Has Commerce One backed itself into a corner?

The B2B software honeymoon is over. Kate Hanaghan wonders where some of the vendor relationships go from here...

Last year was tough for the whole IT sector but some areas were hit harder than others. Take Commerce One and Ariba, rivals often mentioned in the same breath. Both were victims of that most hated of combinations: massive hype and very few customers.

Commerce One is the one-time darling of the e-marketplace world but it has seen its revenues decline from $191m in Q4 2000 to $56m in the same quarter of 2001. Equally bad is the company's pro-forma loss, which has ballooned from $13.3m to $466.5m.

Last week it suffered another blow as its crucial relationship with SAP went slightly awry. Although the German vendor has a 20 per cent stake in Commerce One it has now ended the companies' licensing agreement.

It's no surprise the relationship came to a sticky end. SAP is now moving into Commerce One territory, making the arrangement redundant. The Enterprise Buyer product SAP had originally agreed to market jointly will now be sold separately. The sales teams of the respective companies, it appears, stuck to selling just their own companies' products.

Commerce One gains a significant portion of its revenue for licences from joint sales with partners and SAP plays a major role here. It will suffer most from the split.

But little more than a year ago Commerce One stood tall with its then fellow B2B star Ariba. Now both companies have suffered as the predicted market for public exchanges failed to materialise.

At least Ariba has walked away from e-marketplaces and is repositioning itself as a 'spend management' company. It has subsequently managed to halve its losses - something Commerce One would do well to learn from.

Andrew Ball, analyst with Frost and Sullivan, said: "Ariba walked away from e-marketplaces, which was humiliating. But they are further down the line than Commerce One and their story is one of financial stabilisation - things won't get any worse than this."

David Metcalf, an analyst at Forrester Research, explained that both companies did shockingly badly in 2001 because of their big cost bases and the shrinking IT budgets of customers.

But will this year be any better? Certainly for Commerce One, analyst opinion indicates it might have to wait some time before things turn around. Will there be lots of business in the public marketplace world this year? Doesn't look that way.

But there could be light at the end of the tunnel. According to Forrester's Metcalf, the company will do well if it can position itself as the default choice for private marketplaces.

At the moment he claims that enterprises are looking at the potential of using these internally. The problem is that these kinds of deal won't be particularly plentiful, for now.

But the message from the analyst community is that this is by no means the end of the story for Commerce One - although it will take some brave strategic decision making to ensure there's a happy end to the tale.