It's official. In the second quarter,

Commerce One

(CMRC)

lost the battle with

Ariba

(ARBA)

for the heart and soul of business-to-business e-commerce. But that's only because it's trying to win the war.

Commerce One handed in revenue Tuesday of $62.7 million for the quarter, which was as much as $15 million more than what some analysts were projecting. Unfortunately, in a world of gargantuan numbers -- the world that is B2B e-commerce -- $15 million simply wasn't big enough, especially given Ariba's stunning performance last week. (

TSC

wrote about Commerce One's earnings earlier Tuesday.)

Commerce One shares fell off a cliff in after-hours trading, plunging 6 9/16, or 10%, to hover at 60. The stock had been up 3.4% in regular trading Tuesday to close at 66 9/16.

Mark Hoffman, the company's chief executive, scoffed at that selloff after holding a conference call detailing the quarter.

"A lot of people bought on speculation, and obviously, sold it on hearing this," Hoffman said. "They're probably not the long-term investors that we've got in this thing anyway."

Big Run-Up

Of course, Commerce One surged all last week, running up 79% after Ariba announced its huge quarter, with a startling $80 million in revenue. Ironically, the $80 million that helped boost Commerce One's shares last week made its own numbers look paltry on Tuesday.

Analysts on Commerce One's conference call were exhibiting some ho-hum language Tuesday afternoon. They talked about the company's "decent" and "nice" quarter, but stopped short of using the words they showered on Ariba like "perfect" and "outstanding." (Last week,

TSC

wrote about the differences in the two companies' business models.)

Not that Commerce One didn't give analysts something to talk about. The company detailed exactly what it's been doing over the last quarter. Things like signing up 85 new customers to bring its total to 210. Or that 34 of its 72 marketplaces are operational. And the

coup de grace

: $7 million of its revenue in the past quarter -- or about 11% of the total -- came from exchange revenue. That's important, because it means the company is getting paid for goods moving through the exchanges it's helping set up, a key -- and controversial -- component of its business model.

How High Is the Bar?

So what does this company, which beat earnings estimates by 3 cents and increased revenue by 1,392% from a year earlier, have to do to impress the Street? Just pull off the near impossible. That's all.

"We do have a big vision," Hoffman said. "Now we have to keep on executing."

He's heard the comparisons to Ariba too many times. It goes like this: Ariba has focused on the nuts-and-bolts of corporate procurement, getting people to buy its software so they can buy stuff over the Internet. That has produced revenue up front. Commerce One, on the other hand, is trying to build mega-exchanges for giant industries to link all the world's businesses on what it calls the Global Trading Web. But to do that, it often partners with industry, taking equity stakes in future exchanges instead of getting paid big fees up front for its software.

So far, that's resulted in a market cap of $29 billion for Ariba and $10 billion for Commerce One.

"It's really a different business model, isn't it," Hoffman says rhetorically. "They get all their money by selling into the

company, and they charge more by doing that. We're not looking at it that way. We're looking for this exchange-based revenue model, and there are very different economics to be generated out of that."

Big Money

Try a difference in the trillions, if you believe the estimates. The scope of the numbers estimated for B2B commerce are somewhere north of $7 trillion globally by 2004. But for now, it's only amounted to the $7 million that Commerce One highlighted on its call.

And not all of that, it should be noted, was from straight "transaction fees," the toll-like charges that exchanges want to levy on the value of goods that pass through them. That tactic's lack of popularity among the businesses that use exchanges has caused Wall Street to be weary of it.

The $7 million also included other revenue sources such as revenue sharing with exchanges it has helped set up, Hoffman said. That means if a third-party exchange running Commerce One's software holds an auction -- and charges bidders to participate -- Commerce One gets a small slice of that revenue. As B2B e-commerce proliferates, Hoffman hopes that slice will get bigger and bigger, and ultimately dwarf the up-front licensing fees that Ariba's been pulling in.

But for now, there are still hurdles. Hoffman said none of the company's revenue thus far has come for the big industry mega-exchanges that it's setting up. Those have in part been bogged down by the

Federal Trade Commission's

antitrust examination, Hoffman said..

"Obviously, it's slowing down the implementation of the exchanges to some extent until that gets resolved," he said. "That said, I think people feel the FTC review is moving forward fairly well."

But Wait, There's More

Hoffman and Commerce One highlighted some other numbers on the call, like the 6,900 buying organizations and 500 suppliers connected to its network. More than 50% of its revenue is coming from outside the U.S. And its planned acquisition of consulting firm

AppNet

(APNT)

will add 20% to its revenue after being finalized in September. That would make the company profitable in the third quarter of next year, slightly ahead of analysts' estimates.

But mainly, Commerce One's numbers were only cast in comparison to Ariba's, a battle that Hoffman will surely have to continue to fight for quarters to come.

"Ariba is getting rewarded for revenue and revenue growth, and you can't complain about that," Hoffman says. "But we get looked to for having vision and a better long-term business model. I guess we'll see which is more successful."

For the second quarter, at least, it was Ariba.