#2 Commerce One

E-marketplace company waiting out the storm

The fastest-growing electronic commerce company rode the wave of interest in public e-marketplaces last year, cresting at $401 million revenue, an increase of almost 1,100 percent for the year. The surge was strong enough to carry Commerce One, led by Chairman and CEO Mark B. Hoffman, into the undisputed lead in powering public marketplaces earlier this year — 157 at last count — while its main rival, Ariba, wiped out and pulled out of that market.

However, the market has shifted almost as rapidly as a sand dune, and now Commerce One and its competitors seek to build private marketplaces, but in an economic climate thats far less hospitable than a year ago. Some companies are more worried about survival than e-commerce operations and are slow to spend dollars.

Throughout the sector, business-to-business (B2B) software vendors are trying to expand the reach of their technology and their networks, and find new partners, hoping to claim safe market positions before they burn too much cash.

"Everyones racing against time," said Patrick Walravens, an analyst at Lehman Brothers Holdings.

This applies no less to Commerce One, which now benefits from the partnership it struck with business software vendor SAP in June 2000.

"The relationship with SAP is very positive," but it doesnt include acquisition plans, said Dennis Jones, a former Federal Express executive who is Commerce Ones newly appointed president.

Besides licensing software to set up e-marketplaces, Commerce One draws revenue from providing services to those markets and charging transaction fees on the trading network it runs.

The B2B sector took off in 2000, when public e-markets were organized for an Internet land grab. The real estate proved worthless for many, as companies began ignoring them in favor of automating their own supply chains in private exchanges. The scale of the damage to B2B software vendors wasnt clear until the first-quarter results of 2001 filtered in, with fallen sales and earnings, layoffs and dropping stock values.

Commerce One was no exception. In late April it reported a quarterly loss of 11 cents per share, or $228 million. Much of that was due to one-time costs, but on an operating basis, it lost $25 million.

Sales drooped from the previous quarter as well, falling to $170 million. The damage was relatively light for a B2B company, but analysts downgraded the stock, which fell to a little over $4.10 per share by mid-June. Commerce One laid off about 10 percent of its work force to cut costs.

Nevertheless, its hanging tough with its marketplace vision. Commerce One acquired Exterprise in a deal valued at about $59.6 million so it could better enable collaboration between companies.

It also announced a partnership with Microsoft to develop technology to tie into Microsofts small-business servers and bring suppliers onto Commerce One marketplaces through Microsoft software.