Commerce Done?

Once a high-flier, Commerce One appears headed for closure

Once a high-flier, Commerce One appears headed for closure

San Francisco — September 24, 2004 — Oh, how the mighty do fall on hard times.

Commerce One, the once-high-flying solution provider that achieved a market value at its peak of some $20 billion, filed documents with the Securities & Exchange Commission on Thursday suggesting that the company may soon be forced to shut down for good.

Although Commerce One still had more than $110 million in cash at the end of 2002, the company, which rode the dot-com bubble by offering e-marketplace solutions, reported this week that it was down to its last $700,000, with expenses continuing to exceed cash inflows.

In a Form 8-K filing with the SEC, Commerce One said that it was looking at various options, including reducing its operations or closing its doors. The sale of all or part of the company's assets also is under consideration.

The company's own prognosis did not look bright. "We anticipate that we will eventually wind down our business and may file for bankruptcy under Chapter 11 or 7," Commerce One wrote in its SEC filing.

The company's shareholders may find the filing even grimmer, as Commerce One wrote that it did not expect that it would be able to meet all its debts and obligations, let alone pay out any amounts to its stockholders.

Bruce Hudson, a program director and leading supply chain management analyst with technology consultancy The META Group, said that Commerce One's fate should come as no surprise. "The surprise," he said, "is why it has taken so long."

Hudson noted that current and potential Commerce One's customers have had reservations about the company's viability for some time. "That's why, despite good technology, they haven't grown the way that they were hoping to grow," Hudson said.

One of the lessons that could come out of the solution provider's downfall is the danger of sticking with a business model that gets overtaken by events. Commerce One fashioned itself as a top provider of Internet marketplace technology and clung to that model even as the market, and other solution providers, moved beyond e-marketplaces toward other forms of B2B collaboration.

Explained Hudson: "Their current technology, what they're calling business process management, a kind of Web services architecture approach, is being adopted by virtually every software vendor as part of their technology stack, or will soon be adopted. So [Commerce One's] vision of connectivity among business partners in the supply chain is actually being realized. It's not being realized in the manner that they wanted it to be, through marketplaces, rather there's a potential for ad hoc connectivity as well as more planned collaboration between business partners."

Commerce One's fate contrasts with that of Ariba, another solution provider that saw its fortunes rise with the wave of e-marketplace hype of the late 1990s. As the dot-com boom went bust, Ariba realized that the e-marketplace model was not going to be a source of recurring revenue streams and switched instead to positioning itself as a solution provider focused on enterprise spend management. Ariba subsequently has come to position itself as a viable major player in this space.

As Commerce One struggled to find its way in the post-bust market, it formed an alliance with German enterprise software giant SAP in 2000. That relationship gave SAP access to some useful technology, Hudson said, which subsequently has allowed SAP customers to take advantage of inter-enterprise collaborative business processes. But the SAP relationship did not last beyond a couple years and was unable to invigorate Commerce One's revenues.

Could Commerce One come back now? Hudson doesn't think so. "I don't see Commerce One coming out of this," he said. However, the analyst added that some good could come out of the solution provider's closure, particularly for whichever company is able to acquire Commerce One's technology in the event that the provider goes through a liquidation process. "When they liquidate their assets if they go into Chapter 7, whoever gets the [intellectual property] is going to get quite a bargain," Hudson said, concluding, "It's good technology."

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