AutoXchange, as it is called, is meant to help Ford make its $80 billion in purchases from more than 30,000 suppliers, the companies said. The new business is intended to make it easier and cheaper for Ford to obtain parts and services needed to build autos by using the Internet to bring together the companies involved.
Oracle's move comes at a time when business software makers including SAP, PeopleSoft, Baan, and J.D. Edwards are scrambling for a piece of the online supply chain market, currently exploding as demand for core enterprise resource planning (ERP) applications wanes.
AMR Research expects the supply chain management market to grow about 50 percent annually to reach $18.6 billion in 2003 from $2.6 billion in 1998.
Also today, Ford rival General Motors said it will pair off with Commerce One on a similar venture called GM MarketSite, which the automaker will use to link its suppliers and dealers with needed auto parts and services. According to Reuters, Commerce One said it will issue GM warrants to purchase up to 4.8 million shares of Commerce One common stock. The deal is expected to be finalized by the end of the year. Like Ford, GM plans to launch its venture in the first quarter of 2000.
Oracle will provide the software through Oracle Business OnLine, the company's applications hosting initiative that was launched earlier this year.
Through Business OnLine, participating companies can use a Web browser to access Oracle's supply chain software. About 50 to 100 people from Oracle will work on the project to start, providing software, applications hosting, and technical support.
"We see this as a major turn in the auto industry," Oracle chief operating officer Ray Lane said at a meeting with press and analysts today.
"There's no reason why this won't be a $1 billion [business] within a year," Lane said. "We think this is a start-up of a billion dollars inside of 18 months."
Shares of Ford's stock closed today at 54.44, down 19 cents, while Oracle's stock closed at 53 a share, up 1.81.
The companies said they plan to make money several ways through the new venture: by transaction fees paid by companies that use the exchange; by fees charged on business-to-business auctions held by auto industry companies that need to get rid of excess materials; and by advertising run on the sites.
Company executives did not say how profits would be split between Oracle and Ford, which holds the majority stake in the venture.
"Ford is going to maintain a majority ownership in this venture; however, Oracle will have the opportunity to sell software and services to a huge range of suppliers, which is really quite exciting," Andrew Roskill, an analyst at Warburg Dillon Read, said.
Today's deal is an expansion of Oracle's existing technology relationship with Ford, which currently uses Oracle's database. Oracle is also a major technology supplier to General Motors and Daimler-Chrysler.
Roskill raised the question of whether the deal will dampen Oracle's relationships with General Motors or Chrysler, though he noted that in the auto industry there are many complicated business relationships among competing companies.
Building partnerships and collecting a critical mass of buyers and sellers will be key to building a successful supply chain initiative, he added.
"We expect Ford to save 10 to 20 percent on its procurement costs [by using the network]," said Mark Jarvis, Oracle's senior vice president of marketing, in a telephone interview. "That's an $8 [billion] to $16 billion savings that will ultimately be passed on to dealers and consumers."
Lane said the deal overshadows the many new industry-specific business exchanges announced by $20 million to $30 million companies, questioning how these companies will compete against a Ford and Oracle alliance.
"I think [the AutoXchange] will crush these little companies," he said. "We are not going to faint when we see the transaction volumes that Ford is going to throw at us."
The deal is subject to negotiations before a final contract is signed, the companies said. The AutoXchange should be up and running by the first quarter of next year.
News.com's Melanie Austria Farmer contributed to this report.