IBM Scores a Coup with eBay Deal

In what is widely seen as a coup over its rivals, IBM struck a broad-based
deal with auction giant eBay Inc., which will use IBM’s WebSphere
infrastructure application as the basis for its next-generation trading

Armonk, N.Y.-based International Business Machines Corp.
also will make San Jose, Calif.-based eBay Inc. a key sales
channel for its products and the two companies have agreed to explore
joint-marketing opportunities across online and off-line media.

“As the centerpiece of IBM’s web services strategy, WebSphere manages
billions of transactions per day and delivers the open platform required by
dynamic e-businesses such as eBay,” said Samuel J. Palmisano, president and
chief operating officer of IBM. “At the same time, eBay is a powerful vehicle
for IBM to reach new buyers.”

Financial specifics of the deal were not disclosed, but some reports indicate
the dollar value could approach $50 million.

eBay said it is currently upgrading its technology infrastructure to
accommodate projected growth. The upgrade, referred to as “V3” within eBay,
is designed to increase developer productivity and API integration; enhance
eBay’s ability to add new features and user tools; allow for greater
flexibility in adding new businesses; and improve dependability.

eBay said it selected WebSphere because of its open standards as well as its
strong reputation as a reliable platform for managing high-volume

V3 is to begin rolling out next quarter and be completed in 16 months.

IBM touted its win over rivals such as Sun Microsystems Inc., Microsoft and
BEA Systems in what reportedly was a “fierce three-month competition.”

“IBM’s leadership in infrastructure technologies, combined with its global
marketing muscle, will play a central role in furthering our growth,” said
Meg Whitman, president and CEO of eBay.

“The WebSphere deal is important because eBay is the proof-point of Internet
success,” said Lou D’Ambrosio, vice president for IBM software sales and
marketing, in a conference call on the agreement.

And as for the marketing alliance, he said that over the past few months,
“we got to really understand eBay, and we saw the potential for marketing

“We learned that eBay offers B2B opportunities as well as B2C, and auctions
and fixed price sales and we found explosive growth in sales for IBM via
eBay, and 70 percent were new buyers to IBM,” D’Ambrosio said.

He emphasized that the WebSphere deal and the marketing alliance are
separate deals; IBM will be paid in cash for the software

Chuck Geiger, eBay’s vice president of technology strategy, said at the
conference call that eBay will be using WebSphere to replace its existing
proprietary technology. “We felt we wanted to purchase a software that was
not a core competency for us,” he said.

From IBM’s point of view, the deal is clearly a winner. “eBay is the poster
child, so you want to get them as a customer,” Mike Gilpin, an analyst for
Giga Information Group, told the New York Times.

Saleswise, IBM already is doing business on eBay and recently established an
IBM destination within eBay Stores. As a result of today’s deal, IBM will
expand its sales of PCs, servers and software on the site. In addition, a
direct link to eBay will appear on the homepage.

From eBay’s perspective, reliability is all-important, as the site has 35
million registered users that generate on average more than $25 million a day
in transactions, roughly three times the pace of just a year ago.

IBM stock was down $1.21 in mid-day trading to $99.14. eBay was up 5 cents to

IBM has employed the services of eBay Preferred Provider ChannelAdvisor
Corp. to help create its presence on eBay, including marketplace management,
auction strategy development and cross-auction marketing and promotions.

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