From Steve Harmon
Smart Money called me yesterday to ask about business-to-business hubs. Hot or not? The notion was that portals for business could be
a big next wave. A few IPOs come down the pipeline.
The B2B hub notion drives VerticalNet (VERT) to a $3.54 billion market cap. But for what I think is a better B2B approach, if you're looking
for the eBay of B2B I believe Commerce One could be it.
VerticalNet's approach attacks industries as if content matters, usimg the trade magazine as metaphor. Lure. The weakness in that
approach I believe is that most business doesn't need a content wrapper to create a market. Products and services create markets on
their own without a front-end with a human intervening.
VerticalNet is the About.com (BOUT) of industries.
So the better B2B play? market makers in B2B direct, computers talking to computers, matching buyers and sellers without a information
layer. And the one stock I like more and more...
Commerce One (CMRC) has been a company I've liked since the stock traded under $30 per share in August. Those that listened are
happy.
Now CMRC shares trade north of $300 as the promise of business-to-business commerce emerges. 10x in 3 months. That's the value of
seeing these companies for what they are. Category definers, better than category killers. Time to take profits? CMRC hasn't matched rival
Ariba (ARBA) in cap yet and I think Commerce One's service model may be superior.
I'm always a fan of taking cost basis off the table but also believe the vision for B2B commerce market making looks huge. It makes eBay
look small in 3 to 5 years, relatively speaking.
Commerce One provides supply-chain management. With its buysite and marketsite products Commerce One offers clients including
General Motors, Bass PLC, Siemens, the linking of buyers and sellers in ecommerce markets. To me that universe is exponentially larger
than eBay.
Commerce One at $7.7 billion market cap and revenue for the nine months ending 9/30/99 hitting $16.7 million fundamentals won't get you
there on potential valuation. However, revenue for the nine months handily beat the $1.5 million for the same period in the prior year. Net
loss reached $35 million vs. $17.3 million, respectively.
I think the proper way to see CMRC is as the B2B way of market making solutions, basically ecommerce enabling. I also believe that B2B
is a 10-to-1 larger opportunity than the business-to-consumer space that eBay holds. Yes, eBay's metaphor for market making differs from
Commerce One but that's exactly how it should.
Consider that the consumer needs a browse and buy experience such as eBay. Businesses need an automated order fulfillment system
and order flow solution. Both match buyers and sellers but the B2B side requires more scaleable solutions. Think parts, not antiques or
art.
B2B market making centers on specs, procurement, just-in-time manufacturing. B2C market making relies on entertainment and price.
So it is my investment thesis that a B2B solution may fundamentally provide similar exchange yet requires a different interface and
approach that Commerce One provides. Not a portal model, an integrated supply-chain system that's invisible for how it matches buyers
and sellers. The value comes in the exchange not the brand.
So while most of the world looks for a portal or hub play in B2B that's probably not the model for scaling to the opportunity. Distributed,
seamless automated solutions probably are. Net net I think that bodes well for Commerce One as a better than eBay company if it can
keep rolling out the large clients.
Not hubs but lifeblood of ecommerce.
If that continues CMRC could be better than an eBay to own longer term.
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