Commerce One follows Ariba into harder times on e-procurement

Commerce One, the big e-procurement and web exchange IT infrastructure developer that last year publicly partnered with enterprise software giant SAP, is having a hard time. Last week the company warned investors that its second-quarter revenue would be lower than expected by at least 25% at around $100—120 million – and SAP waded in with a rumoured $225 million, taking its stake from 4% to 20% and a place on the board. Its only a few short months since Commerce One’s arch-rival Ariba had to bite the downturn bullet – losing staff and re-focusing its software scope. Now Commerce One is the focus, and it’s on safer ground with SAP, but it’s had to give a fair wedge away – and rights for SAP to purchase additional shares. Says analyst ARC’s vice president John Moore: “Commerce One and Ariba are both struggling in a merciless market. While this cash infusion is certainly good for Commerce One and its customers in the near-term, long-term it may prove otherwise. “Having SAP now sit on the board could limit Commerce One’s ability to partner with others, such as Siebel for CRM (customer relationship management) or Manugistics for SCM (supply chain management). Both strongly compete with SAP’s own solutions. This may ultimately stunt Commerce One’s future growth. “But as the old saying goes, “a bird in the hand is worth two in the bush” and at Commerce One’s present burn rate, it needs that bird now or it will starve trying to catch one of those birds in the bush.” But analyst Plant Wide Research remains convinced that SAP’s increased investment is a huge boost for Commerce One. “Deals with SAP have contributed as much as 30% to Commerce One’s quarterly revenues. Commerce One is hoping to garner even more sales, as the two companies further invest in joint marketplace software, including their MarketSet and Enterprise Buyer products.” And it noted that investors like it too: Commerce One shares went up 13% after SAP’s announcement of the investment.