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IBM buys into NetObjects

Looking to bolster its arsenal of Web development tools, IBM takes an equity stake in NetObjects.

IBM (IBM), looking to bolster its arsenal of Web development tools, today announced that it has taken an equity stake in NetObjects, a maker of Web development and management tools.

NetObjects, which sells a popular Web tool called Fusion, will continue to operate as an independent company, according to IBM. No management changes are planned. Michael Zisman, executive vice president of IBM's subsidiary Lotus Development, will join NetObjects' board.

IBM has struggled to come up with a coherent Web tool lineup on its own, analysts said. The deal puts the highly rated Fusion tool into IBM's weak lineup. "Fusion is the premiere site management tool. [There's[ nothing close to it for commercial and large-sized Web sites," said Stan Dolberg, an analyst with Forrester Research.

While IBM has fully embraced Java in its marketing pitch and is developing plenty of Java-based technology, the company has been slow to ship Java tools. "IBM has this soup of technology, but they have not come up with any new products. They keep putting this voluminous list of technology out onto their Web site and figuring that users will figure out what to do with it," Dolberg added.

IBM did not disclose the details of the NetObjects transaction. But Bruce Smith, an analyst with Merrill Lynch, said a rough gauge would be the deal in which Microsoft (MSFT) purchased FrontPage from Vermeer for a reported $130 million.

"This is a strategic move for IBM," he said. "Development tools are an important part when selling solutions to companies."

Smith noted the deal plugs a gap in Lotus's Notes and Domino groupware. "It has these sophisticated tools, but it lacks a sophisticated graphical environment. [NetObjects'] Fusion has this and fills a major strategic hole."

NetObjects, meanwhile, gets access to IBM's deep pockets as a result of the deal. The toolmaker is confronting Microsoft head-on, Smith added.

A question remains, however, how the transaction will sit with Netscape Communications, which bundles NetObjects' Fusion as one of its three tools in a suite.

"There is bad blood between Lotus and Netscape and it's unclear how the acquisition will affect NetObjects' relationship," Smith said.

Another question is how IBM can persuade NetObjects to more fully embrace Java, which has become an obsession for IBM. So far, NetObjects has shown a preference toward Microsoft's ActiveX technology, according to Dolberg.

Fusion "is not what you would call a Java product. It's kind of hard to say which way IBM will play it. They could push NetObjects away from ActiveX and in the process try to ding Microsoft," he said.