Commerce One pins hopes on Web services

Former high-flying business-to-business software maker Commerce One is pinning hopes for survival to a product overhaul, based on Web services, set to debut this month.

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The company next Monday is expected to deliver new business software, called Conductor, intended to help companies automate business e-commerce operations. The new, make-or-break strategy, is centered on Web services technology, and is a departure from the company's previous focus on electronic procurement applications.

While the plan could help the company distance itself from a largely failed vision for business e-commerce, it also pits Commerce One against some of the biggest names in software, including IBM and Microsoft.

Like other business e-commerce companies in the late 1990s, Commerce One placed its bets on the spread of wide-scale electronic networks, or e-marketplaces, where companies would transact business over the Internet. By using such business-to-business trading hubs, proponents argued, companies could save money on the cost of purchasing or selling material with business partners.

But despite the hype and promise, that vision has largely failed. Many so-called B2B companies have gone out of business, and participation in smaller business-to-business trading networks has taken root slowly, in part because the difficulty of getting different companies' computing systems to communicate and exchange data.

"The whole concept that e-marketplaces would take over and offer procurement and sourcing services to participants was overhyped and oversold," said Andrew Bartels, an analyst with Forrester Research.

Now, Commerce One is looking for a fresh start. With Conductor, the company is aiming to solve the "last mile" problem of getting businesses to connect to electronic trading networks, said Commerce One executives. The software uses Web services standards to simplify the heavy lifting usually required to set up connections between business partners and automate complex business processes.

"We are still trying to realize Commerce One's original vision but we're taking a more pragmatic approach," said Narry Singh, senior vice president and chief marketing officer of Commerce One.

Modern art
The company, which has several years of experience setting up trading networks, will be relying on "modern technology" to tie together different companies' computing systems, Singh said. Specifically, the company has built Conductor around Web services, a catch-all phrase for programming techniques and protocols based on Extensible Markup Language (XML) that make it easier to share data between disparate systems.

Instead of selling a packaged application for conducting transactions between companies, Commerce One has developed a set of development tools and application "templates" that customers can use to automate e-commerce processes.

With Conductor, companies customize the Commerce One application templates for a series of business-to-business processes, such as

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collaborating with supply-chain suppliers to track inventory levels. Commerce One has written software to automate processes that are specific to four industries: discrete manufacturing, retail, consumer packaged goods and financial services.

And, in another departure from its earlier business model, Commerce One is trying to address a broader set of applications with Conductor, rather than sell an application aimed at a limited set of capabilities around procurement, according to company executives.

One early tester of Conductor, for example, is using the software to consolidate and prioritize its corporate purchases with its business partners, which is a more complicated task than a simple procurement transaction. There are now 10 early customers who are using Conductor software in pilot projects, the company said.

Conductor relies on Web services technology called choreography to model complicated business processes and XML-based tools to transfer business documents over the Internet. The Conductor server software includes a "registry," which acts as a directory of partners and the entry point to multiple applications within a trading network.

Pricing for the Conductor server software starts at $300,000. Commerce One sells industry and process-specific templates, or "accelerators," that run on the Conductor software. Pricing varies depending on application.

Crawling from the wreckage
Even with the new product plans, Commerce One faces many hurdles, said analysts. The company's new product strategy comes after a string of drastic cutbacks and financial problems. Late last year, Commerce One scaled back from 1,100 to 300 people and sold off its online marketplace. The company remains unprofitable.

Commerce One is also trying to distance itself from the wreckage of the B2B market. Other once-mighty e-marketplace companies, such as Ariba, are struggling to reinvent themselves. And some, such as Ventro and PurchasePro, have disappeared altogether.

Still, earlier troubles continue to haunt the company, said analysts. For starters, Commerce One's financial situation is rocky. The company has seen its revenue slide dramatically, from $409 million in 2001 to $106 million in 2002. In the last quarter of 2002, Commerce One posted a $279 million net loss.

What's more, the company's overall credibility is shaky, according to Forrester's Bartels. Even in the company's heyday in 2000, it was criticized for rushing out products that were not 100 percent reliable, he said.

"There is also a sense that it's a vendor which didn't focus well, didn't react quickly and didn't execute well. So their credibility is an issue," Bartels said.

Commerce One's Singh said that the company is positioning itself for long-term viability with the recent staff reductions. He noted the company's cash has grown, and the company should be cash-flow positive by the end of the year. "We think we're doing the right things to stay viable," he said.

Even if the company gets its house in order, there's a long list of new competitors to deal with. Conductor pits Commerce One against a combination of software makers, including IBM, Microsoft, SAP and others, in the markets for corporate portals, integration middleware and so-called business process management software.

Louis Columbus, an analyst at AMR Research, said the company has a tough road ahead. "The fact that they're getting more focused on a chosen segment (with Web services in the supply chain) rather than...(a) global market place, which doesn't work, is good," said Columbus. "But they have got to take some strong medicine and get some financial controls in place."