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Procurement-software vendors look to the sell side

Commerce One's battle with Ariba Technologies may come down to who serves the supplier market better.

Commerce One and Ariba Technologies are waging a pitched battle in the market for systems that automate billions of dollars of routine purchases for corporate America.

This fight goes beyond selling paper clips and airline tickets. It's part of a larger effort by many vendors seeking to help companies put catalogs, purchase orders, and approvals online. The goal: save time and money. Vendors estimate companies spend between $40 to $100 per purchase order, which usually goes toward processing paperwork.

Despite a couple of years of hype about the advantages of online procurement, only now are a significant number of customers using the systems, analysts say.

"The vendors have concentrated on wooing buyers, but they need to make it easier for suppliers to move online," said Varda Lief, e-commerce analyst at Forrester Research>

Adds Tim Minahan of Aberdeen Group: "While the value of Internet procurement has been bandied about, the actual number of installed customers is not very many."

Now Ariba, Commerce One, and a host of other vendors are paying more attention to the sellers.

Ariba made the first move this month, announcing that it would take over the costly task of keeping product catalogs up to date by launching as a catalog-hosting operation. But purchasers still needed to buy Ariba's software to be able to participate.

Today, Commerce One responded by launching, which requires only a Web browser, not Commerce One's software, to make purchases. Commerce One will run the U.S. purchasing site, hosted by MCI WorldCom, but it announced partnerships with British Telecom for Europe and NTT for Japan to run similar marketplaces there.

Commerce One also is opening up to allow rival makers of procurement software to tie into the Commerce One site. The first to announce that its customers can use is Right Works. Users of enterprise resource planning (ERP) software from giant SAP, an investor in Commerce One, also can purchase from Commerce One's site.

"We intend to layer on additional services," said Commerce One CEO Mark Hoffman, former CEO of database software firm Sybase. "We had intended to do it all ourselves, but now we're going to partner."

By opening its system to other vendors' software, Commerce One is signaling that it's willing to live on transaction revenue alone, which Hoffman puts at about $1 per purchase order.

"They are moving away from a predominantly license model to a predominantly transaction model, and that's going to be telling for how the company develops in the future," said David Baltaxe, e-commerce analyst at Current Analysis.

Commerce One will continue to sell its software to larger companies, enabling them to link procurement to other back-office applications like accounts receivable, shipping and receiving, and ERP systems. The Commerce One software also automates purchasing rules and approvals within the buying organization.

With the Web purchasing sites, Ariba and Commerce One are taking over one of the most difficult tasks in online purchasing--keeping supplier catalogs up to date with negotiated pricing and availability.

"By outsourcing [catalog management], you can significantly increase the number of supplier organizations that can participate in Internet procurement," said Aberdeen's Minahan, noting that vendors for equipment maintenance mostly aren't online.

Online procurement aims in part to steal customers from electronic data interchange (EDI) companies like Sterling Commerce or GE Information Services, which run secure private networks called VANs or value added networks.

EDI systems are expensive to set up, but companies that already have them often want to stick with them to recoup their investments.

They'll continue to hold onto that investment for some time, Minahan said. "The big move is the migration of those suppliers that are not e-commerce-enabled in any fashion," he added.