Oracle's new move puts rivals on guard

Oracle officially entered the fast-growing market with yesterday's announcement of Oracle Exchange, the company's open online marketplace for businesses. Oracle is now in the position to compete with smaller companies such as CommerceOne and Ariba, who helped pioneer this area of e-commerce.

While some analysts believe CommerceOne and Ariba shouldn't run for cover just yet, Oracle's offering is strong, and down the road, they will face heavy competition from Oracle.

The database software giant has the resources and, more importantly, a huge installed base of customers to compete effectively in this space against CommerceOne and Ariba, according to Scott Latham, an analyst at AMR Research. "But, should they be worried about Oracle immediately? No, but Oracle does have a well-formulated strategy," he said.

Latham added, "The advantage of the Oracles and SAPs of the world is that they have thousands of customers that can help bring a large network together because of their large installed base."

Geri Spieler, an analyst at GartnerGroup agreed that Oracle has its installed base, its set of customers, which they can use as leverage in this new area of business. But she affirmed, "CommerceOne and Ariba are the two front runners right now. These two companies are pretty far ahead."

Most analysts agree that Oracle's entrance into the space is a logical next step, especially because there's a high potential growth rate in this specific area of e-commerce.

In 1998, revenue from Internet procurement software ranged from $150 million to $155 million based on predictions made from research firm Aberdeen Group. That figure was surpassed by the first quarter of this year.

According to Aberdeen, the online procurement market will experience a growth rate of 500 percent over the next year to total $800 million, which includes software license fees, implementation fees, and first-year maintenance fees provided by the software suppliers.

"This is the hot space right now and continued to be the hottest area of e-commerce that we've seen in the past two years," said GartnerGroup's Spieler.

As previously reported, Oracle Exchange will launch by the end of this year with more than 260 suppliers of office supplies, books, computers, and temporary staffing. Electronic procurement automates paper-based processes, reducing costs and streamlining efforts in ordering routine supplies.

"[Oracle's entrance is ] a validation of our strategy," said Kit Robinson, a spokesman for CommerceOne. "It's a validation of the direction that we've already pioneered. We really believe that customers' requirements for e-commerce are going to require independent e-commerce vendors because it's a very different model than an enterprise resource planning model. Enterprise resource planning is about linking internally, whereas e-commerce is about linking buyers and sellers."

He added that Oracle Exchange won't be available until the end of the year or next year while CommerceOne has 27 customers licensing its software and 14 customers "doing thousands of transactions every month."

On top of the leg up Oracle has with its huge installed base, analysts say that Oracle Exchange also shows strength in its analytic capabilities.

"They bring some additional functionality to the table that moves Internet procurement beyond the initial phase of Internet procurement, which includes ordering and automating internal workflows surrounding procurement," said Tim Minahan, an analyst at Aberdeen. "It provides a high level of strategic analysis and decision support tools, which are critical in going forward. It has the ability to give a better read of exactly what you're spending, who you're spending it with, and on what particular products."

Minahan added that Oracle's "definitely going to get some traction within their existing customer base. It's not something to be snuffed at or overlooked. By no means CommerceOne and Ariba should take it lightly."