The accompanying
consolidated financial statements have been restated to give effect to the stock
splits.

F-20
<PAGE>
ARIBA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999,
AND FOR THE SIX MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)

6. SUBSEQUENT EVENTS (CONTINUED)
AUTHORIZED SHARES

On April 20, 1999, the Board of Directors increased the number of authorized
shares of common stock to 80,000,000, subject to stockholder approval. The
accompanying consolidated financial statements have been restated to give effect
to the increased authorized shares. If the offering is consummated, the
authorized number of shares of common stock and preferred stock will increase to
200,000,000 and 20,000,000, respectively.

EQUITY INCENTIVE PLAN

The Company's Board of Directors approved the Equity Incentive Plan (the
Incentive Plan) on April 20, 1999 under which 2,400,000 shares have been
reserved for issuance. In addition, any shares not issued under the 1996 Stock
Plan will also be available for grant. The number of shares reserved under the
Incentive Plan will automatically increase annually beginning on January 1, 2000
by the lesser of 2,000,000 shares or 5% of the total amount of common stock
shares outstanding. Under the Incentive Plan, eligible employees may purchase
stock options, stock appreciation rights, restricted shares, and stock units.
The exercise price for incentive stock options and non-qualified options may not
be less than 100% and 85%, respectively, of the fair value of common stock at
the option grant date.

EMPLOYEE STOCK PURCHASE PLAN

The Company's Board of Directors adopted the Employee Stock Purchase Plan
(the Purchase Plan) on April 20, 1999 under which 4,000,000 shares have been
reserved for issuance. The Purchase Plan is pending approval by the
stockholders. The number of shares reserved under the Incentive Plan will
automatically increase beginning on January 1 of each year by the lesser of
750,000 shares or 2% of the total amount of common stock shares outstanding.
Under the Purchase Plan, eligible employees may purchase common stock in an
amount not to exceed 15% of the employees cash compensation. The purchase price
per share will be 85% of the common stock fair value at the lower of certain
plan defined dates.

DIRECTORS STOCK OPTION PLAN

The Company's Board of Directors adopted the Directors' Stock Option Plan
(the Directors Plan) on April 20, 1999 under which 500,000 shares have been
reserved for issuance. The Directors Plan is pending approval by the
stockholders. Each non-employee joining the Board of Directors following the
effective date of the initial public offering will automatically receive options
to purchase 10,000 shares of common stock. In addition, each non-employee
director will automatically receive options to purchase 2,500 shares of common
stock at each annual meeting of the Board of Directors beginning after January
1, 2000. Each option will have an exercise price equal to the fair value of the
common stock on the automatic grant date.

F-21
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