Vendor
Summary
i2 Technologies (NASDAQ: ITWO) is the largest and fastest growing vendor
of supply chain management software, with $751 million in revenue over
the last twelve months and a 105% average growth rate over the last five
years (see Figure 1). Fueled by a powerful sales and marketing machine
and aggressive strategies for corporate development and acquisition, i2
will maintain its lead through the end of 2000 and beyond.
Figure
1.
i2's
product offering consisted of only three applications as recently as 1996.
Since that time, it has combined internal development with acquisitions
of established vendors to achieve the most comprehensive supply chain
management (SCM) offering of its peers, incorporating over seventy modules.
Further, one may argue that i2's recent moves in product development and
acquisitions have carried it beyond the realm of SCM. Many vendors of
SCM software and other applications profess to have transformed into "e-business"
or "B2B" enablers, but i2 is doing more than just talk about it.
One
year ago, i2 announced TradeMatrix, a platform that promised a vague
combination of solutions and content designed to improve the functions
of designing, buying, planning, selling, fulfilling and servicing products
or services over the Internet. Since then, TradeMatrix has found great
favor among consortia of future-thinking blue-chip companies such as the
Worldwide Retail Exchange, MyAircraft (Honeywell, United Technologies
Corp., BF Goodrich), and many others.
Figure
2.
Figure
3.
To
successfully invade the e-commerce software market, i2 needed to secure
a beachhead. It found this in June when it acquired Aspect Development
Corporation (see "IBM
is not Enough: i2 Snatches Aspect and SupplyBase" ). In addition to
legitimizing its claim in e-commerce, the acquisition helped revive i2's
revenue picture, at least artificially (see Figure 4). With Aspect's revenues
added in from the last three weeks of June, i2's total revenues jumped
84 percent to $242.6 million from $131.9 million in the second quarter
last year. With twelve-month revenues topping $750 million, i2 was then
on track for breaking the $1 billion barrier at the end of fiscal year
2000. Because i2 treated the acquisition as a purchase, it posted large
non-cash charges this quarter of $208.9 million, which produced a net
loss of $280.8 million, or $1.66 a share. The important thing to remember
(as i2 is eager to point out) is that the second quarter would have been
profitable had it not been for the acquisition.
Figure
4.
Vendor
Trajectory and Strategy
Those observers who interpret i2's recent acquisitions and alliances as
attempts to compete with ERP or CRM vendors fail to understand its larger
vision. i2 is determined to be the prototype for the next generation of
enterprise software providers. That vision includes public and private
Internet trading partner exchanges that go beyond mere buying and selling
by incorporating all of the supply chain optimization capabilities found
in its TradeMatrix suite. Participants in these future exchanges form
a network that links both external entities and internal functions, ensuring
that all operate at maximum efficiency. Certainly, software designed to
this vision would challenge existing ERP and CRM products, but from a
fundamentally different paradigm. That being said, i2 has just begun assembling
the pieces it will use to realize its ambitious vision.
In
the meantime, i2 is making aggressive strides in the business-to-business
online trading market. Though its true capabilities are largely masked
by hype, Tradematrix is now seen as a significant platform that provides
infrastructure and optimization features for online marketplaces. (See
i2
Adds More Verticals to Ra-b2b-it Stew ) Although its primary best-of-breed
competitors, Aspen Technology, Manugistics, and Logility have taken similar
steps into e-business, i2's market dominance and vast resources give it
an enormous lead. i2 is able to compete on a par with the big ERP vendors
- SAP, Oracle, and PeopleSoft - while posing a threat to native e-commerce
vendors like Commerce One and even its new partner Ariba (see B2Big
Deal for IBM, Ariba , and i2).
While
i2's revenues may not be growing as rapidly as in its youth, there is
probably little cause for alarm. i2 benefits from a broad, feature-rich
supply chain management software suite, significant technology for applying
its applications to Internet fulfillment, a growing slate of online trading
networks, a large customer base (although smaller than Manugistics'),
and a formidable capital position. Its market dominance makes it an attractive
partner for e-commerce, EAI, portals, and other software providers that
will further enhance its position.
Recent
Major Events
Following is a summary of major events for i2 Technologies during the
past year with respect to:
- Acquisitions
- Alliances
- Competition
- Recognition
Acquisitions
In March, i2 acquired B2B collaboration software makers Aspect Development
Corporation and Supplybase in the largest software deal in history. In
the short term, the Aspect purchase brings considerable online content
to i2's Internet procurement markets, providing participants a wider selection
of options and other marketplace services. Supplybase adds the potential
of its technology and strategic sourcing of custom parts. Custom parts
represent the most strategic component of procurement for large, complicated
designs. (For more information see i2's
Aspect Acquisition Not Overpriced.)
