22 April 2002 | Robin Parker
Its critics argue that Commerce One has been slow to react to market trends in the past. Now it is pursuing an 'all-or-nothing' strategy to counter falling profits and huge job cuts, writes Robin Parker
"Pipeline-building" was the buzzword circulating at Commerce One's recent user conference in Florida.
Its chief executive, Mark Hoffman, said he expected sluggish IT spending this year, but stressed that many companies are adding e-commerce applications gradually, to integrate them across the enterprise when the economy recovers.
Hoffman said market interest in the recently launched Commerce One 5.0, a more integrated application with an emphasis on sourcing, has been higher than expected, but that this has not yet translated into sales.
The vendor has set aside a fifth of this year's research and development budget for the launch early next year of Commerce One 6.0, an integrated web services platform. But in the wake of falling revenues, this appears to be an all-or-nothing strategy from a company forced to become increasingly lean.
First-quarter revenues to March fell by a third to $31.8 million, and it has laid off nearly a third of staff to align the cost structure with market conditions. This was the second wave of cuts in a year, after it cut its workforce by half in October.
Laurie Orlov, research director at Forrester, said the lay-offs were inevitable, but warned that Commerce One is not yet out of the danger zone.
"This is a sign that it is finally realistically looking at their profit picture and doing something about it. But this is probably still not enough of a cut - they will still have 200 more people than rival Ariba - so unless sales pick up, they will have to cut again."Change of focus
Commerce One realigned its focus at the end of last year from public marketplaces to the private enterprise. In doing so, it entered a domain already dominated by Ariba and Oracle, and although it rightly sensed that public marketplaces were largely out of favour, there was the sense that it was playing catch up.
Beth Barling, a senior analyst at AMR Research, says the company became caught up in the downward spiral of failed e-marketplaces, which caused it to write off $2.07 billion.
"It has suffered from a lack of clarity in its market and product positioning, and it might well be a case of 'too little, too late'."
Orlov agrees. "It hung on to the marketplace model quite a bit past the time when it made any sense. But then it couldn't brand its marketplace-style offering effectively enough as a private environment."
Hoffman admits the switch was not as smooth as he would have liked. "The concept of 'private' didn't stick at first, and we wanted to make sure we were aligned with market thinking.
"Companies are still very sceptical about buying anything, and ROI models are going out the door."SAP questions
Market hesitance was scarcely helped by the announcement in January that SAP, which has a 20 per cent stake in Commerce One, would end a joint licensing agreement and market its e-procurement software separately.
Some critics said this was a sign that the partnership was failing, particularly as the main focus of the alliance is now on their combined marketplace solution.
Scott Wilkerson, Commerce One's director of solution strategy, speaks of a period where his role became "99 per cent perception management".
But the damage has been done at SAP, as Commerce One's losses tipped the balance sheet in the first quarter to a 40 per cent loss of profit.
The reverse of this is that SAP is at least in part propping up Commerce One's fortunes, but a long-term recovery depends on growing new orders, which will be a complex task with a reduced sales force.
But the vendor has set its sights more narrowly on its next generation of applications, arguing that if you prepare the market, it will come.
"Sourcing is a great opportunity to re-engage with suppliers, which leads to more complex relationships," says Wilkerson.
"Its incumbent on us to push the envelope and make people ready for this."