I2 Technologies Aims to Flex
Its New B2B-Software Muscles
By EVAN RAMSTAD
Staff Reporter of THE WALL STREET JOURNAL
For a dozen years, i2 Technologies Inc. toiled in the gritty field of
supply-chain software, helping companies meld factory scheduling, product
planning and distribution into a seamless operation.
But after Hewlett-Packard Co. asked it for help last year in setting up a
Web-based network with its suppliers, i2 executives realized they could play
a bigger role in e-commerce.
Now, with its planned $6.9 billion acquisition of
Aspect Development Inc., which was valued at
$8.6 billion when unveiled Monday, and a
partnership with International Business Machines
Corp. and Ariba Inc., disclosed last week,
Dallas-based i2 is ready to fight giant Oracle
Corp. and newcomer Commerce One Inc. for
leadership in key business-to-business software.
Clearly, the gloves are off. Oracle used to sell i2's
supply-chain software with its own database
products. At i2's customer conference in fall
1998, Oracle Chief Executive Larry Ellison gave
a featured speech, saying, "i2 has special
technology we don't do." But Oracle dropped i2's products last year when
executives at both companies began to see the looming collision.
After the i2-Aspect deal, Lou Unkeless, Oracle's vice president of
world-wide marketing, said i2 is a more important competitor than Microsoft
Corp., Germany's SAP AG and Baan Co. of the Netherlands. Those
companies, he said, "didn't make the move to the Internet quickly enough."
Later this month, Oracle will strike back at i2's core business, releasing its first
supply-chain software.
I2 has fended off big players before, including SAP's foray into the
supply-chain arena. Nowadays, only i2 and a handful of others churn out
programs that can affect whether an online order actually gets filled by linking
raw materials all the way to finished, packaged goods. At a unit of France's
Thomson Multimedia SA, a logistics team uses i2 software to comb through
parts availability and decide which of 19,000 orders for television sets and
DVD players takes priority in its factories. Production planning time is down
to one week from four, slashing inventories.
But while it deftly moved into B2B Web markets, i2 also has been surprisingly
low key. Commerce One and Ariba, though smaller, have gotten far more
attention, partly due to splashy initial public offerings. Still, i2's stock has
soared from a split-adjusted $12 last year, and its revenue is expected to
grow 32% this year to $750 million.
I2's founder and chief executive, Sanjiv Sidhu, is an engineer with an
electronics design and manufacturing background who has never sought
publicity. But he is confident in i2's ability to play a direct role in e-commerce.
"I2 is clearly at the epicenter of this hurricane," he says.
I2's transformation began in the spring of 1999 when Hewlett-Packard asked
it to help create a place on the Web where PC makers could interact with
suppliers, keeping track of parts availability and other constraints that can
impede factory flow. In the summer, i2 spent $50 million to get some help,
buying Smart Technologies Inc., a creator of Web "front ends," the pages that
people see.
At its annual customer conference in October, i2 unveiled TradeMatrix, a
framework of software products and communication standards for its
customers to set up online marketplaces. Last month, United Technologies
Corp. and Honeywell Inc. said they will use TradeMatrix to create a H-P-like
marketplace for the aerospace industry. Some manufacturers, such as Sun
Microsystems Inc., decided to create a private network within TradeMatrix
for only itself and its suppliers.
"We're no longer just selling software," says Greg Brady, i2's president.
"What we're doing is helping invent new business practices."
That includes its own. Instead of simple licensing fees, i2's revenue will soon
include royalties from transactions that occur within the online marketplaces
that it helps set up. At a meeting with analysts two weeks ago, i2 executives
sketched out a hypothetical customer deal in which i2 would be paid a $1.5
million initial fee for its software and receive about $400,000 a year from
transaction royalties and $200,000 in maintenance fees.
Still, for all the attention on supplier marketplaces and nearly daily
announcements of new ones, much of the talk is just that. I2's TradeMatrix
isn't fully launched, for instance, and Oracle's early work with Ford Motor
Co. so far has delivered just a few auctions online. And few other software
makers touting B2B Web expertise have products that do the heavy lifting for
completing an order.
Karen Peterson, a Gartner Group analyst, says companies for the next year
or so will use Web marketplaces to purchase only such goods as office
supplies, rather than manufacturing components. She predicts "collaborative
commerce" is three to four years away.
I2 says transaction royalties will kick in late this year at the soonest. In 2001,
it expects such fees to account for 10% of its revenue. Meantime, i2 launched
its first national advertising campaign, hoping to draw attention to
TradeMatrix. Says Mr. Brady, "Today, i2 is really in more of a marketing war
than a sales war." |
