Enemy at the Gates

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

Electronic data interchange (EDI), pronounced dead by many media outlets, can be heard tapping quietly on its morgue drawer.

Business has long used the American National Standards Institute (ANSI) EDI as a way to exchange data in a business context. XML is increasingly being talked up as the metadata standard that will dethrone ANSI EDI.

Members of the Data Interchange Standards Association (DISA) had another view of XML at the 2001 DISA E-Business and Internet Conference.

GE Information Services Inc. senior consultant and XML instructor Bill Cafiero said that XML can provide certain advantages over ANSI EDI for data interchange, but that the expense of replacing or changing intact systems is rarely justifiable and unlikely to occur soon. Interest in XML as an alternative to ANSI EDI will, Cafiero said, dissipate as people get entrenched in the reality of implementing XML data interchange systems with partners.

David Paraiso, director of the consulting firm Integrated Technologies Inc., said only 2 percent of students in his XML classes work on EDI applications.

Industry firebrand Andy Duncan, president and CEO of Advanced Data Exchange (ADX, formerly The EC Co.), claimed his revenue from EDI subscribers is growing 20-24 percent per annum, although subscribers increasingly choose the Internet instead of value-added networks as the transport medium. "EDI will continue to flourish.... XML won't surpass EDI for quite some time," Duncan said.

However, ANSI EDI users may not be able to set the pace of XML EDI adoption. Beth Topiol, a vice president at Citibank, said she has large customers pushing for Citibank to adopt XML.

And Joe Dalman, COO of TIE Commerce (an e-commerce consultancy involved with the ebXML initiative), said the main impetus for suppliers to participate in XML-based, supply-chain collaboration is pressure from large, influential customers.

The bottom line, according to Jeff Donnelly, president and CEO of BlackHog Inc. (a discrete manufacturing procurement platform), is that companies should use whatever technology satisfies requirements at a reasonable cost right now. "Don't invest in anything ... that will take three to four years for a return on investment," Donnelly said.

Jeanette Burriesci

Ubiquitous Utopia

Visa's Sarah Garrison on U-commerce

Sara Garrison joined Visa in February 2000, as a senior vice president, Technology Development. She has led the implementation of the new U.S. payments traffic network, Direct Exchange. Prior to joining Visa, Sara was a senior vice president at the Federal Reserve Bank of San Francisco.

IE: What is Visa Direct Exchange and how does it enable u-commerce (universal commerce)? GARRISON: Direct Exchange builds on what Visa is today: Visa is the world's largest payments processing system. Globally, it has a billion cardholders, more than 16 million merchants, and more than 21,000 member banks.

We process more than 3,800 messages a second in peak season, and [yearly] our peak increases by around 20 to 30 percent, every three years or so our volumes double.

The analogy we like to use is that if you took all the stock markets in all the world and looked at all the trading conducted on a daily basis, we process that over a coffee break.

Our volumes and our promise of 100 percent availability and reliability was the baseline from which we built Direct Exchange, the new enabling infrastructure for our VisaNet system.

Direct Exchange is the network and replacement system that provides the ability to support ubiquitous processing of payments -- anywhere, anytime, and through any device -- and information services in mixed forms through open technologies in a secured implementation. That's the promise of u-commerce, and open technologies are the means by which we're able to deliver on that promise.

IE: What technologies did you use in Direct Exchange?

GARRISON: In the networking services, we are using IP technology in a secured implementation. That means it's effectively an extranet; it's the world's largest private financial portal. We also used a lot of Cisco gear.

For our messaging, we used BEA Tuxedo. In order to support 100 percent availability, reliability, and assurance, we built what's called a high-availability cluster solution, and that allows for both horizontal and vertical scaling. It means going to more CPU inside the boxes and then going to bigger boxes. That higher availability cluster solution is a combination of Sun servers using BEA's Tuxedo product as the e-commerce glue or the middleware that holds it all together. It's a combination of both the clustering and the peer-to-peer capabilities in IP.

IE: What are some of the value-added benefits of Direct Exchange that you foresee?

GARRISON: With the new Direct Exchange network, we're able to realize the promise of being able to handle all kinds of payments, not just card payments. We're also able to handle information services and analytic services that heretofore couldn't be offered because of the proprietary nature of the dialogs that occurred.

In earlier environments you're dealing with [SNA] networks, which by virtue of what they are, have very proprietary and fixed formats communication. With this IP technology and XML, as well as some of the capabilities we now have, we have a much more flexible way to create the electronic dialog between any two parties.

There are a huge number of value-added services that we can now provide to the banks, to the merchants, and to our consumers. For consumers, we can start to provide more patterning and tracking of information, and likewise for banks, we will be able to provide enhanced services, which can then be further customized to provide a complete picture back to the consumer base.

IE: Is Visa headed in the direction of providing Web services to customers then?

GARRISON: Visa already provides Web services to customers, but Direct Exchange is the enabling infrastructure on which we can drive out more and more multichannel delivery, and one of those channels is the Web; other channels would include instant messaging and the like.

IE: Are most of these transactions still coming from the point-of-sale systems?

