i2 Technologies at the Front of the Supply Chain

Vendor Summary

i2 Technologies is the largest and fastest growing vendor of supply chain management software with $456 million in revenue over the last twelve months and a 48% average growth rate over the last five years. For the second quarter of 1999, total revenues were $131.4 million, an increase of 57% over second quarter 1998 ($83.6 million). Net income in the second quarter was $8.5 million, compared to $0.6 million for the same period in 1998. Employment at i2 grew 123% from 1006 in 1997 to 2244 in 1998, with headcount currently at about 2400. The rapid expansion is fueled by a powerful sales and marketing machine and corporate development strategy that emphasizes speed over perfection. i2's product offering consisted of three applications as recently as 1996. Since that time, it has combined internal development with acquisitions of established vendors to achieve what is arguably the most comprehensive SCM offering of its peers. i2 is determined to challenge the large ERP vendors for CRM market space, as evidenced by its acquisition of SMART Technologies, a provider of internet-based CRM solutions. i2 plans to incorporate SMART's application technologies into its "Intelligent eBusiness" suite that will include applications to enable internet collaboration among trading partners, and support web-based ordering with real-time visibility to supply from multiple sources.

Fig. 1

Vendor Strengths

• Strong financial position and commanding market presence: More than any other aspect, i2 is known for its rapid growth rate. In contrast to its competitors claims, this growth remains unaffected by Y2K remediation spending and general economic downturn.

• Aggressive sales and marketing organization: i2's direct sales force headcount stood at 564 at the end of 1998, nearly twice that of their nearest competitor. At 34%, investment in sales and marketing as a percentage of revenues is the highest of their competitors.

• Innovative marketing approach: i2 is remaking itself into an eCommerce software company with its "Intelligent eBusiness" suite of applications, including Rhythm eXchange Services and Rhythm Internet Fulfillment Server. i2's ability to reinvent itself to provide a basis for churning out new products is evidenced, in part, by its consistently high percentage of license revenues (see Fig. 2).

• Product flexibility: Rhythm provides the capability to satisfy a wide variety of functional requirements and business rules through its custom modeling language, OIL (Object Integration Language). Also, i2 offers a series of vertical industry templates, which allow customers to jump start their modeling effort.

Fig. 2

Vendor Challenges

• Delivering on vision: While able to conceive and articulate architectural visions, i2 has been less successful at delivering fully developed, bug-free applications to support them. Clients and third-party integrators often discover the gap only after the implementation is well underway.

• Business consultants, though skilled in Rhythm applications, often lack industry-specific knowledge. This is in part due to the rapid growth of the company and the inevitable learning curve faced by new staff. i2 relies heavily on implementation partners such as Andersen Consulting and PricewaterhouseCoopers.

Vendor Predictions

• Acquisitions: i2 continually demonstrates its willingness to make strategic acquisitions (Think Systems - '97, ITLS - '98, SMART - '99) in order to expand its product offering to new market segments.

  • It is likely that i2 will acquire a current SCE partner, such as IMI Corporation or EXE Technologies within the next 24 months. (80%).

  • Look for at least one more internet-based CRM or EAI company acquisition as i2 expands its eBusiness suite. (70%).

• Growth projection: Expect 35-40% average growth over the next 3-4 years, less than previous years, but ahead of the rest of the market (70%).

Vendor Recommendations

• Continue existing initiatives in mid-market to increase market share, both internal development to scale down core applications and partnerships with mid-market systems integrators, such as Mastech.

• Focus development efforts on reducing complexity of its product suite and integrating acquired technologies. RhythmLink, i2's integration platform for both its own modules and third-party products such as SAP, PeopleSoft, fails to deliver fully on its promise of seamless integration.

• Leverage success in EHT to achieve better penetration into automotive and CPG markets: Over half of i2's revenue is confined to the electronics and high tech industry (57%). Its low penetration into other industry segments conflicts with its stated objectives, especially in the case of automotive (see Fig. 3).

Fig. 3

User Recommendations

• Due to the breadth of its product suite, web initiatives, and strong financial standing, i2 should be on every shortlist for users in a wide range of industries, especially electronics and high tech, semiconductor.

• Although i2 plans to leverage its recent CRM acquisition to gain ground in non-manufacturing industries like banking, insurance, companies in these industries that do not relish a joint development with i2 should wait for successful reports from pilot implementations before buying.

• Customers who ultimately do select i2 should consider the following tactics:

  • Secure third party integration support from a services firm with Rhythm expertise.

  • Identify reporting requirements early in the engagement.

  • Test key business flows thoroughly and report problems early.