Can IBM save B2B?

No company in its right business-model mind would choose to be in B2B right now. E-marketplaces, in particular, are in tumult. But if any company can make sense of the whole B2B mess, it's IBM.

No company in its right business-model mind would choose to be in B2B right now. E-marketplaces, in particular, are in tumult. But if any company can make sense of the whole B2B mess, it's IBM, which just emerged relatively unscathed from a hellish first quarter.

As the history books will tell, Q1 provided the first tangible evidence of an economic slowdown that could end next week or drag on for years. But while most companies were wallowing in red ink and layoffs, IBM saw its quarterly revenues rise 9 percent to $21 billion and net income increase 15 percent to $1.7 billion.

Can IBM save B2B? YES

IBM also managed to survive its ill-fated e-business alliance with Ariba and i2 Technologies, which disintegrated earlier this year when i2 and Ariba couldn't stop competing long enough to cooperate. Indeed, IBM exited the alliance with greater B2B mind share and currently maintains separate, viable partnerships with both i2 and Ariba.

According to Greg Conley, general manager of e-markets for IBM—and the man charged with making the company a force in that industry niche—Big Blue was the catalyst behind the original three-way partnership. Kimberly Knickle, research director at AMR Research, agrees, noting that "IBM made the partnership happen ... Apps vendors tend to think they don't need integration. But IBM knows that to get its foot in the door on infrastructure and services, it has to be friendly with a lot of application vendors."

Despite the failure of the alliance, close ties to apps vendors remain a central element in IBM's B2B strategy. "We don't have ambitions, like Oracle, to do everything ourselves," insists Conley. "We need partners. The B2B area is far too big and far too diverse even for a company as big as IBM."

IBM learned this lesson the hard way. In January 1998, it bought Software Artistry, in part for a customer relationship management (CRM) software product called Corepoint. But try as it might, IBM could not effectively compete in what is now estimated to be a $10 billion CRM market, dominated by its current partner, Siebel Systems.

Industry observers believe that with its ability to get very tight with the top apps providers, IBM could prove to be the one-stop B2B shop that many corporations, weary of dealing with multiple vendors, are pining for. "IBM is the ultimate arms dealer," argues Pierre Mitchell, an analyst with AMR. "IBM could have one of the most powerful e-procurement plays in the industry. It would make sense for them to acquire Ariba, but it's unclear if they will."

Already, IBM has accumulated most of the pieces of its B2B puzzle. First and foremost is its Global Services unit, which has led most of its B2B deals to date and provides the key integration component. In cooperation with i2, Ariba or both, IBM has won systems integration pacts with a number of major industry-based e-marketplaces, including E2open, an electronics exchange in which IBM is part investor; iStarXchange, an auto parts marketplace; and Omnexus, a plastics industry e-marketplace founded by BASF, Dow Chemical, DuPont and others.

Omnexus, for example, first chose IBM, which also hosts the site, then brought in Ariba for its Buyer e-procurement software, according to Michael Thaler, director of global marketing at Omnexus in Atlanta. "IBM did all the technology building, all the programming, all the hardware, hosting and security," says Thaler. "The biggest chunk of work was creating a marketplace to do more than Ariba was intended to do."

"Our experience with IBM has been fairly positive," continues Thaler. "I'd be lying if I said there weren't tense mo ments, mostly over external software. There has been some friction over software from the outside that is not IBM. But, overall, I give IBM a glowing endorsement."

IBM hasn't won every account, however. Most notably, it missed out on Transora, the consumer packaged-goods industry exchange powered by Ariba and i2. PricewaterhouseCoopers is the ex change's integration vendor, reportedly because the Big Five consultancy had existing relationships with some of Transora's founders. But losing deals also can have its advantages. IBM has missed out on some high-profile B2B disasters, including Petrocosm, an oil industry exchange built by Ariba and KPMG.

Strategic Software

Equally critical to IBM's future in B2B integration, says Conley, is middleware, such as IBM's MQ Series message queuing software. It's strategic for IBM, he says, as well as for any software maker that wants to partner with the company. "We don't do exclusive deals," says Conley. "But partners need to embrace our middleware."

IBM's WebSphere is another key middleware piece. The application server is gaining share, according to Giga Information, which estimates that WebSphere now commands 30 percent of the market, up from 16 percent a year ago, but still lags BEA Systems' 35 percent share.

In this year's first quarter, WebSphere sales grew 53 percent versus the comparable 2000 quarter, while MQ Series revenues rose 48 percent and sales of DB2, IBM's relation- al database, jumped 36 percent. IBM's $1 billion acquisition of In formix Software should increase its share of the database market, as well, although it will continue to trail market leader Oracle.

Nevertheless, all the components of a B2B victory are not yet in place. Karen Peterson, an analyst with Gartner Group, notes that IBM still generates more respect as a technology partner than as a strategic consultant.

Conley stops short of admitting that IBM is strategically challenged, but he does point out the importance of bolstering the consulting side, because most e-marketplace projects now start with business consulting.

"A year ago, they wanted to get a marketplace up, run some auctions," Conley explains. "Now they want to know what efficiencies they're going to get out of this, what's the value proposition, what quantifiable benefits."

Conley touts IBM's decision-support technology as part of its plan to demonstrate to skeptical customers Big Blue's ability to deliver a monetary return on investment.

Despite the failure of many B2B initiatives, Conley and IBM have not lost any enthusiasm for the e-marketplace model. "A year ago, people were intoxicated [with e-marketplaces]," says Conley. "They thought they could slap up a couple of press releases, take it public and make lots of money. That has dramatically changed. But now the pendulum has swung far too much to the other side. Eventually, it will settle into the area that focuses on the underlying value proposition."

At a Glance

Key Strategic Partners: Ariba, i2, Siebel

Flagship Middleware Software: MQ Series, WebSphere

Fast Fact: Websphere has 30% market share

Key Global Services Customers: E2open, iStarXchange, Omnexus

Key Challenges: Bolstering the B2B strategy consulting practice