GARRISON: Right. Today, our transactions are driven through the card processes, which are basically point-of-sale centric, but tomorrow we believe that we can take in payments from a multitude of devices. Point of sale will be one.

IE: How important are some of the vertical industry e-commerce standards for customers of this architecture? You mentioned XML. Are there any other standards that you're looking at like BizTalk or RosettaNet?

GARRISON: Well, we'll be able to support multiple standards in our new environment so the question will be what that vertical business space needs.

IE: Does Direct Exchange interface with supply chain management systems?

GARRISON: My answer is that it all depends. To the extent you have supply chain or business-to-business management to leverage one or more components of our solution set, we can tailor those components to meet your needs.

IE: Is Direct Exchange always handled as a purely separate system or can it be integrated right into a customer's application?

GARRISON: Well Direct Exchange is an enabling infrastructure. Logically it can be integrated. Because we secure that network and ensure that it's a private secured environment, it doesn't become physically integrated.

IE: If you have an e-commerce application running on a company's portal, would there be a Visa button to speed up the transaction or will customers continue to go to a separate form?

GARRISON: We are very interested in providing an integrated presentation layer. We're very interested in providing seamless integration of payments and information and purchasing services.

IE: Now that Direct Exchange is in place, what services are you planning to offer?

GARRISON: There's a lot of work going on with SmartCards, but we're also looking at ways in which we can provide enhanced automated services for back-office functions. And one of the things we've been aggressively moving forward with is our back-office chargeback adjustment capabilities. Back office is a huge resource hog, and back-office functions include invoicing, accounting, billing, charge back or adjustments, and things of that ilk. To the extent those can be automated, there are huge efficiency gains, and so that's been a targeted area for us as an early product set over Direct Exchange but it's at the member bank's request.

IE: Going forward, what role do you really see the financial services sector taking in e-commerce? Do you see any trends or emerging stances?

GARRISON: The process of making money, the sequence by which goods or services are exchanged for payment, those underlying processes don't change in the e-commerce space. That underlying [business] paradigm is still there, and in that paradigm, banks, whether physical or virtual, play a very critical role because they are the holders of the account.

In the virtual space, I believe the banks are going to have a critical role to play in the [payment] settlement processes and in the movement of funds, and Visa as the largest clearing engine in the world will [be involved] regardless of the source of those payments.

IE: What advice do you have for IT managers who face the same scaling challenges as Visa?

GARRISON: In the application of new technology to business functions, you still have to maintain the same rigor in your standards for performance in your approach to requirements and capabilities. You still have to maintain complete failover provisions, the ability to ensure redundancy in your systems, rigor in your methodologies and your processes, procedures, and design approaches. You can't throw out all the good things we learned over the years about how to do it right just because it's new.

IE: Is there any advice that you would give to IT managers that are dealing with the new mobile commerce?

GARRISON: I think [mobile commerce] needs to be on the radar screen, but I don't think we've reached in the U.S. the level of maturity we're going to need in terms of protocols, formats, and acceptance for wide-scale deployment.

IE: What is the strategy of this Direct Exchange?

GARRISON: This whole strategy comes about to facilitate new opportunities for our member banks and ultimately meet growing consumer demand for more control over how you pay, what you pay, when you pay, and where you pay.

Stuck in between all the gloomy headlines about job cuts and stock dives, you can find integration software companies making big money deals and actually beating Wall Street forecasts.

In March, General Motors Corp. tapped SeeBeyond Technology Corp. as its global standard for enterprise application integration (EAI). In the same month, WebMethods Inc. completed a deal with Ford Motor Co. to integrate Ford's call center and another pact with i2 Technologies Inc. to embed WebMethods software in i2 products. WebMethods also increased its fiscal year 2001 revenue projections to $205 million.

All of this success comes during an economic downturn and low stock prices. According to AMR Research analyst Amy Hedrick, the integration software market is still relatively new and because of the benefits it offers companies, it will thrive.

"The return on investment for integration is easy to see ... with the wave of mergers and acquisitions in business there is a greater need for integration software to easily integrate [recently acquired companies]," said Hedrick.

Integration is also surviving because it gives companies the ability to cut costs in a slowing economy. WebMethods believes that its focus on the cost-saving ability of integration has helped it continue to gain customers such as Ford.

"Six to seven months ago, customers were coming to us looking for new sales channel opportunities, while now companies are looking to use WebMethods to cut costs. Companies are using more scrutiny when deciding [on integration software], but that doesn't mean they are not spending," said Mike Destein, WebMethods director of product marketing.

Another key factor is that B2B integration software companies have barely penetrated the market. Both Hedrick and Destein believe there is still a huge opportunity for growth.

"Mid-tier companies need scaled-down pricing. Most small companies don't make $100,000 investments. However, mid-range companies have the same needs as Fortune 500 companies," said Hedrick.

However, Destein believes that the way for integration software companies to continue to succeed is to focus on the Global 2000. Whether the economy is up or down, Destein believes integration will be needed, at least its cost-cutting abilities. This drive to save money could sustain the integration software market.

Jeanette Perez