Intelligent Enterprise

Enemy at the Gates

Ariba, Ibm, and I2's alliance morphs again

In Brief

Honeymoon's Over: Agile Inc. and Ariba Software Corp. have agreed to terminate their proposed merger because of the slowing economy. Agile also announced a Q2 revenue shortfall that is close to 50 percent below expected results and said that it would be cutting about 700 employees, nearly one-third of its workforce. Security Blanket: WebMethods Inc. has expanded its support for open security standards, including Security Assertion Markup Language (SAML), XML Key Management Specification (XKMS), and XML Encryption. WebMethods hopes that support for these standards will let Global 2000 customers and B2B marketplaces integrate security services across company boundaries and facilitate secure B2B transactions. Golden Years: Google Inc. has recruited former Novell Inc. CEO Eric Schmidt to serve as board chairman, replacing founding chairman Sergey Brin, who will continue as Google's president. Schmidt has also made a "significant financial investment" in Google and still acts as Novell's chairman and chief strategist.

When the i2 Technologies Inc., Ariba Inc., and IBM partnership first formed, analysts predicted that the marriage wouldn't last. Ariba and i2 were already reaching into each other's territories, and the potential rivalry was all too apparent. But IBM seemed firmly in control and the possible benefits of this complementary pairing were very attractive (see "Sleeping With the Enemy," December 5, 2000). But potential imitators beware.

In the article "Strategy and the Internet" (Harvard Business Review, March 2001), Michael E. Porter wrote: "As partnerships proliferate, companies tend to become more alike, which heats up rivalry ... companies are forced to balance the many potentially conflicting objectives of their partners while also educating them about the business ... and since producers of complements can be potential competitors, the threat of early entry increases."

A perfect example of this scenario is the recent shakeup among B2B companies. What started as mere reconnaissance prior to their partnership has now escalated into a full-fledged conflict as both Ariba and i2 race to acquire products in the other's sphere of influence. I2's $114 million planned acquisition of Rightworks Corp., which competes directly with Ariba by providing e-procurement and e-commerce solutions, and Ariba's now defunct plans to acquire Agile Software Corp. (product lifecycle management, see In Brief) and its recent partnership with i2 rival Syncra Systems Inc. (collaborative planning, forecasting, and replenishment) seem to mark the effective end of this relationship.

But the dot-com meltdown may force the two companies to change plans again.

Both i2 and Ariba announced job cuts and lowered earnings for the quarter ending March 31, blaming the setback on the decline in once-hot Internet marketplaces. However, while the Ariba and Agile merger may have been put on hold, it remains to be seen what effect the B2B slowdown will eventually have on these partnerships and rivalries.

This rivalry has potential ramifications for more than just the two companies. Former Rightworks partner and i2 rival Manugistics Group Inc. is also aligned with Agile, making an Ariba-Manugistics partnership likely. Commerce One Inc., which is partnered with SAP AG, will now compete with a Rightworks product that some believe to be superior, only lacking the name recognition that it will now have with i2. Stock analysts fear that the Rightworks acquisition will escalate these companies into a procurement software pricing war, which can be deadly during an economic slump.

The B2B landscape is changing rapidly, but how will it affect customers? Although both sides make assurances that existing joint customers won't suffer, both Ariba and i2 will no doubt push other product sets. In addition, i2 may find it challenging to add another sizable integration project on the heels of its other purchases, which include Aspect Development Inc. Ariba also faces a more complex set of supply chain requirements than in its traditional areas of indirect procurement and simple exchange platforms.

I2 Vice Chairman Romesh Wadhwani admitted to analysts on a conference call that the Rightworks deal "will reduce [i2's] need for an external partner," but he also stressed that he doesn't "expect this acquisition to affect [i2's] relationship with IBM in any way."

And that relationship is worth emulating - by establishing itself as a neutral party, IBM can decide whether i2, Ariba, or a combination of the two will best meet the needs of its customers, not its partners. In a slowing market, where competition for dwindling business is intensifying, favoring customers over potential rivals is a better strategy.

Michelle Nichols