Whence Commerce One?

Hopeful signs emerge as reorganization caps weeks of changes at solution provider

Pleasanton, CA  July 12, 2001  Commerce One capped off several weeks of mixed news yesterday with the announcement that a majority of eligible stockholders had approved a move to reorganize the e-marketplace software provider into a holding company.

That announcement comes on the heels of a new product release that refocuses the company on a segment viewed as key to the future of B2B software providers, and in the wake of word that key C1 partner SAP will provide a $225 million shot in the arm for its ally. The upshot of this latest flurry of press releases is some cautious optimism among analysts following C1 and its rivals.

Commerce One's reorganization was completed Wednesday under the terms of agreements with Big Three auto companies Ford, General Motors and DaimlerChrysler, as well as other automakers, in connection with the formation of automotive industry e-marketplace Covisint.

In connection with the reorganization, Commerce One has changed its name to Commerce One Operations, Inc. and became a wholly owned subsidiary of New Commerce One Holding, Inc., which in turn changed its name to Commerce One, Inc.

Will the new C1 rose prove sweeter in the struggling B2B software market? Opinions vary.

In the wake of earnings warnings in recent weeks from B2B stalwarts such as Commerce One and i2, both of which have said second quarter earnings will not meet Wall Street predictions, financial analysts have predicted the B2B software market will rebound only early in 2002.

Moreover, some analysts have said that supplier pushback and a slowing economy effectively have combined to pass a death sentence on the types of public e-marketplaces for which vendors such as Commerce One and Ariba have provided the backbone.

Good thing for those two companies, then, that they both have recently refocused their efforts on a segment that still seems to hold out hopes of profitability: e-procurement through private e-marketplaces. Ariba announced its "back-to-basics" approach in May at its AribaLIVE users conference in Las Vegas, emphasizing that it would concentrate on its e-procurement offering and achieving more rapid return on investment for its customers.

For its part, on June 21 Commerce One unveiled its Collaborative Procurement solution, which added new procurement features  such as real-time pricing and availability checking, change orders and advance shipping notices  to the company's offering. Collaborative Procurement also provides suppliers with free access to buyers, rescinding the transaction fees that C1 had previously charged the sell side. And the solution added some post-purchase capabilities, such as the ability to monitor contractor spending.

The new features make sense for the solution provider's customers and for Commerce One itself, according to Sharyn Leaver, an analyst with technology consultancy Forrester Research. "The solution addresses key pain points like supplier enablement and integration that have been ignored for too long," Leaver wrote in an analysis brief that looked at the product announcement. "Commerce One's renewed interest and aggressive attack on the procurement market make perfect sense in these B2B-challenged times. ..."

Eight days after the product release, Commerce One and long-time partner SAP announced that the German company would invest an additional $225 million in its US ally. Under the deal, SAP will own about 20 percent of Commerce One's outstanding common stock and will have the right to have an SAP representative appointed to its partners board of directors.

On the other hand, SAP accepted limitations on its ability to transfer its C1 shares or to acquire more than 23 percent of its partners stock. SAP will also not be able to buy Commerce One without the approval of C1's board.

The investment is good news for both partners, according to Louis Columbus, an analyst with technology consultancy AMR Research. For Commerce One, Columbus noted that the solution provider has been burning through cash "pretty quickly," despite sporadic layoffs and other belt-tightening measures. "While they're eliminating cost, they are definitely in a cash crunch situation at Commerce One right now," he said.

The cash infusion will therefore keep alive Commerce One's hopes of reaching profitability. But the tightening of the two companies' partnership is equally significant. Commerce One will be able to leverage SAP's strength in specific vertical markets, for instance. SAP, meanwhile, is looking to improve its image as a good partner. "SAP is trying to further accentuate their image of being able to have strong partnerships and maintain partnerships," Columbus said.

The larger message for the market is that, in the current economy, partnerships must go beyond what Columbus calls "the myth of companies partnering together just to trade brand equity." In other words, the market is placing a premium on partnerships that actually produce results. "That's the real message for the industry," the AMR analyst said. "That partnerships that generate revenue are the only ones that last, and that when people do partner, they should definitely be coming into it with the expectation of generating revenue pretty quickly."

Where does that leave Ariba? "Ariba pretty much has to do it on their own  find that vertical market orientation and drive for results that way," Columbus said. He believes that Ariba's second-quarter changes  installing a new CEO and refocusing on specific vertical markets and rapid returns on investment for its customers  are hopeful signs for this solution provider. "These are all really positive changes for Ariba, so the bottom line is that it's too early to count them out," Columbus said.

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