The Day Ahead: Girth is golden in the B2B market

Size matters in the B2B merger world

The $9.3bn (£5.7bn) merger of i2 Technologies and Aspect Development highlights one of the emerging commandments of business-to-business (B2B) e-commerce -- girth is golden.

Once you peel away all the pyrotechnics about "the largest in the history of the software industry", this merger is really about being big in terms of employees and revenue. Although economies of scale and complimentary products have something to do with the deal, i2 really wants to be viewed as a big fish. And when you're big, you can attract the big, old economy customers.

The actual price tag of the i2/Aspect deal is almost irrelevant because the two companies are playing with inflated currency -- shares in both have risen more than 700 percent in the last six months. i2 said it expects to be the largest provider of software and content for B2B in terms of revenue. It and Aspect had combined 1999 revenue of $666m (£412m).

"The companies we compete with are generally larger, just in terms of sheer scale. But what we've got here is, we now have 4,000 people focused on one thing, which is B2B e-commerce," said Bob Evans, president of Aspect, in an interview with Inter@ctive Investor. The B2B sector is expected to hit $1.5 trillion by 2003, and there are tons of development stage firms competing to link customers up with their partners and suppliers. Sounds exciting, but B2B customers may be skittish about the latest startup on the block. And they sure don't want to hear about your inflated market capitalisation. The B2B crowd is more established and wants a track record -- that means companies like IBM and Oracle have an edge. The solution? Smaller B2B players have to get big quickly either through acquisitions or alliances. That's where the i2 and Aspect merger comes in.

i2, which was already landing some key pacts with blue-chip customers, can now say to a customer, "Hey, we're big and getting bigger. We can meet your needs." A company with 400 employees can make the same pitch, but expect industry titans to be wary. Girth is in. And the examples of the trend are plentiful.

Last week, IBM teamed up with Ariba and i2 to deliver an end-to-end B2B package. Under the alliance, IBM bought a stake in both companies. The three together will also integrate their marketing and support and resell each other's software. So, IBM will resell Ariba and i2 software and Ariba and i2 can say they hang out with Big Blue. Don't be surprised if IBM winds up owning one of their two most recent partners. Ariba has been working feverishly to align itself with blue-chip brands, most recently Dell Computer.

The "size matters" flag is being also being waved with a lot of success by Oracle. Lask week it announced that it will work with Chevron and a division of Wal-Mart to create an online marketplace for the convenience store industry. Oracle also wiggled its way into an auto part auction network created by Ford Motor, General Motors (GM) and DaimlerChrysler. The network will move $250bn (£155bn) worth of parts each year.

Commerce One, partnered with GM, was well positioned in the deal, but must get along with Oracle, which is partnered with Ford. The big three automobile manufacturers are driving this B2B ship.

Oracle has also teamed with Sears, Roebuck & Co, as well as Carrefour Supermarche, two of the world's largest retailers, on an online retail exchange. What's Oracle's biggest advantage? Size. Customers know a lot more about Oracle than they do a company like FreeMarkets or Ariba.

In the B2B world, girth is golden if you want to win the business of the old economy giants. Expect more mergers like i2 and Aspect.

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