Commerce One Inc

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COMMERCE ONE INC.

Commerce One builds business-to-business (B2B) e-commerce exchanges that allow companies to do business via the World Wide Web or other electronic platforms. The idea behind these exchanges, or marketplaces, is to cut costs for all parties involved by creating a single place where buyers, sellers, distributors, and suppliers can complete commerce transactions. Commerce One exchanges, based on the firm's Market Site Portal software, offer auction capabilities, which let clients collect offers for their merchandise to get the best possible prices. Similarly, reverse auctions allow businesses to solicit competitive bids for products and services they are looking to purchase. Commerce One's BuySite procurement software suite is geared more toward creating private supply chain sites for individual companies. This technology also allows buyers to view various supplier catalogs online and complete secure transactions electronically.

Founded in 1994 as DistriVision Development Corp. by Tom Gonzales and his son, the firm first focused on selling office automation software to banks. By the time Mark Hoffman, co-founder of Sybase Inc., was named president and CEO of DistriVision in 1996, it had also moved into multimedia catalog development. Hoffman secured more than $7 million in financial backing and brought in new managers, some from Sybase, to steer DistriVision's transformation into Commerce One the next year, creating a firm that sold products and services that facilitate B2B electronic commerce. According to InternetWeek writer Judith Mottl, Hoffman's "idea was to use DistriVision's supply-chain software to move the procurement process to the Web, linking buyers and sellers to a circle of exchanges and marketplaces that would automate, simplify, and speed business-to-business transactions."

The firm went public in 1999. It experienced intense growth that year, reaching sales of $33 million, compared to $2 million the previous year. Employees grew from roughly 500 to 1,300 over the same time period. Lending credibility to the upstart was its ability to sign on customers like automobile maker General Motors, which ended up holding a 20-percent stake in Commerce One, and Atlanta, Georgia-based telecommunications firm BellSouth. Commerce One also was busy forging partnerships with firms like Microsoft. In fact, Commerce One was one of the few e-commerce upstarts to use Microsoft's Windows operating system, rather than Unix, as its main platform. Because Microsoft was looking for ways to extend its reach into electronic commerce, Commerce One's decision to use Windows was of particular importance to the software giant.

By mid-2000, the firm was working on developing more than 100 commerce exchanges for its clients. Faced with increased competition from rivals Oracle Corp. and Ariba Inc., Commerce One continued to develop new technology and forge deals that would increase the comprehensiveness of its suite of products. For example, the firm formed a licensing joint venture with Germany's SAP AG, a leading developer of software applications that allow enterprises to manage their resources electronically. In September, Commerce One unveiled an upgrade to its auction software that expanded the number of languages and currencies it supported and allowed related items to be grouped together for an auction that accepts bids for the entire grouping, as well as for individual items. In 2001, Commerce One paid $78 million in stock for business network management software maker Exterprise Inc.

Commerce One makes its money by licensing its software, levying service and network charges, and retaining a stake (typically 50 percent) in the exchanges it creates. Market Site Portals cost anywhere from $500,000 to more than $2 million, depending on the amount of work involved in putting catalogs online, creating search engines, training employees, and so on. Once the site is up and running, the company or companies operating the exchange charge those who use the site—suppliers, distributors, sellers, and buyers—a fee for each transaction completed. Commerce One gets a portion of each of these fees. For these fees to amount to profits for Commerce One, suppliers must be willing to complete a high number of transactions at these sites. Therefore, in an effort to promote B2B marketplace use across the globe, the company also requires its Market Site Portal clients to join the Global Trading Web, which by mid-2000 linked 58 B2B online marketplaces.

One of Commerce One's largest exchange projects is Covisint, the online marketplace for the worldwide automotive industry launched in November of 2000 by Ford Motor Co., General Motors, and DaimlerChrysler. In December of 2000, Ford and GM each ended up with a seven-percent stake in Commerce One, and Commerce One received a two-percent stake in Covisint. Critics of the B2B exchange model point out that the exchange, like many others, has yet to return on promises of significant savings. However, the auto industry, like many other markets, continues to invest in the technology, believing that the potential benefits are too great to ignore.