Commerce One Meets GM: Web Now Has A Really Big Parts Department

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Event Summary

Commerce One (NYSE: CMRC) and General Motors announced an Internet enterprise that will bring GM's purchasing expertise to a marketplace consisting of GM's suppliers and dealers and of other businesses. The new venture, dubbed GM MarketSite, is expected to begin operation in the first quarter of the year 2000. GM MarketSite will be a member of Commerce One's Global Trading Web, a loose network of purchasing portals (See TEC News Analysis article: "Commerce One to Procure for the Antipodes and Elsewhere", October 5th, 1999).

Participants in GM MarketSite will be able to use a catalog, a bid-quote system, or an on-line auction. GM will not dictate prices, but will use its purchasing expertise and muscle to bring suppliers into the network. While GM claims that participation will be voluntary, it expects many of its dealers, suppliers, and partners to join GM MarketSite. One of GM's large Japanese partners, Isuzu, has already announced its intention to convert its entire purchasing system to operate within GM Marketplace.

Note that this announcement is almost coincident with Commerce One's purchase of for $180 million. Adding auction capabilities to business-to-business marketplaces is inevitable, and GM's huge buyer/supplier network will test the concept on a grand scale.

The precise details of how GM and Commerce One will garner revenues have not yet been announced. Both flat transaction fees and percentage levies on each trade are under consideration. Whatever the final details turn out to be, GM will be issued warrants to purchase up to 4.8 million shares of Commerce One stock at par value- approximately 20 percent of the total number of shares issued by Commerce One to date. GM can exercise the warrants when Commerce One's revenues from the deal meet predetermined goals. At current price levels this will be worth close to a billion dollars to GM.

The announcement of the pact was made within hours of a similar announcement by Ford and Oracle. (See TEC News Analysis article: "Oracle is Word One at Ford", October 5th, 1999).

Market Impact

If one takes the narrow view that Commerce One and its competitors such as Ariba and Concur Technologies are selling software systems, then this is a great deal for Commerce One. We believe the correct view is quite different. What these E-commerce companies are selling is their networks. A supplier who signs up with one Commerce One network will be tied to Commerce One in two additional ways. First, many if not most Commerce One networks will be part of a larger network, This will work the same way as many libraries now do. Libraries enter into regional consortia to share resources; if your own library does not have what you want, the catalog will tell you about other libraries that do, and help you reserve the book or check it out. If a member of a Commerce One network can not find an item within the network, there will be links to other networks that may have it. Second, when a supplier joins a Commerce One network, the supplier will develop a catalog in Commerce One's commercial XML dialect (See TEC News Analysis article: "Ariba Successes Highlight Standards Wars", October 5th, 1999). This will make it simple for the supplier to join other Commerce One networks. The same holds for each of the other major vendors, and a similar story can be told for buyers. XML initiatives such as Microsoft's BizTalk and CommerceNet's eCo (See TEC News Analysis article: "New Venture Fund to Propel XML ", October 5th, 1999) will make it easier to move between dialects, the advantage of being the first network to sign a company will remain.

With Ford's recent arrangement with Oracle, it will not be long before Daimler-Chrysler makes a similar announcement. We believe that the lucky partner will be Ariba (probability 75%).

User Recommendations

A user who is ready to move into electronic procurement and is likely to profit from membership in this particular network will want to call Commerce One for an in-depth analysis. However, the members of the network are only part of the story. The detailed functionality and integration with a company's own systems are also important in choosing a procurement partner. The proverb, as usual, says it all: "Married in haste, repent at leisure."

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