IBM scoops up middleware vendor CrossWorlds

IBM Corp. said last week that it will bolster its e-business infrastructure offerings by purchasing customer relationship and supply-chain management software company CrossWorlds Software Inc. for US$129 million in cash.

IBM and CrossWorlds have been integration partners for four years, which has permitted IBM’s WebSphere e-business infrastructure products to work closely with CrossWorlds’ software. IBM intends to absorb CrossWorld into its software group, then market and sell CrossWorld products with a joint sales force under the WebSphere brand, said Tim Breuer, an IBM spokesman.

Analysts said that the acquired technology fills holes in IBM’s application server and Web services strategies.

“They really needed something in this category,” said Shawn Willett, a principal analyst at Current Analysis Inc., based in Sterling, Va.

Willett continued that most of the Web services vendors, Microsoft Corp. and BEA Systems Inc. included, have been talking about integration as a key piece of Web services.

“By adding EAI to WebSphere, they can better compete with Microsoft and BEA,” Willett added.

The deal could be seen as a rescue operation for an IBM partner. Since it was founded in 1996, CrossWorlds has yet to turn a profit and needed financing within the next year in order to stay afloat, according to filings with the U.S. Securities and Exchange Commission. If the company went under, CrossWorlds’ customers would have to seek another vendor, potentially leaving IBM as well.

Burlingame, Calif.-based CrossWorlds makes integration software that is very specific to certain industries, Breuer said. The majority of its revenue comes from software sales and services in four industries: complex industrial manufacturing, process manufacturing, financial services, and telecommunication.

“WebSphere is really handling transactions and integration at a horizontal level,” he said. “You can use the CrossWorlds software to integrate in very specific industries.”

IBM announced in April that WebSphere would form the base for its Web services offerings. WebSphere is application server software, pushing the functions of other software out to network-connected users. Because it works on top of a server’s operating system but also functions as a layer of software underneath application programs, it’s called middleware. IBM has been pushing WebSphere hard, with good results – WebSphere revenue grew 75 percent in the third quarter of 2001, as compared to the same quarter of 2000.

CrossWorlds went public on the Nasdaq exchange in June 2000 at $10 a share, peaked three months later at about $25, then slid with the rest of the market to Monday’s closing price of $3.54. It employs about 328 people.

IBM’s offer values the company at about a 30 percent premium over its current market value. The deal is subject to shareholder and regulatory approval and should be complete by the first quarter of 2002, IBM said.

George A. Chidi Jr. is a Boston-based correspondent for the IDG News Service, an InfoWorld affiliate. Stacy Cowley, a New York-based correspondent for the IDG News Service, contributed to this report.