A
strategic investment in Primavera Systems announced in September will
afford i2 a stake in the market for engineering and construction management
software as well as allow it to extend its solution base in anticipation
of fulfilling its larger vision.
Alliances
In March 2000, i2 was part of a sweeping strategic partnership with IBM
and Ariba to accelerate the adoption of B2B technology. (For more information
see B2Big
Deal for IBM, Ariba , and i2.)
In
May 2000, i2 signed an agreement with Hi-Spec Solutions, a software division
of IT conglomerate Honeywell International, Inc., to deliver a combined
solution for process manufacturing companies to optimize their extended
supply chains and collaborate with suppliers and customers. With sufficient
investments of capital and manpower in the alliance, and finding the right
way to market the joint solutions, i2 can expect to capture a significant
number of process manufacturing clients and even wrest market share from
Aspen Technology, the leader and competitor of Honeywell on the process
control solutions side. (For more information see
i2 Enlists Honeywell in Process Industry Play.)
In
July 2000, J.D.Edwards, recognizing the impact i2 was having on the e-business
marketplace, allied itself with this marketplace juggernaut by offering
its OneWorld enterprise application suite through i2 Technologies TradeMatrix
platform. The announcement, however, does not address the complexity involved
in integrating ERP and supply chain management in a collaborative environment
environment. (For more information see i2
Technologies' Latest Offering: J.D.Edwards OneWorld.)
Competition
The acquisitions and alliances during the past year are intended to increase
i2's competitive position over the next 2-3 years against ERP giants such
as SAP and e-commerce solution providers such as Commerce One. Other best-of-breed
SCM vendors are now effectively out of the running given i2's recent growth
and successful shift in product strategy toward inter-enterprise supply
chain networks. Manugistics is seeing a revival of sorts brought on by
favorable response to its marketplace offerings but this will not be enough
to pose a serious threat to i2. Aspen Technology is enjoying tremendous
demand for its products but this is confined primarily to process manufacturing
industries, an area that i2 largely ignores. The remaining pure play SCM
vendors like Logility, Adexa, and SynQuest will continue to find customers
for their more targeted products, in some cases stealing them from i2,
but will operate in the interstices between the larger enterprise vendors.
Among
ERP vendors, SAP and Oracle are i2's main competition in the advanced
planning and scheduling (APS) space. Prior to SAP APO, i2 and the other
SCM vendors could count on license revenues from selling superior APS
modules to clients frustrated by the lack of depth found in ERP systems.
Even today, the best-of-breed SCM vendors on the whole have better APS
functionality but the gap is shrinking. In the longer term (3-5 years),
i2 will decisively overcome ERP vendors that fail to adapt their enterprise-centric
solutions to serve the needs of future trading partner networks.
Recognition
i2's dramatic growth has won attention from leading magazines and the
broader IT community, a feat not duplicated by its peers in the supply
chain management software industry. During 1999 i2 was ranked 44th on
FORTUNE magazine's list of the top 100 software vendors. (See Fortune
Smiles on i2 Technologies.)
The
editors of Semiconductor International, a leading technical
publication covering the semiconductor industry, awarded top honors to
i2 Technologies for its RHYTHM suite of semiconductor template solutions.
(See
i2 Technologies Garners Semiconductor Award.)
In
August 2000, FORTUNE magazine again honored i2, placing it eighth
on its annual list of the fastest-growing companies in America. Recognition
by the popular press has fired enthusiasm for i2 among investors and given
it a market capitalization on a par with SAP, Siebel, and even Yahoo!
Inc.
ANALYSIS
Vendor
Strengths
Strong financial position and commanding market presence: Strong revenues,
low operating margins, and record earnings have become synonymous with
i2 and have brought the company huge capital gains on Wall Street. In
contrast to its competitors, i2's growth was largely unaffected by last
year's Y2K remediation spending and general economic downturn. In addition,
the acquisition of Aspect Development with its additional revenues halted
the declining rate of revenue growth it has witnessed over the past four
years (see Figure 4).
Aggressive
sales and marketing organization: i2's direct sales force headcount stood
at 700 (est.) at the end of 1999, more than twice that of its nearest
competitor. At 34%, investment in sales and marketing as a percentage
of revenues is higher than the industry average.
