i2's first European customer event turned out to be something of a damp squib, presenting a confusing picture of how it is trying to position itself in the European market.
The supply chain applications vendor is trying to turn itself into a business-to-business (B2B) trading exchange infrastructure provider in Europe, but appears to be finding the going somewhat tougher than it had in the US.
Although currently the leader in the supply chain market, i2 believes there are richer pickings to be had from providing B2B trading exchange infrastructure software. As a result, it is re-branding all of its offerings under the TradeMatrix banner, and has cut deals that involve taking equity stakes in its customers and taking a cut from each transaction fee.
In the case of ChemicalsWorld.com, a website that is due to be formally launched in July based on i2's technology, this amounts to a total cost of between 10 per cent and 15 per cent of the transaction value - a high price in a world where margins are low.
But Simon Pollard, service director and vice president of European research at analysts AMR Research, said: "i2 is not the power broker in many of the deals it is trying to do, so the idea that a large bricks and mortar business like, say, Ford will part with transaction fees looks flawed."
This would appear to be borne out in Hewlett Packard's (HP's) and Compaq's announcement that they were setting up an online trading exchange for PC and peripheral components. Both vendors were anchor partners for TradeMatrix.com, but the new initiative seems to have put paid to the old one, with i2 shelving plans to float it as a separate business unit.
Jim McKay, i2's chief technology officer, said: "It is one of many business models we can do," but confirmed that HP and Compaq had refused to give the company the equity deal it wanted.
Delivering the goodsThe issue comes down to matching what i2 wants from its deals and what it can deliver in return. Jennifer Tejada, i2's vice president of marketing communications, said: "i2 believes strongly in a flexible, value-based pricing model, which enables our customers to participate in e-marketplaces in many different ways, depending on their situation."
But the market has largely rejected the value based pricing model because costs are either seen as unpredictable for buyers or deemed too expensive in the long term. i2 argues that it has delivered auditable value to its customers, but such results are based only on a sample.
Analysts such as AMR also believe the technical model for delivering truly scalable exchange style applications is different to that offered by i2 today.
i2's core competency lies in providing a fast demand planning engine for supply chain activities. In the last two years, it has added to that capability through a joint acquisition and development strategy, supported by co-development partnerships. Most recently, it completed the acquisition of Aspect Development, a vendor of collaborative commerce software for product development.
Today, a key issue for corporates is integration, for which i2 relies on its relationship with IBM Global Services, although it also engages in integration work itself. According to McKay, this, together with scalability, is the single biggest issue he faces, but there are plenty of other problems.
"We've straightened out the scaling problem we had with the availability to promise module, but I need to get some consistency into service integration across all our products," he said.
But AMR's Pollard said: "i2 is really re-branding TradeMatrix and not re-architecting."
Adding to the confusion, Sanjiv Sidhu, i2's chief executive, said that bricks and mortar businesses should not fear the so-called rise of dotcoms: "There is a misconception that value will shift from producers to e-marketplaces, but the value will remain with those that provide intelligence to the market as a whole," he said.
Customer choiceThis is an extension of the argument i2 attempted to give to Europe last year, when it suggested that customers may be prepared to make alternative buying choices, but only when those choices are presented to them.
The idea is that if manufacturers have too much stock of a given item, they can sell it to customers when their first choice cannot be met due to a production deficiency. But this is a complex process requiring integration between manufacturing, logistics and front-office applications.
When i2 introduced the concept into Europe last year, potential customers saw it as introducing a level of business complexity that it cannot deliver on because it is too busy wrestling with issues such as making the link between manufacturing and logistics work properly.
And rivals are equally unclear as to where i2 is positioning itself. Chris Elliott, European marketing director of rival Manugistics, said: "I don't see where it's making the deals. We've only lost once against it in direct competition in the last year."
Worse still, i2's argument runs against current thinking. TradeMatrix is being pushed as a private exchange offering, where invited or preferred suppliers are the only participants.
Arthur Scully, co-author of B2B Exchanges - The Killer Application in the B2B Revolution, sees things differently. "Europe has an incredible opportunity to create immense value by using truly neutral exchanges where no-one is favoured," he said.
But i2's Tejada said: "Private marketplaces enable customers to act and see value very quickly. In many cases, this is what our customers are asking for, and we can offer them public marketplace services and connectivity at the same time."
But with so much confusion, what can customers make of i2's position? It is clear that European decision makers are in the early stages of figuring out what it means to create trading exchanges, and as Elliott said: "Each country views the need differently."
Overall, customers seem perplexed. "i2 seems to be using the fear factor a bit heavily," said one of the event's attendees, "yet they're saying something different to us in discussions. I'm not sure I understand the real benefits yet."
Andersen Consulting, a major integration partner for i2, said the event had been "disappointing", attributing this to the company's lack of clarification of the issues to customers.
Even i2's Sidhu acknowledged the difficulties in unravelling and presenting a clear message that enterprise leaders can digest: "The real constraint is a lack of business leadership. Companies need to make speed and velocity the key criteria for decision making. When I turn to car makers and say that they will become brand managers, they don't like it. They usually kick me out."
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