In the land grab that is business-to-business e-commerce,
planted a red flag in a major piece of real estate Tuesday: the exchange of goods and services in the aerospace industry.
The announcement from the four largest aerospace companies that they will use Commerce One's technology for their forthcoming business-to-business exchange was a definite coup for the Walnut Creek, Calif.-based, software provider, analysts say. That becomes especially apparent when you consider that Commerce One beat out its two fiercest competitors,
But what exactly Commerce One will get out of the deal in terms of cash up front -- or payment down the road -- is still unclear. Investors, perhaps echoing those concerns, sent Commerce One shares down 3.4% Tuesday on a weak day for technology stocks.
Phil Condit, chairman and CEO of group leader
the aerospace companies considered both Ariba and Oracle for the deal, but decided on Commerce One for three reasons. "We looked at what you always look at in these deals: price, risk and technology," Condit said. "They met our needs."
The exchange, founded by Boeing,
, will serve an industry with $400 billion in sales annually, a figure in keeping with the sector's tendency toward eye-popping, if meaningless, numbers. The four founding companies alone said they spend a combined $71 billion per year on goods and services that could run through that exchange.
It will be set up as a separate company, with the four aerospace firms each owning equal equity stakes and Commerce One receiving 5% of the new company. Notably, Commerce One CEO Mark Hoffman said Commerce One didn't give out any of its own stock to get the aerospace giants to use his company's software -- a practice the company has employed before. But he also didn't spell out in detail any licensing fees that Commerce One would receive up front, either. For that, analysts and investors will probably need to wait for Commerce One's April 19 earnings announcement.
Hoffman did say that the company would get a piece of the transaction fees that are charged when companies use the exchange, as has been typical of other deals the company has set up.
Everybody Wants You
Followers of the hot B2B sector were impressed. "Of course, this is definitely a deal that all the serious e-commerce technology providers would have wanted," says
analyst Bill Epifanio, whose company hasn't underwritten for Commerce One.
Fair enough, and definitely something Commerce One can crow about: Alluding to its uncomfortable partnership with Oracle in a similar marketplace for the Big Three automakers, Commerce One CEO Hoffman said the company was "certainly pleased" to be the sole technology provider in this deal.
Still, Commerce One ended down 7 5/16, or 3.4%, at 206. Oracle slipped 1 7/8, or 2%, at 86 9/16, while Ariba jumped 6 7/16, or 2.6%, to 252 1/4 on news that its platform would be used in a new exchange serving the telecommunications industry. Boeing, Lockheed Martin and Raytheon all traded higher.
For their parts, Ariba and Oracle reacted with indifference to Commerce One's supposed coup. Ariba declined to comment on the announcement, though a spokeswoman said Ariba was working on its own initiatives in the aerospace industry. And analysts saw the deal as a victory for Commerce One, but just another deal in a deal-crazed industry.
"I think today it's a loss for Oracle, but I won't count them out," says Jeanette Sing, an analyst with
, in New York, which hasn't underwritten for Commerce One. "They're always very aggressive and they will capture additional industries, because they have the name and the sales force to do it. It's not going to be one exchange that dominates everything."
"There's no question that when one company like Commerce One gets a huge win -- which I think this is -- it's a huge loss for everyone else," says Epifanio. "But the good news is we're still in the early stages of B2B."
Kevin McGuirk, VP of press and analyst relations at Oracle, points to his company's announcement earlier this week that it would launch an exchange for the global transportation freight industry, partnering with Hong Kong's
Hutchison Port Holdings
. In that deal, Oracle pegged the industry as having sales of $800 billion, which, if you're counting, is more than double the $400 billion that Commerce One cited as sales through the aerospace industry.
"The technology from Oracle is already out there, it's in use and saving our customers significant amounts of money today," McGuirk says.
Or in other words, the Commerce One's competition has some real estate of its own.
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