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    Covisint Talks Trash

    Written by

    eWEEK EDITORS
    Published May 21, 2001
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      A Covisint sales call to waste management has some wondering whether the automotive exchange may be losing its focus.

      “We talked to them” about using Covisints platform to do procurement, said Derek Driggers, director of best practices and procurement at recycling and solid waste management company WM in Houston. Nothing has come from the discussions, he said. The difference between the industries was one factor.

      “Theyre geared to automotive suppliers. Thats not where our focus lies,” Driggers said. He declined to elaborate on the discussions.

      Seeking customers in the garbage business isnt what its automaker founders had in mind when they established Covisint. They created the marketplace to automate procurement and design operations for the automotive industry, and that remains the plan.

      “Right now, were focusing on the automotive industry,” said Covisint spokesman Dan Jankowski, who said he couldnt find any information about contact with WM. “If we look outside, it will be for complementary work in the transportation industry. Thats years down the road.”

      Its taking time for Covisint to ramp up its business, which has been slowed by regulatory concerns, questions about internal governance and operational issues. It only recently named Kevin English as CEO, months after other marketplaces found theirs.

      Some industry onlookers have heard rumors that Covisint was looking for work beyond the automotive industry. They say that if thats true, it would indicate that the exchange is looking for fresh revenue sources because its failing to build sales in the automobile business. Covisint doesnt disclose financial results.

      “Its pretty much like a dot-com,” said Thilo Koslowski, an analyst at Gartner. Several business-to-business exchanges tried entering new markets last fall when their original businesses began floundering, but the tactic didnt work, he said. “Its the wrong signal” for Covisint to pursue work outside the automotive industry, he said.

      Covisint needs to develop its own business first, said Jenna Pelaez, an analyst at Jupiter Media Metrix. “You cant just jump into another industry. We saw that with companies like VerticalNet. Their issues are so specific.”

      Unlike venture-funded start-ups, Koslowski thinks Covisints backers — DaimlerChrysler, Ford Motor, General Motors and Renault-Nissan — wont let it fold. But he expects they will cut their funding if Covisint cant make a return on its spending, estimated at more than $100 million so far.

      “The market is cooling off. At some point, the automakers wont be willing to put more money into Covisint,” Koslowski said. It needs to show a success this year, he said.

      Covisint and its backers said the marketplace is making progress. On May 15, DaimlerChrysler said it had conducted the largest-ever Internet auction through Covisint the week before, buying about $3 billion worth of auto parts during four days. The “sales event” was significant because it proved the marketplace could handle large volumes of complex orders, not just standardized parts.

      On May 14, Covisint announced deals with Exodus Communications and Sun Microsystems. Exodus will host the Covisint tools and applications used by its North American and European customers, and support Covisints technical team as necessary. Sun will provide hardware, such as Unix servers, database servers and Web applications. Financial terms were not disclosed in either deal.

      Koslowski said the announcements underscore how Covisint is setting up back-end systems and remains unready to do business. “Theyre still working on the infrastructure, which shouldnt be the case anymore,” he said. “But the most important part is still missing: customers. A lot of companies have signed up. None are using Covisint as a primary procurement tool. Everyones still running tests and demos.” That includes the DaimlerChrysler sales event, he said.

      “Its not a stable marketplace. None of the automakers can afford for something to go wrong,” he said. Koslowski believes it would make sense for Covisint to focus its services and marketing in very specific niches. “Covisint should try to convince customers to use it as a primary procurement tool for certain products — parts like rubber or windows,” he said. That would give it a regular business and a recognizable win, and the company could build upon that foundation.

      No Easy Task

      Covisint plans to connect the auto industry over the Internet and automate several core business processes. It offers a direct procurement platform with a product catalog and auction technology, collaborative services to manage requests for quotes and product design, a variety of supply chain management tools and services to create custom-branded portals. It is currently negotiating with automakers on how it will acquire its long-term revenue — through either subscription fees or transaction fees, or a combination of the two.

      However, resolving the massive complexity of the automotive industry, where an automaker can have 20 tiers of suppliers, may be proving a tougher nut to crack than expected.

      “Covisint says that 70 percent of its value will come through the supply chain piece. That parts not even operational,” Jupiters Pelaez said.

      Now its straining relations with its backers. “The OEMs [original equipment manufacturers] are pushing back. Theyve burned a lot of money,” Pelaez said. Perhaps more daunting, it hasnt attracted the industrys loyalty yet. “All these OEMs and suppliers are still building up private trading exchanges,” she said.

      Covisint officials said the exchange faces obstacles, but it is winning hearts and minds where it counts.

      “We know were in a competitive environment, but Covisint has the most comprehensive set of e-commerce products for the automotive industry, and that is its advantage,” Jankowski said.

      Since its inception, the exchange has handled more than $5 billion worth of transactions.

      eWEEK EDITORS
      eWEEK EDITORS
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