2HRS2GO: Commerce One shows the brighter side

COMMENTARY--Commerce One gave us the optimist's view today.

Shares of business-to-business commerce stocks rose this morning after Commerce One (Nasdaq: CMRC) told Wall Street to lower its hopes for the company's just-completed quarter. The warning was anticipated. Its comparatively mild nature was a pleasant surprise.

The recent stream of bad economic news has led everyone to expect the worst from technology companies, and with the March quarter just ended, tech investors have been braced for a rush of earnings warnings. Investors have felt particularly nerve-wracked over companies that sell enterprise applications and software for electronic commerce between businesses ever since Oracle lowered its sights a month ago.

Ariba (Nasdaq: ARBA) lived down to those expectations with its caution this week. The company achieved barely half of its original sales target for the first three months of this year and unveiled a buzz saw for its work force. Even more disheartening, Ariba essentially told investors to forget about marketplace revenue.

So people expected the worst from Commerce One, a company mentioned in the same breath with Ariba so often that you could be forgiven for thinking they were Siamese twins.

They're not, of course, and this morning's conference call from Commerce One underscored their differences more than ever. While Ariba executives made it sound as if they'd given up on exchanges and marketplaces, Commerce One remains completely confident. Commerce One's shortfall was far less severe than Ariba's.

"E-marketplaces and e-marketplace transaction revenue are alive and well," Commerce One CEO Mark Hoffman told analysts on the call. "We continue to believe the opportunity for e-marketplaces is very significant, as represented by important industrial, regional and private e-marketplace contracts we've just won in the completed quarter."

Although people often lump Commerce One and Ariba together, the companies focus on different parts of online commerce. Ariba's core business revolves around software that automates purchasing and helps find suppliers easier. Commerce One sells technology for putting together Internet marketplaces.

Conventional wisdom said Ariba was in a better long-term position, because it sold software targeting the heart of a corporation's buying process. Commerce One was derided as a company playing with a low-margin transaction fee business. The Commerce One critics became more numerous as online marketplaces--once the hottest thing among Internet investors--seemed to dry up.

But if you ask Hoffman, Commerce One benefits because no one else concentrates as heavily on online trading communities.

"It's our focus on e-marketplaces," Hoffman told analysts. "Ariba has still been out there really focused as an enterprise software company, selling purchasing applications. That is a competitive environment today, with SAP (being) Commerce One-enabled, us working with PeopleSoft (Nasdaq: PSFT), driving their application in the marketplace, Oracle coming into the marketplace. It's a more competitive environment."

Ariba will tell you competition isn't the problem, and that may be true. But the very thing that attracted people to Ariba--its reliance on purchasing applications, rather than marketplace revenue--also makes it more vulnerable in bad economic times, because that's when corporate executives are more inclined to delay rearranging their business processes.

On the other hand, joining an online marketplace, in and of itself, doesn't require a radical overhaul of how a company works with its suppliers. It's really just another distribution channel. And despite all the gloom-and-doom reports about trading consortiums, they're still around, judging by Commerce One's ability to boost revenue sequentially.

Skepticism about online trading consortiums is actually helping, if you believe Hoffman.

"There's kind of been some discussion and some articles out there that people will take their eye off the ball, but I think in fact the opposite is actually happening," Hoffman said. "The consortium companies are looking at the marketplaces and saying 'OK, you told us you can save money, let's see you execute and see you perform.' So right now there's a lot of pressure on these marketplaces to get out and get running, and I think that'll work in our favor on the transaction side of the business."

This week's news from Commerce One and Ariba produced radically different reactions for the online B2B sector, yet the companies actually said many of the same things. Both indicated a weak economy is convincing CEOs to delay technology purchases. Neither provided a new forecast for the current quarter or fiscal year; the future is too uncertain. Because their reports were about preliminary results only, the companies declined to provide too many details about the quarter just ended.

The only real difference was the tenor of their conference calls with analysts. Ariba missed by a far greater amount and sounded much more depressing. Commerce One insisted that the kids are alright. 22GO >