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Commerce One fights for survival

Costs outstrip sales for troubled software vendor

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Commerce One still seems unable to get its costs under any semblance of control. It posted a Q2 net loss of $5.1m, only marginally better than its year-ago net loss of $6.1m. Things look gray, but with some new product launches, increased operating environment and platform choices, and new sales and marketing SVPs the company may yet stay afloat.

Commerce One, the former e-marketplace software vendor turned Web services integration player, has posted yet another set of horrible figures, announcing Q2 sales of just under $2 million, down from $8.3m in the year-ago quarter and $2.7m in Q1.

Chairman and CEO Mark Hoffman, who has presided over both the company's stellar rise to e-commerce stardom since its foundation in 1994, and its fall from grace since, claimed yesterday that, "We have made strides to get costs under control." But total costs and expenses of $8m must be hard to justify when total sales were just $2m.

Drill deeper and there is even more to worry about: of the company's $2m total sales, $1.7m was from services. Yet according to the company's figures, the cost of services was $1.6m, so its services operation is not nearly profitable when sales and marketing and administrative and so on are included. There is also the fact that the company's software license fees only came to $309,000, down from $1.7m in the year-ago period.

The company was able to raise $5m from investors in January this year, to add to the $10m it raised from BayStar Capital Management in July 2003. But its results show that as of June 30 it had just $4.2m of unencumbered cash and cash equivalents remaining. With the company posting a loss from operations in this latest quarter of $6m, the question of viability must still be asked.

Commerce One has come a long way since its IPO in July 1999, which raised the company $69m and saw its shares triple on the first day of trading. Back then hopes were high that Commerce One, Ariba, i2 and others would be able to take a slice of the revenue from every deal signed on their e-marketplaces stretching out across cyberspace. But increased competition from enterprise software vendors like SAP, Oracle and PeopleSoft, and the general decline in popularity of such e-marketplaces stymied that idea by early 2000.

Since then those companies - among the darlings of dotcom euphoria - have had to remodel themselves to stay competitive. Ariba has come back as a spend management player with some success, i2 went back to its knitting as a supply chain management software and services vendor, and then there is Commerce One.

After a number of twists and turns Commerce One decided the company's future was in integration, specifically integrating web services for service oriented architectures. Its Conductor platform is said to do just that, as well as enable the development of new business processes, and management of those processes and the IT infrastructure at large. This is an area that currently belongs to Tibco, webMethods, SeeBeyond, IBM and others.

The company still has its original supplier relationship management (SRM) products, too. But given the fact that Mr Hoffman announced he was selling the SRM products early this year, then subsequently said the company had found "promising synergies" between them and its Conductor platform, few serious enterprise customers are likely to feel confident in the product's future, and judging from the company's total license sales of $309,000 in its latest quarter, many do not.

Nevertheless Mr Hoffman is unbowed, saying yesterday that, "We are pleased with the feedback we've been receiving from analysts, prospects, partners, and customers about the trends in the marketplace and the positioning of the Conductor and SRM products."

Perhaps it's not all doom and gloom, however: the company announced it won two new Conductor customers in the quarter and a few new SRM customers. It even launched new versions of the SRM products - Procurement, Sourcing, Supplier Order Management, and Auctions. It also put out a new release of Conductor 6.8, including web services security for transactions across businesses, additional connectivity, and a wider choice of operating environments and platforms, including support for Linux, IBM's MQ Series, IBM's WebSphere, as well as the open source JBoss and Tomcat application servers.

It's looking for systems integrators to work with too, and was able to add eForce to its SI roster in May. Perhaps the best hope though comes from news that there is a new SVP of sales and new SVP of marketing. It has apparently put together a senior sales team for Conductor and rebuilt the SRM sales team too.

Source: ComputerWire/Datamonitor Related research: Datamonitor, "MarketWatch: Technology Annual Subscription"

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