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Ariba, i2 rise on B2B pact
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March 8, 2000: 5:44 p.m. ET
IBM to take equity stake in Ariba and i2 as part of B2B e-commerce alliance
By Staff Writer David Kleinbard
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NEW YORK (CNNfn) - The stocks of business-to-business electronic commerce company Ariba Inc. and supply-chain software company i2 Technologies Inc. rose Wednesday after the two companies formed an e-commerce alliance with IBM.
Under the alliance, the three companies will integrate their business-to-business (B2B) e-commerce technologies and collaborate on marketing them to customers. In addition, IBM will make an undisclosed equity investment in both Ariba and i2.
Ariba (ARBA: Research, Estimates) rose 6-1/2 to 331, while i2 (ITWO: Research, Estimates) soared 22-3/16 to 190-5/8. The stocks of both firms have been highfliers over the past year because of investors' infatuation with B2B e-commerce and logistics. The stock of i2 is up 21-fold from its 52-week low of 8-7/8, while Ariba shares are about 11-fold from its low of 30-1/2.
Investors have such enthusiasm for B2B companies because B2B networks have the potential to dramatically reduce what companies pay to manage inventory, buy parts, make payments, and fulfill orders. According to Forrester Research, B2B e-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 e-commerce in the U.S. And International Data Corp. forecasts that the worldwide market for Internet-based e-commerce procurement and order management applications will increase from $187 million in 1998 to $8.5 billion in 2003.
"B2B networks are the main source of worker productivity increases and the main disinflationary force in the U.S. economy," said Bob Austrian, an analyst at Bank of America Montgomery.
IBM (IBM: Research, Estimates) will contribute its e-business hardware, software, and services capabilities to the alliance, as well as its global marketing reach. Ariba will contribute its B2B e-commerce platform, while i2 brings its TradeMatrix system, which enables companies to create private marketplaces where they can interact with their customers and suppliers. TradeMatrix also has a series of auction systems where companies can sell goods or inventory in a public market.
IBM will become one of the alliance's first major customers by using technology from Ariba and i2 to capture and manage a significant portion of its $45 billion in annual procurement spending.
"The customers of this alliance will have an integrated e-business solution for all aspects of their operations," said Bank of America's Austrian. "They should be able to procure and sell goods and services through an Internet marketplace, while integrating all of their back office business functions, such as inventory and order management."
The endorsement from IBM could help cement Ariba's and i2's current leadership positions in the B2B and supply chain fields and make the alliance the most significant one in the B2B area to date. However, the partners will need to determine how to integrate different technology platforms.
"For all of their strengths, Ariba and i2 are small companies in the grand scheme of things," Austrian said. "Partnering with IBM will give them global distribution and execution they badly need."
Last week, Ariba and the travel reservations system Sabre Holdings said they would create a Web-based exchange for the travel and transportation businesses. Last month, i2 and Toyota Motor North America formed a partnership to operate an electronic marketplace for the $100 billion U.S. automotive replacement parts market.
In the past, Ariba has focused on systems enabling companies to electronically requisition items that aren't directly used in the manufacturing process. By contrast, i2 focuses more on systems that enable companies to acquire items directly used in manufacturing, such as steel or glass, by electronically linking manufacturers with their suppliers.
"If B2B focuses only on indirect materials, then we are leaving a lot of money on the table," said Jason Robert, director of new product strategy at i2. "We need to hook the commerce side to the supply chain, since direct materials tend to be a much larger portion of a company's spending than indirect ones."
Austrian said that companies are likely to merge their individual B2B systems into a larger network that provides open communications between these systems, resembling the way individual phone companies connect to a national telecommunications network.
"Today's news validates that we are destined to migrate towards one open, inter-operating B2B network much like the phone network or the electrical network," he said. "We began with companies pursuing their own parochial approaches, and now they are migrating towards fully open systems for B2B commerce." 
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