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Auction giant eBay and information technology giant IBM, today announced a wide-ranging software, marketing and sales deal that could keep the two brands intertwined for years to come.
The deal has three major components:
EBay will use IBMs flagship software product, WebSphere, as the foundation for its new trading platform, called V3. The auction giant chose WebSphere after a three-and-a-half month evaluation process of it and competing products from BEA Systems and Microsoft. Financial terms were not disclosed. The two companies did say the deal requires eBay to pay IBM in cash for licensing the full suite of WebSphere products, which includes nearly two dozen different applications.
A sales agreement will allow IBM to expand its presence on eBay, giving it a new channel for reaching buyers. Lou DAmbrosio, a vice president of marketing and sales of IBMs software division, said during recent trials that the company has found eBay to be a particularly effective venue for direct sales of its PCs, software and servers. Although IBM didnt reveal how much revenue it has realized from the eBay sales, DAmbrosio said that IBM has “found explosive growth in products moving through eBay and a great affinity,” with the eBay audience. “Seventy percent of IBM buyers over eBay were new buyers to IBM,” said DAmbrosio during a conference call with journalists.
Finally, the two companies agreed to explore joint-marketing opportunities across a range of online and off-line media. For instance, buyers who visit IBM.com will find a link to eBay. In addition, the two companies will share the costs of an advertising campaign, scheduled to begin tomorrow, aimed at small and midsize businesses. The campaign will involve, print, television and online advertising.
The deal is a major win for IBM and a significant loss for BEA Systems, both of whom are vying for market share in the middleware sector, a business which IDC estimates could be worth $26 billion by 2005. IDC estimates that between 1999 and 2000, IBMs worldwide share of this market grew 258 percent, faster than the 220 percent growth enjoyed by BEA. Big Blue still appears to be gaining ground quickly on BEA and may soon take the lead in the middleware business.
Chuck Geiger, vice president of technology strategy of eBay, said his company chose WebSphere over BEAs WebLogic because WebSphere performed better on a cost benefit analysis. EBay will use WebSphere to replace eBays own proprietary middleware. “We are moving away from that area because we didnt feel it was a core competency,” said Geiger. EBay will continue using Oracles database program. And it has no plans to abandon its operating systems, Windows NT and Sun Solaris.
Michele Rosen, a, IDC research manager in application development, said the eBay deal is “a validation of WebSphere.” Many large, consumer focused Web sites have built their own custom middleware, Rosen said. “This is validating the idea of using a pre-configured platform to provide foundation services for that custom infrastructure. There have been questions about application server performance. This deal will put some of that to rest.”
EBay said implementation of the WebSphere software in V3 would begin in the fourth quarter and continue through all of next year. The company said V3 is designed to increase developer productivity, improve eBays ability to add new features, improve the sites dependability and allow it more flexibility in adding new businesses.
The announcement with eBay marks the latest mega-partnership deal for IBM, which has entered into more than 100 such deals over the past two years in an effort to sell more software, hardware and services. The company is clearly trying to raise its profile among small and midsize business that might look for products and services on eBay. “Weve been impressed with the scope of eBays go-to-market vehicles,” said DAmbrosio. And Bill Cobb, eBays senior vice president of marketing, added “there are tremendous synergies between these brands.”