Ariba vs. Commerce One
The Commerce One Argument

Dueling Fools
Introduction
The Ariba Argument
The Commerce One Argument
The Ariba Rebuttal
The Commerce One Rebuttal
Vote Results
Flashback: iVillage
Discussion Board

Ariba

Commerce One

By Mike Trigg (TMF Tonto)

Although certainly not the first time, tweaking this week's segment of the Dueling Fools to include both Ariba <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARBA)") else Response.Write("(Nasdaq: ARBA)") end if %> and Commerce One <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMRC)") else Response.Write("(Nasdaq: CMRC)") end if %> affords the excellent opportunity to better understand each company and, more importantly, their fundamental differences. Indeed, the debate of who's top dog in the business-to-business (B2B) space has received much hype and attention, resembling such storied battles as the "Thrilla in Manila" and "Battle of the Sexes."

While it's important to compare these two distinct business models, the same can't be said for their financial performances, though many (including Paul) still do. Only time will tell who is ultimately declared B2B champion of the world, but -- based on its marketplace leadership -- this Fool thinks Commerce One is well on its way to declaring, "I am the greatest!"

Commerce One provides software and services that enable electronic collaboration to buy, sell, or make markets. Its flagship offerings include a procurement application, a market-making platform, and a host of value-added solutions.

However, that sounds like Ariba as well. To understand how these companies differ, let's begin with how each defines an e-marketplace, as Chairman and CEO Mark Hoffman did in Commerce One's third-quarter conference call. According to Hoffman, an e-marketplace is a destination on the Internet built on a commerce platform that brings diverse companies and other e-marketplaces together to conduct e-commerce -- and not, as the Ariba model might lead you to believe, the implementation of an e-procurement application that might or might not be linked to an e-marketplace.

How does Commerce One make money?
Thus, when using Hoffman's definition, it is clear Commerce One is out front, grabbing significant market share and powering the premier e-marketplaces in nearly every major industry space and region of the world. For further evidence of this, Hoffman pointed out several of the company's mega-exchanges' market shares, as a percentage of combined revenues among Global 1000 companies in their respective vertical industries.

These marketplaces, coupled with the remaining 102, make it clear that Commerce One is out to an early lead over Ariba in terms of building e-marketplace infrastructure. All the same, I'm sure Paul will go to great lengths to argue that this combined market share does little to guarantee sizable revenues for Commerce One, so let's examine for a moment how this company makes money.

First, Commerce One generates what I call "infrastructure revenues," which basically entails bringing buyers and sellers together to build an e-commerce platform, providing the stage for transactions to occur. However, the sweetest part of the deal is that organizations like the ones above will offer a host of other revenue-generating services -- including transaction and auction services, logistics, and authentication -- from which Commerce One receives a cut. Are these revenues, known as network revenues, too good to be true? Not quite.

Paul's perceptions
Of course, one need only revert to Paul's Rule Breaker articles on B2B to get an idea of what his qualms with this model are. Take Covisint, the auto exchange listed above, as an example. Paul would have you believe that all the buying power within the marketplace is concentrated among GM, Ford, and DaimlerChrysler, and that those companies control the supply chain. Thus, because the companies have the alleged power, when the time comes to make tough decisions the companies will protect themselves first and their suppliers next, leaving Commerce One out in the cold.

However, that notion is completely wrong because it ignores that, not only is Commerce One enabling Covisint to establish a marketplace for its suppliers, it is also doing so for the suppliers of Covisint's suppliers.

While procurement is a significant service offering, a host of other services are also made available. Hence, Commerce One is building an infrastructure of thousands of buyers and suppliers, and is receiving portions of the network revenues created from that infrastructure. It is creating a horizontal marketplace, where the power is in the numbers and not in the hands of a few.

All of this sounds good but, as Jerry Maguire might say, "Show me the money." Ariba's been at the game a little longer, and the fact that its business model focuses more on up-front revenues has made it the more desirable choice among investors.

I've already made mention of the unfair financial comparisons these two companies often endure, given that it is still very early in the game. In fact, in his recent StockTalk with Commerce One CFO Peter Pervere, Paul began to question the companies' respective network revenues. In the recent quarter, Commerce One posted $10.1 million in network revenues, a 44% sequential increase, compared to Ariba's $20.1 million.

Comparing these two figures might make one think Commerce One is struggling compared to Ariba in the area that it's banking on, network revenues. However, the two numbers are composed differently. Pervere pointed out in the StockTalk that, while Commerce One has been able to generate 100% of its network revenues from actual marketplaces, Ariba has done so carving out license and maintenance service fees. So, the comparison is completely erroneous.

At this point, what we do know is that Commerce One is clearly ahead of Ariba in building infrastructure for "real" e-marketplaces, whether mega-exchanges, regional exchanges, or in vertically oriented Net-market making. As these exchanges continue to gain traction, Commerce One's network revenues will increase substantially, leaving Ariba in its wake.

The Ariba Rebuttal »