Like other dot-com innovations, the e-marketplace is proving to be a modest success. Unfortunately, its creators were betting on a huge success -- and it didn't pay off.
Two years ago, Commerce One Inc. agreed to provide the procurement software to be used by Covisint.
As payment, Commerce One agreed to a percentage of Covisint's gross revenues for 10 years. Commerce One adopted a similar strategy for other online exchanges that it helped organize. When revenues did not materialize, Commerce One's stock price tumbled.
By contrast, Covisint's other major software supplier - Oracle Inc., which provides database management - demanded cash upfront. That's the same deal that Oracle typically negotiates.
So far, that brand of hard-headed deal-making has allowed Oracle to survive the brutal high-tech shakeout. While Oracle's stock price is languishing at about $9.50 a share, close to its 52-week low of $7.32 on June 3, it still generates significant profits. Oracle's net income totaled $2.2 billion last year.
Commerce One might not be so lucky. In November 1999, its stock peaked at $598 a share after General Motors announced that it would partner with Commerce One to create an online exchange. After Covisint's prospects crumbled, Commerce One's stock hit a 52-week low of 33 cents a share on June 28. Commerce One lost $2.6 billion last year. Analysts speculate that the Walnut, Calif., company might be absorbed by German software maker SAP.
What went wrong? Commerce One assumed wrongly that a public e-market would dominate corporate purchasing. Instead, many companies link up to their suppliers through private online exchanges.
Left in the lurch, Commerce One is scrambling to develop less costly software for companies to manage such systems.
Other software firms seem more likely to survive Covisint's travails. Powerway Inc. of Indianapolis, allows automakers to monitor a component's quality during product development. General Motors, the Chrysler group and Ford Motor Co. have asked their suppliers to use it.
Somewhat less successful is SupplySolution, which sells software that allows suppliers to monitor an automaker's factory inventories. SupplySolution had hundreds of supplier customers even before it negotiated an agreement to sell its software - at least for the auto industry - exclusively through Covisint.
But the deal failed to give SupplySolution what it wanted most: acceptance as the auto industry's standard. Now, SupplySolution is renegotiating with Covisint for a deal that allows it to market its software separately. But the Southfield, Mich., company remains unprofitable.
The software industry had hoped that Covisint would create a massive market for their products. While there have been some modest successes, it didn't turn out that way.