IBM taps trend with stakes in B2B firms

The amounts of the equity investments were not disclosed.

IBM also said it is forming a strategic alliance with business-to-business firms Ariba and i2 to provide a wide range of services to companies trying to take their business online. Business-to-business (B2B) ventures typically deal with industrial and commercial items. Firms like Commerce One, Ariba and i2 provide specialized software used to set up online exchanges that many firms hope will drastically decrease the cost of doing business.

Analysts said IBM's move today is likely to establish these firms as the leading players in the business-to-business space.

"IBM is leveraging the momentum and specialization that these firms have in facilitating the creation of exchanges," said J.C. Simbana, an analyst at American Frontier, a Denver-based brokerage firm. "Rather than spending money and deploying assets in trying to become an exchange facilitator, IBM chose instead to partner with companies whose core competency is creating exchanges."

Analysts expect other established firms to follow, linking partnerships with the leading business-to-business infrastructure firms. Just last month, Microsoft took a $100 million stake in VerticalNet, sending the firm's shares higher.

"We have some leaders that have formed, but a lot can change," said Charles Phillips, a managing director at investment bank Morgan Stanley. "There could be further alignments after today's alignment, and couple of others may shift."

Shares of Ariba and i2 surged this morning on the news of the alliance. Ariba shot up $31, or nearly 10 percent, to about $355. The stock has traded as high as $338 and as low as $30.50 during the past 52 weeks. Shares of i2 climbed nearly $22, or about 13 percent, to $190. The stock hit a high of $197.25 and a low of $8.88 during the last 52 weeks.

IBM stock reacted little on news of the deal, slipping about 13 cents to $102.88. IBM shares have traded as high as $139.19 and as low as $81.50 during the past 52 weeks.

Just last week, Ariba said it would create a Web-based travel services exchange with Sabre Holdings, while i2 announced recently it would help Toyota, Japan's largest carmaker, set up an exchange for its suppliers. Last year, Commerce One began setting up a similar exchange for General Motors and Oracle began setting up an exchange for Ford.

But the rapid rise and popularity of the business-to-business sector has obscured the fact that the industry does face hurdles. Some have voiced concerns about the potential need for government regulation over new marketplaces that concentrate tremendous purchasing clout among a handful of large companies, opening up the possibility of collusion. Others have noted that despite the tremendous attention the sector is receiving from investors, there are several pitfalls that need to be surmounted, including security and standards issues.

The leading research firms have the business-to-business (B2B) market pegged between $2.7 trillion and $7.3 trillion by 2004 from about $131 billion in 1999.

"There have been a lot of B2B announcements, but the hard part is now coming in terms of making the stuff actually work," said Phillips.

With today's alliance, the companies said they hope to offer business-to-business services backed by the global reach of IBM.

The alliance plans to help companies quickly set up marketplaces and manage their supply chain from the time the order is placed to its fulfillment. The companies also plan to provide payment and auctions services.

Last year, Hewlett-Packard formed an alliance with Ariba to create Ariba.com Network. The service runs on HP hardware, with HP providing hosting services, operations infrastructure, deployment support, and marketing assistance. Ariba today said its alliance with IBM would not impact last year's deal.

"Nothing happens to that alliance. HP is still a great partner for us," said Keith Krach, Ariba's chief executive. "(Today's alliance) is open to all platforms so we will absolutely continue to work with HP."