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Dell, Ariba form e-commerce pact

Dell says it will partner with business-to-business e-commerce darling Ariba to create a marketplace targeted at Dell's business customers.

Not wanting to miss out on a dance with one of the darlings of business-to-business e-commerce software, Dell said today it would partner with Ariba to create a marketplace targeted at Dell's business customers.

Dell said it would create a business-to-business marketplace for Dell's small and medium-size customers using Ariba's software technology for linking businesses on the Ariba network. The companies say the site will drastically decrease the cost of purchasing products and services by aggregating requests from large numbers of current and future Dell customers.

In addition, Dell said it would take an equity stake in Ariba and would become the "leading hardware supplier" to the company. Terms of the investment were not disclosed.

For Dell, the announcement marks another step in its effort to become a key supplier of pieces of the "Internet infrastructure"--the servers, PCs and software needed to run e-commerce sites.

Ariba's software "Will enable Dell to provide their small- and medium-(sized) business customers with more efficient ways to do business, including access to Ariba network commerce services, such as e-payment services from American Express," Larry Mueller, president and chief operating officer of Ariba, said in a statement.

Dell is far from being Ariba's only dance partner, though. With "B2B" the hot category for investors of late, PC hardware companies are clamoring to announce their B2B strategies and are lining up partnerships with big players in the arena, including Ariba, Commerce One and i2 Technologies.

Just last week, IBM said it would take an equity stake in Ariba. As part of its deal, IBM said it would partner with Ariba to let companies quickly set up marketplaces and manage their supply chain from the time the order is placed to its fulfillment, as well as provide payment and auctions services.

Some question the value of making an equity investment in the likes of Ariba at this point.

Nick Earle, director of Hewlett-Packard's group, said he regretted not taking an equity stake in Ariba when HP started working with them more than a year ago and they had a market capitalization of a mere $40 million. But that opportunity is past, he said. "What are you going to make on an equity stake on a company that's already north of $20 billion?"

The Ariba partnership with HP, announced a year ago, is still strong though transformed, said Earle. Ariba's site runs completely on HP servers, and about 80 percent of those who use Ariba's services do so with HP hardware. Because it costs about $2 million to buy the necessary hardware, that's a tidy chunk of revenue for HP, he said in an interview with CNET last week, before Dell made its announcement.

Ariba and HP initially had a revenue-sharing agreement whereby HP would get a fraction of revenues from transactions that took place on Ariba's site. That part of the deal now is over, and Ariba has become a more conventional customer that buys HP servers to run its site, Earle said. It's unclear at this point how Dell's status as "leading hardware supplier" would affect HP's standing relationship.

Either way, Ariba gets a major new customer out of today's deal with Dell, which said it would use Ariba's procurement software throughout its global operations to aggregate over $2 billion in annual purchases.

Dell's marketplace site, meanwhile, won't replace the customized Web sites it offers customers for purchasing Dell hardware and other PC peripherals. It will offer Dell customers more options for business supplies.