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March 20, 2000

Aspect Deal Continues i2's Push Into E-Commerce
$9.3 billion acquisition positions supply-chain vendor as business-to-business commerce

By Alorie Gilbert

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2 Technologies Inc. has long ruled the supply-chain planning software roost. But in a world driven by E-commerce, the vendor knows its position is precarious at best.

To stay relevant in the age of online marketplaces and Internet-driven procurement, i2 last week spearheaded the largest software merger in history: a $9.3 billion all-stock deal with Aspect Development Corp., which sells software to help companies source and procure parts and supplies for product design and operations. The merger follows a move earlier this month in which i2 signed a $400 million deal with IBM and Ariba Inc. that lets IBM integrate and resell i2 and Ariba applications.

"They're really advancing themselves from a supply-chain vendor to a business-to-business E-commerce solution," says Tom Harwick, an analyst at Giga Information Group. He says i2's unique strength in the E-commerce equation is its understanding of the intricate relationships between companies and their suppliers, and of the flow of materials used to build finished products. That makes i2 one of the few application vendors able to go beyond online commerce for plant maintenance and office supplies--an area Ariba and Commerce One Inc. dominate--and facilitate the more-complex relationships required to produce goods.

By adding Ariba's online procurement system and Aspect's product-development suite to its E-business portfolio, called TradeMatrix, i2 says it has the business-to-business arena covered. "We own pretty much all the touch points to a customer," i2 president Greg Brady says.

Customers can mix and match TradeMatrix components (see chart), and either license the software or pay subscription and transaction fees for i2 to host it. In some cases, i2 and its customers--including the aerospace division of Honeywell, Toyota Motor USA, and apparel maker VF Corp.--become equity stakeholders in a marketplace. Brady says similar deals with Home Depot Inc. and Nike Corp. are in the works.

By teaming with Aspect, i2 can add another dimension to online commerce: tools that help companies decide what to buy and from whom to buy it. By providing a database of 17 million standard parts and supplies, Aspect, which will become a subsidiary of i2, adds content, an important dimension to Internet marketplaces. Also, i2 acquired startup Supplybase Inc. for $380 million in stock last week, gaining tools to streamline subcontracted manufacturing.

While analysts say the Aspect deal is a shrewd move for i2, it brings plenty of challenges. Aspect, for example, will have to rationalize its partnerships with i2 competitors such as SAP, which has rights to resell Aspect software. And i2 must prove it hasn't taken on more than it can manage.

Some i2 customers worry whether the vendor will stay focused on its core E-commerce capabilities, rather than expanding its alliances. But they also see a benefit to such relationships. "There should be economies of scale that let us use software like Aspect for less than if we were to purchase it ourselves," says Bill Dean, E-commerce project manager at Lucent Technologies Power Systems in Mesquite, Texas. The company is about to go live with a TradeMatrix pilot project that will let it share demand- forecast information and material requirements on the Internet with customers, contractors, suppliers, and distributors. "Today, we use E-mail and manual processes, which can delay us for weeks," Dean says. "Collaboration over the Web will immediately improve accuracy, allowing us to better schedule production and commit to availability of manufactured product."

As software vendors announce marketplace deals at a dizzying pace, analysts say, some alliances are likely to crumble. For instance, i2 had signed on to participate in an automotive marketplace for General Motors, but when GM joined online forces with DaimlerChrysler and Ford last month, i2 took a backseat to Ford's partner, Oracle, which is taking a more-dominant role even though it doesn't have a supply-chain product available.

Still, i2 is pushing forward. Brady says the vendor's next targets are consumer-focused industries such as retail, packaged goods, and consumer electronics, and it plans to build hooks into other popular business-to-business trading exchanges, such as Ariba Network.

While i2 is building momentum, it has to be diligent about following through on its promises, analysts say. Some products the vendor acquired in the early '90s still aren't fully integrated with its supply-chain suite. "They're focused more on expanding their vision than integrating what they already have," Giga Group's Harwick says. "That means the solutions clients get are a subset of what they envisioned."

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