Covisint

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COVISINT

Launched in November of 2000, Covisint is an online marketplace for the worldwide automotive industry. Originally conceptualized in late 1999 by industry leaders Ford Motor Co., General Motors, and DaimlerChrysler, the business-to-business (B2B) site has yet to live up to expectations that it will achieve significant savings by streamlining the purchasing and production processes of automobile making. In its first five months of operations Covisint had secured only 40 of the 30,000 manufacturers that supply parts to the world's largest automakers. With roughly 250 online catalogs, the site mainly functioned as a procurement and auction vehicle in early 2001. Design professionals also were able to use the site as a platform for collaborating with other automotive engineers.

The idea for Covisint grew out of a rivalry between Ford's Auto-Xchange and GM's Trade x-change, both launched in November of 1999. Realizing that a combined B2B exchange would likely be much more lucrative, Ford and GM executives began holding private meetings in early 2000 to discuss such an undertaking. A universal online automotive marketplace could improve the process of new parts development by facilitating better communication between automakers and suppliers. It also had the potential to speed vehicle development times and give dealers better control over inventory by allowing them to stock what customers want and maintain fewer numbers of cars on their lots. Intrigued by what appeared to be the potential to create one of the world's largest B2B exchanges, and by the possibility of a blockbuster dot-com initial public offering (IPO), Ford and GM approached DaimlerChrysler, who signed on as a third partner just weeks later. They announced their plan to create a joint site on February 25, 2000. France's Renault S.A. and Japan's Nissan agreed to join the partnership in April of that year.

It soon became clear that the creation of such an Internet portal would not be easy. For starters, Covisint's head executives, used to competing with one another, found it difficult to reach agreements on anything. Along with managerial clashes, the firm's technology experts—Commerce One and Oracle—also were intense rivals. To make matters worse, in March of 2000 the Federal Trade Commission (FTC), concerned about the possible anti-competitive repercussions the exchange could have on the supply industry, launched a six-month investigation of the venture. Although the FTC eventually granted its approval to Covisint, it did so after the dot-com stock meltdown, undermining Covisint's hope of cashing in on an IPO.

Despite these setbacks, as well as being unable to find a CEO to run the exchange, plans for Covisint continued to move forward. According to Forbes writer Meredith Robyn, "The automakers persevere because the potential gains are riveting. A car has 5,000 parts on average, and the auto industry has one of the world's most complex and antediluvian supply chains. A car giant processes one million invoices a year, at $150 a piece. Covisint cuts that to $15 a piece."

Covisint's 350 employees are divided into three functional groups. The customer development division, managed by former Ford Motor purchasing executive Alice Miles, handles sales and marketing. The business development division, led by former General Motors executive Enrico Digirolamo, oversees finance, purchasing, human resources, and external relationships with other firms. The product development division, headed up by Peter Weiss, the former B2B exchange activities director of Daimler-Chrysler, is in charge of developing the actual technology that drives the site. To mediate technology disagreements between Commerce One and Oracle, Covisint attempted contract consultants, but many found the challenge too daunting to accept. One that did take on the task, Chicago-based Diamond Cluster International, eventually resigned.

Despite their differences, Commerce One and Oracle did begin working on uploading parts catalog information to the site. Commerce One also added traditional auction functionality, which allows suppliers to put their wares up for sale and get the best possible prices for them, as well as reverse auction functionality which lets automotive makers solicit competitive bids for products and services they need to purchase. Early in 2001, auction and catalog sales accounted for 90 percent of Covisint's revenues, mainly because those were the only functions offered by the site. In March, Supply Solution Inc. agreed to allow Covisint to be the sole provider of its i-Supply Service, which grants part-makers real-time access to information regarding the inventory of the automotive factories it supplies. Covisint hoped the i-Supply acquisition would boost its users as roughly 750 suppliers already used the technology.

Analysts remain split over the likelihood that Covisint will attain its goal of becoming the world's largest B2B exchange and help to shave hundreds of dollars off the production costs of each automobile. Working in the new venture's favor are the deep pockets of its founding companies. Although Covisint still lacked a CEO as of spring 2001, unlike most up-start Internet businesses, it had easy access to enough capital to create a highly sophisticated site regardless of traffic levels.