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E-Procurement Energizes Energy

Written By: D. Geller
Published On: February 4 2000

Event Summary

Commerce One, Inc. NASDAQ: CMRC] was first out of the gate with its announcement that it will team with Shell (NYSE: RD) to create a new, as yet unnamed, company that will build and manage a Web-based marketplace for the energy industry. Shell will own 75 percent of the company; Commerce One will own 10 percent and 15 percent will be used for employee stock options. In addition, Shell will have an option to buy 4.3 million shares of Commerce One in exchange for shares in the new company, if the venture goes public.

Slipping in next was ERP behemoth SAP (NYSE, ADR: SAP). SAP is joining with Den norske stats oljeselskap a.s (Statoil), a Norwegian state company that is the world's second largest supplier of crude oil, to develop the mySAP.com Marketplace for the Oil and Gas Industry. SAP will host this new Web-based marketplace for the energy industry A select group of Statoil suppliers will be invited to join in the pilot.

Last but not least was Ariba, Inc. (NASDAQ: ARBA) who is joining with Chevron Corp. (NYSE: CHV) to create Petrocosm Marketplace, a company that will build and manage a Web-based marketplace for the energy industry. Ariba and Chevron will each hold minority stakes in Petrocosm, with the majority of ownership to be in the hands of other energy industry participants, based on their size and the alacrity with which they join the venture.

Each marketplace is expected to by running by the second quarter of 2000.

Market Impact

In each of these deals what we have is similar to earlier announcements involving the automotive industry. In each case the primary beneficiary is the energy industry partner, which looks forward to significant savings on its own purchasing activities, as well as other operational improvements to be gained by enrolling its entire supply chain. However, opening the marketplace to all comers is an obvious move that only benefits the partners. (It would be improper not to mention the potential downside in case one or the other of the base products cannot scale up to the size required. Blaming an oil shortage on a software company instead of on oil producers would be a new experience for the mainstream media.)

There are two positioning statements being made here. On one hand, SAP is implicitly claiming to be an equal player with Ariba and Commerce One in the business-to-business E-commerce world. On the other, both Commerce One and Ariba are claiming attention on a global stage that is new to them but old hat for SAP. While SAP certainly has the stamina to keep fighting on new fronts, it is less clear that Ariba and Commerce One can keep up a fast pace of engagements of this magnitude without straining themselves.

User Recommendations

When giants fight over food, the little people should stay out of the way and grab for any crumbs that are thrown off. While there is nothing in these announcements that directly affects the procurement software choice for any individual company (except one in the energy sector), the progress of all three developments bears watching. Each of the vendors will be tested by these developments.

SAP will have to become much more open in its purchasing application that it has been; to attract a significant share of the market it will have to be able to work with companies that do not have or want SAP's ERP solutions.

Ariba and Commerce One are going after the big time here. Will they be able to develop these large marketplaces without diverting resources away from supporting their other current and future customers?

How each company works its way through these developments - which will occupy them far beyond the second quarter launches - will tell you a lot about how well they will be able to handle other, smaller, engagements.

 
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