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EBay picks IBM's net software as cornerstone technology

IBM announced yesterday that eBayInc, the big online auction house, has chosen IBM's Internet software as its new building-block technology. The Silicon Valley company decided to use IBM's technology over offerings by Microsoft, Sun Microsystems, BEA and others, after a fierce competition over the last three months.

EBay is an outstanding exception among Internet commerce companies -- large, fast-growing and solidly profitable. "EBay is the poster child, so you want to get them as a customer," said Mike Gilpin, an analyst for Giga Information Group.

EBay presents some intriguing challenges for any supplier of technology. The eBay Web site is not just handling a high volume of independent purchases, but a vast collection of linked transactions as dozens or hundreds of bidders make offers on the same item, with traffic typically spiking at the very end of a seven-day auction period. Its 35 million registered users are now generating more than US$25 million a day in transactions, roughly three times the pace of just a year ago.

"We're an interesting place technologically," said Chuck Geiger, vice president of technology strategy at eBay.

More than a dozen software suppliers began the competition, but they were winnowed to three. Geiger would not say who the three finalists were.

The IBM software, called Web-Sphere, is one offering among several that have been developed by companies in the last few years. It is essentially a layer of software to which companies typically write Web-based applications for handling customer transactions or delivering information to employees. In the jargon of computing, such software is known variously as "middleware," "applications server software" and "e-business platform software."

On the Internet, this layer of software is regarded as crucial because it will increasingly replace the operating system's role as the foundation on which software applications run.

Estimates of the size of this slice of the software market vary, with the International Data Corporation placing last year's revenues at US$2.2 billion and Giga at US$1.6 billion. Even with falloff in technology spending, the sales in the sector are expected to grow 40 percent or so. "This is a market with a lot of steam left in it," said Michele Rosen, an analyst at IDC.

Over the last two years, IBM has built WebSphere into a leader in the fast-developing market for Internet middleware. And the company's executives regard winning the eBay business as a significant step. "This is a big win for us, an endorsement of our strategy," said Samuel J. Palmisano, president of IBM.

Neither IBM nor eBay would disclose the terms of the deal. But analysts estimated that it was a multiyear contract worth perhaps US$50 million or so.

The deal goes beyond technology to include giving IBM a more prominent place on the eBay Web site as a way to increase sales of hardware and software to small and medium-size businesses, and an agreement to explore joint marketing possibilities.

For eBay, the move is part of its effort to move further beyond on an online site best known for auctioning off consumer items like Beanie Babies and memorabilia into a broader Internet marketplace engaged in fixed-price sales to businesses and consumers, as well as auctions.

The broader alliance, however, was dependent on winning the software contest. "We had to get through the technology gate for anything else to happen," Palmisano said.
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