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
CommerceBid.com 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."