It was the best of times, it was the worst of times.

While Charles Dickens may not have known much about the B2B software market in 2001, his opening words from A Tale of Two Cities may strike a chord with the players in that market today. It was a roller coaster ride early in 2001 and everyone—with the possible exception of Dickens—is trying to figure out when it will end.

The big news in first quarter 2001 was Dallas-based i2 Technologies Inc.'s decision to buy RightWorks Corp. of San Jose, Calif., for $114 million. That deal put an end to the relationship between i2 and fellow B2B software firm Ariba Inc. of Mountain View, Calif.

"Rightworks' state-of-the-art technology for collaboration is replacing what we were previously offering with Ariba," said i2's CFO Bill Beecher in a statement announcing the deal. i2 feels the new relationship with Rightworks can generate more revenue in second half 2001 than the previous relationship with Ariba would have made in the entire year.

i2 also moved to boost its position in integration software by strengthening its relationship with WebMethods, agreeing to sell the company's integration software as part of its i2 TradeMatrix services.

But it wasn't all wine and roses for i2. In mid-March, the company was blasted by one of its high-profile customers, athletic footwear giant Nike Inc. of Portland, Ore., which said its poor quarterly results were partly due to excess inventory and order delays created by the i2 supply chain management system.

The Nike fiasco was only the start of the bad news for i2, which in early April announced it would have to cut 10% of its 6,100 workers in the wake of a dramatic downturn in B2B spending. "We were misled by very strong market conditions last year," said CEO Sanjiv Sidhu in a Reuters report.

Meanwhile, market watchers waited with bated breath to see how i2's divorce papers would affect Ariba in an already struggling B2B software market. Only days after the breakup, Ariba announced plans to acquire collaboration software maker Agile Software Corp. of San Jose, Calif., for $2.6 billion. But those plans were short-lived. By the first week of April, Ariba had called off the Agile deal and unveiled plans to layoff 33% of its 2,100 workers, saying the company jumped the gun with a hiring spree in anticipation of the Agile merger.

Ariba CFO Bob Calderoni painted a bleak picture on a recent conference call, saying almost none of Ariba's $90 million in revenues for the second quarter came from its online exchange software. "The exchange business has seen a dramatic fall and we don't believe there'll be a recovery in revenues," he said.

"Ariba was betting its entire second half's product line on Agile," said Brent Thill, an analyst with Credit Suisse First Boston, in a Reuters report. "It's amazing how quickly these things deteriorate."

Other recent B2B exchanges seeing hard times include Ventro Corp., which closed two of its key marketplaces, chemical exchange Chemdex and medical industry exchange Promedix, resulting in a loss of $382.5 million. Dell Computer Corp. quietly closed its exchange, www.Dellmarketplace.com, which connected its customers with third-party suppliers of office goods and services, in February.

In one recent report, IDC analyst Leo Lipis said the B2B exchanges are "certainly not meeting the expectations that were set for them a year ago. Most of them look like the walking dead at this point." IDC predicts that only 200-300 of the 1,500 currently existing B2B online marketplaces will still be in business by 2004. At a recent press conference, Oracle founder and CEO Larry Ellison suggested that Ariba and Commerce One may not survive as standalone companies.

But other analysts are still predicting big things from the B2B market, giving Ariba and i2 good odds for recovery. Gartner forecasts that the worldwide B2B Internet commerce market should grow to $919 billion in 2001, $1.9 trillion in 2002 and $8.5 trillion in 2005. Market research firm AMR Research Inc. is more conservative, saying the market for online B2B transactions will nearly double to $1.2 trillion by 2002 from $581 billion in 2001. John Fontanella, service director for B2B marketplace services at AMR Research, says acquiring companies like i2 and Commerce One are creating a market for the future.

For example, Commerce One recently struck a deal to borrow $25 million from Microsoft to fund development of its software for use with Microsoft.Net Web services. It also signed a deal to acquire Exterprise, a B2B exchange software maker, for $78 million in stock.

B2B exchange provider FreeMarkets Inc. of Pittsburgh in early February signed a deal to acquire San Diego-based Adexa Inc., extending FreeMarkets' e-sourcing into supply chain collaboration and optimization. FreeMarkets also recently unveiled an ASP model under which companies can rent software to build and operate private marketplaces.

Another major acquisition was Las Vegas-based PurchasePro's April purchase of BayBuilder, a Boca Raton, Fla., company that provides strategic sourcing technologies. BayBuilder is a competitor of FreeMarkets, which provides reverse-auction technology.

The deal was originally valued at $15 million, but later closed at a much lower $8.5 million in cash and stock.