Rapid
product development: i2 has successfully remade itself into an e-business
software provider with TradeMatrix (10/99) and quickly grew a myriad of
vertical offshoots such as HightechMatrix, RetailExchange.com, and the
alluringly titled FinancialSettlementMatrix.com for streamlining payments
and other financial processes of banks and their trading partners. 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 Figure 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.
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. TradeMatrix is i2's
most ambitious vision to date.
Business consultants know application, not industry: 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.
Reporting
capabilities inadequate for many core applications: It is frequently necessary
to integrate with a third party reporting tool that provides the flexibility
to fulfill customer requirements. The additional and sometimes unplanned
for development can be costly and delay project timelines.
Product
Technology: i2 must win the race between transaction volume size and static
memory size allowed by existing platforms - a consequence of RHYTHM's
memory-resident nature. Results of i2's proprietary heuristics and algorithms
can be compromised when extensive modeling flexibility is utilized.
Vendor
Predictions
Acquisitions:
i2 continually demonstrates its willingness to make strategic acquisitions
(Think Systems - '97, ITLS - '98, SMART - '99, Aspect - '00) in order
to expand its product offering to new market segments. With its formidable
capital position and market capitalization, i2 will continue to acquire
or strategically invest in CRM, EAI, and Internet companies as it expands
its suite. (80% probability)
Subscription
revenues: To date, i2 has not generated significant revenues from optimization
services offered through TradeMatrix. We expect subscription revenues
to increase as TradeMatrix matures and more services are added. As subscriptions
ramp up, i2's revenues will remain solid through sales of its core TradeMatrix
products and maintenance fees. (70% probability)
Growth
projection: i2 can expect 40-50% average revenue growth over the next
3-4 years. Though this is less than in previous years, it still compares
favorably to the rest of the supply chain management market players. (For
more on this, see i2:
Is the Boom Over?.) (70% probability)
Vendor
Recommendations
i2
should continue existing initiatives in the mid-market to increase market
share. These include: both internal development to scale down core applications
and partnerships with ASPs and other web technology software companies.
To
improve client delivery, i2 needs to focus development efforts on reducing
the complexity of its product suite and on integrating acquired technologies.
RhythmLink, i2's enterprise application integration (EAI) platform for
both its own modules and third-party products such as SAP and PeopleSoft,
fails to deliver fully on its promise of seamless integration.
To
achieve better penetration into the automotive and CPG (Consumer Packaged
Goods) markets, i2 may want to leverage its success in electronics/high
technology: 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 Figure 3).
i2
has made a host of acquisitions over the last several years and has supplemented
acquired products with those developed internally and in collaboration
with partners. In response to this growth, i2 has reorganized its business
units around new product categories but more needs to be done to simplify
the presentation of its product capabilities to the marketplace. Customers
express consternation over the seemingly endless array of products now
available from i2 and the company's decision to use the name TradeMatrix
for the entirety of its suite only adds to this confusion.
User
Recommendations
Due
to the breadth of its product suite, web initiatives, strong financial
standing, and comprehensive vision for the future of e-business, i2 should
be on every shortlist for users in a wide range of industries, especially
electronics/high tech and semiconductor.
The
TradeMatrix implementations to date are evidence that i2 has put together
a viable Internet-based framework for buying and selling. Users should
temper expectations, however, when considering the use of TradeMatrix
to plan and optimize critical parts of their manufacturing operations
and collaborative demand forecasting. These functions exist in the conceptual
phase compared to i2's core TradeMatrix products. Companies that lack
the stomach for large-scale joint development work should stick to i2's
applications for demand planning, transportation planning, and manufacturing
planning/scheduling or at least wait for successful reports from the early
TradeMatrix implementations before buying.
Customers
who ultimately do select i2 should consider the following tactics:
- Secure
third party integration support from a services firm with i2 expertise.
For e-business projects, smaller systems integration firms like Brightstar
Information Technology Group and Origin B. V. may be both cheaper and
more tech-savvy than storied consulting dynasties like Andersen Consulting
and PricewaterhouseCoopers, but often lack sufficient resources.
- Identify
user reporting requirements early in the engagement. This is particularly
important with companies like i2 that seem to offer clients everything
including the kitchen sink. Users should fix the scope of the implementation
before consulting i2 to avoid adding components that are not critical
to the business requirements.
- Test
key business flows thoroughly and report software problems early. i2
is a large organization with many client demands on its developers and
business consultants. Early identification of bugs and diligent reporting
will ensure the project is completed with a minimum of time and cost
overruns.