No end seen for B2B troubles

That thud you heard last week was the business-to-business market tumbling into the basement.

While assessments differ on when – or if – this one-time Wall Street darling will climb back up the stairs, there was no question about the toll taken on key players. Among the bad news:

Ariba Inc. and Agile Software Corp. canceled their proposed merger, each issued an earnings warning, and Agile said one-third of its workers will be laid off.

I2 Technologies Inc. said it would slash 10 per cent of its workforce after posting first-quarter profits that were less than half of what analysts had expected.

Commerce One Inc. warned investors to expect greater losses on lower revenue than previously anticipated.

Wall Street’s reaction was swift and predictable: Not only did stock prices for these companies take a dive, but bigger-name software vendors such as SAP, Computer Associates and Oracle also were hammered.

“I’ve always conceived the enterprise applications market as durable and stable compared with the consumer market, but to have [fortunes] turn like this is very, very scary,” says Lisa Williams, an analyst at The Yankee Group.

This gloom was palpable last week at Gartner’s annual Internet & E-Business Conference in New York. Attendees appeared more interested in gathering around televisions to follow Wall Street’s woes than hearing about upcoming business-to-business trends such as collaborative commerce.

The exhibition floor, packed with attendees in years past, had only a fraction of foot traffic, according to exhibitors. There were reports of exhibitor employees walking from booth to booth inquiring about job opportunities.

Those in attendance say the buzz that surrounded business-to-business last year wasn’t in the air at the conference this year. Indicators suggest that was because of concerns about the market players and that companies are tightening travel and IT spending budgets.

“[Customers] are waiting for the bubble to burst so when these companies fail, [the market] will be all cleared out and they’ll have a better vision of which companies are there for the long term,” says Marie Sheel, who was attending the show to learn about business-to-business technology. Customers “are thinking why should they spend $600,000 on technology when they’re not sure it will be useful or completed because the company may not survive. They’re kludging together what systems they have.”

Nike’s much-publicized problems with i2 are also contributing to the re-evaluations, says Joshua Greenbaum, principal of Enterprise Applications Consulting.

Nike blamed poor third-quarter earnings on i2’s supply-chain software, claiming installation snags led to excess inventory and order delays, which led to poor sales.

“The Nike disaster was a warning shot across the bows of IT,” Greenbaum says. “How can a company spend US$400 million on a system and lose $2.5 billion in market capital in one day? It put CIOs and IT managers on alert.”

Customers are also re-evaluating their e-commerce strategies, says Steve Butler, an analyst at eMarketer in New York.

“E-business isn’t canceled, but it’s definitely been put on hold,” he says.

Customers are not basing their strategy on what they need to do to keep up with the competition, but on what they need for branding and long-term viability.

More B2B than thought

Sheel says customers are realizing there is more to business-to-business than originally thought. They are now concentrating on linking their internal applications, e-mail and Web systems before they connect these systems to their external systems, she says. “If they get [the integration] problem straightened out, they’ve got their business-to-business strategy straightened out,” she adds.

Now that the business-to-business hype is largely dashed, industry experts say the market is in for interesting times.