I have taken the liberty to copy an excellent post from TMF which has a nice explanation of Commerce One. The post confirms my belief that first mover advantage and the alliances being formed are most likely to be long lasting. As well, it confirms that all players are jockeying for position and the large account sign ons are so important, each announcement and press release does run the stocks up. I think as we struggle to grasp this space and put it all into perspective, we need to take it one company at a time in terms of learning what it is they do, do they have proprietary product, etc... .
By the way, Ariba announced a 2 for 1 split last night and a little after hours mania ensued. I'll never understand the mentality of the split announcement mania. AOL, AMZN, EBAY, YHOO, QCOM, ARBA and the list goes on of 'pile on when the split is announced'......
BB
Here's the post:
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Subject: Re: GM TradeXchange
Author: jeffwoods
Hi Kevin:
There doesn't seem to be too much handholding in this board
yet, so let me try and help...
I have to confess up front that I'm not familiar at all with the
Worldcom deal history. However, I believe that it is incorrect to
draw the conclusion that CMRC and ARBA alliances are not
long-term in nature.
Firstly, let me give you my understanding of what CMRC does.
They
1. Create the marketplace for buyers and sellers to conduct business according to
XML-based interaction protocols ? like the NASDAQ, they serve as the facilitating
mechanism for buyers and sellers to transact business. They typically label these
marketplaces by one of their trademarked names "MarketSite"
2. They sell HTML-standardized eProcurement software for installation inside the
corporate firewall (there are other options here, but this is the main one from CMRC) that
automates and decentralizes the procurement function. This eProcurement software is
typically marketed as "BuySite"
3. They work with suppliers to encode their product and pricing lists into the standard
MarketSite format
Up to this point, CMRC has focussed on companies with high levels of MRO (maintenance,
repair and operations) spending. Not only is this probably the largest category of corporate
spending, but it cuts across all vertical markets because it is the generic "base" spending
that all industries incur. To date, the corporate alliance targets have included a
disproportionate number of national telecom companies. I suspect that they have driven
alliances with national telecom providers across the world because of:
a. the high level of MRO spending (most national telecoms companies are fairly large),
b. the relatively high level of technological sophistication of a telecom company in any
market, and
c. the breadth of a large firms spending across a national supplier base (read: buyer
power).
CMRCs growth strategy would seem to be to lock in (partner with) the very, very large
procurers across the world and then use the partner's market power to brow-beat all of
their suppliers into the CMRC MarketSite. The beauty of CMRCs business is that
first-mover advantage is key due to the network effects of signing-up the biggest
companies first. Let me expand?
First mover advantage ? FMA comes from the fact that a large corporate buyer will
likely use one, and only one, eProcurement package to automate their procurement
function. There are lock-in implications for the buyer because of the ties to the ERP and
G/L systems (fyi, PeopleSoft decided to own-label CMRC's eProcurement "BuySite" rather
than grow their own because CMRC's was so kick-ass). Another lock-in implication is that
suppliers will want to tailor their product and pricing databases to, at most, one
e-marketplace. I am taking a bit of a stretch there, but my assumption is that most of
these suppliers are fairly unsophisticated. They will need the added-value help of CMRC to
automate and maintain their pricing lists (CMRC does this for free the first time, and then
charges a fee if the supplier can't handle the ongoing maintenance).
Network effects ? Lets take the GM deal as an example. The first order effect is that
GM moves its ~$90m procurement onto the GM MarketSite (they call it something else
now). GM now has an incentive to persuade all of their suppliers to move into their
Internet marketplace because:
1. The automation of the procurement function takes off about 80% of the cost of a
procurement transaction for GM
2. GM has a $1b equity stake in CMRC, who receives a slice of every transaction that
takes place in the marketplace
The second order effect is when the suppliers start to realize the incremental benefits of
participating in the marketplace. Those incremental benefits are:
1. Automation of the customer relationship and sale transaction cycle
2. The ability to sell to all other buyers in the marketplace. In the GM marketplace, GM will
hopefully not be the only buyer, but intends to have the marketplace open to other
buyers, who will then have access to all the suppliers on the network. Then those buyers
automate all their procurement?and so on and so on.
So what? ? If I've been clear about the benefits of FMA and network effects, then one
can see why ARBA and CMRC, as two of the first Internet B2B market-makers, stand to
gain an awful lot. If they can convince credible players (GM, British Telecom, NTT, Ford,
Worldcom, Office Depot, CompUSA) to sign-up with them they will be a long way
towards locking-up the top of the procurement value chain. The challenge is the land rush
to the big names which is going on right now. ARBA had a 1 to 2 year advantage, but, as
happens with technology leap-frogging, CMRC's more recent platform is much simpler for
even a multinational company to implement.
Because ARBA is based on proprietary technology, their eProcurement software requires
the CTO to sign-off on yet another app to be delivered throughout the procurement
organisations' desktops, along with the requisite LAN, WAN and server implications.
CMRC's software is an HTML application that can be used with the standard Internet
browser ? no special deployment required, just start Internet Explorer, sign-in and start
buying.
What is the end game? As with most of the Internet plays, nobody really knows. If
they did, either ARBA or CMRC's market cap would crash and burn. It seems as though
CMRC has the momentum at this point due to their alliance with top global players,
including the blockbuster GM deal. But, other players have jumped quickly into the fray ?
Oracle (the AutoXchange deal with Ford), SAP (MySAP) and others in niche markets
including VerticalNet, Chemdex, Freemarkets Online, etc., etc., etc. Everybody is trying to
get a piece of the action.
I do think that the B2B players that drive early alliances at the top of the corporate B2B
value chain have the strongest hand in the race to an endgame that captures the largest
web of buyers and sellers. CMRC currently has buying webs in the US, Europe, Asia and
Australia. CMRC also has technology in place to connect their global buying webs so that
multinational companies can globalize the eProcurement solution.
I hope this helps and I do hope that other people will join the fray to drive the analysis of
this space. Having been out of Fooldom for a while due to job, travel and marriage, I am
now trying to work my favorite hobby back into my life and am anxious to get back into
the Fool community. I am particularly surprised that the Rule Breaker portfolio hasn't
made any investments in the b2b space. It would seem to be an incredible oversight or
blindspot.
Btw, I hold a position in CMRC ? in at 60, rode them down to their nadir (wanted to buy
more, but couldn't liquidate any of my other positions and didn't have any spare cash), and
am now pleasantly surprised that the market is rewarding CMRC for their momentum.
Jeff
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