Changing the Face of the Digital Exchange Industry

SAN MATEO (07/03/2000) - Commerce One Inc. CEO Mark Hoffman has been a leader in educating and revolutionizing the digital exchange industry. Armed with a close partnership with SAP AG as well as a plethora of new acquisitions, Commerce One promises to continue building its lead in the market.

InfoWorld Executive Producer/New Media Katherine Bull talks with Hoffman about his vision for Commerce One and the digital exchange marketplace.

InfoWorld: How fast is the growth rate of Commerce One?

Hoffman: Two years ago, we did US$2 million. Last year we did $33 million. This year, most of the analysts have us at $220 million. That's pretty significant growth. If you look at just the people growth rate, we came into the year with about 500 people. Right now we've got above 1,300 people.So we've essentially tripled the size of the company in a kind of a six-month period. From a customer perspective, we had just a nominal set of customers last year, where now we've got 100 exchanges that we're building out alone.

InfoWorld: Some industry analysts are forecasting that there are going to be well over 4,000 exchanges by the time this space really matures. Does this mean we're going to see alternate ways of expansion and consolidation over the next few years?

Hoffman: I think there's going to be a tremendous creation of exchanges, and there are really two types of exchanges. One is a larger brand-equity company that comes in and creates a megaexchange or they get with partners and create a megaexchange. But there's just going to be brand-equity companies creating exchanges and then the dot-com companies coming into other vertical marketplaces.

InfoWorld: What kind of a role will Commerce One play as an integrator of all these exchanges?

Hoffman: Today we're building all the exchanges, quite frankly. We've got 100 exchanges, and Ariba and Oracle have a couple between them. They say they have more exchanges, but I don't know what they're calling an exchange. In any of the large or the mega-verticals, Ariba is not playing at all. We don't even see them in these exchanges. Oracle is in almost all of these exchanges because of the coverage they have in competing for them. We've obviously won the bulk of the business in all that exchange side. We're very aggressively going after the exchanges that we've already brought about and we're very aggressively going after a whole set of new exchanges that are out right now. And so the growth is going to be tremendous there.

Our architecture has the ability to tie all these exchanges together into an integrated entity that we call the Global Trading Web. It's a very powerful thing when you can really have exchange-to-exchange communication. [For example], you can come on the on-ramp here in the U.S. and communicate with our exchange over in Germany and be able to talk to suppliers in Germany in a seamless fashion. We think that has tremendous powerAnd also, therefore in value, as more and more of these exchanges plug into the Global Trading Web, the whole Web becomes more valuable. As so that's what we're trying to drive is, obviously, participation in the Global Trading Web and growth of the Global Trading Web as quickly as possible.

InfoWorld: As the traditional brick-and-mortar companies fight it out with start-ups for dominance in this space, what type of company do you think has the strongest edge?

Hoffman: It depends on how their niche is laid out. If you've got a large exchange, like the auto exchange or the aerospace exchange, the brand-equity company has the edge because it has such pull-through and the suppliers are paying attention to them in this marketplace.

I do think there are certain companies in the dot-com area that will be strong as well. So it's going to be a mix of strong companies.

InfoWorld: How hard is it to get an exchange up and running?

Hoffman: To get the exchange up itself and running is a relatively simple thing: getting the software installed, the exchange up, figuring out where all of this stuff can execute. For your own personalized Web page, you can probably do all of that in 60 to 90 days. The harder part are the business arrangements.

How do you automate your own spending within the company? How do you go out and recruit the suppliers? How do you get the supplier's content and get that content into transactionable form? It's not technically difficult, but it's hard work.

InfoWorld: What does Commerce One do to help people get their exchanges up and running?

Hoffman: First of all, we bring more than just the software itself: We bring a lot of services around the business. We have great knowledge on that side of the business with all these customers that we're getting set up. We also help them deploy their applications within their company. Now on all these things, we do some of it, but we also like to work with our third-party partners, like PricewaterhouseCoopers.

We have a content factory now down in San Diego to help, just to get the supplier's content categorized right and cleansed, and all of those types of things. We have a pretty broad set of areas.

InfoWorld: A few years ago, the conventional wisdom was how the ERP [enterprise resource planning] vendors would dominate the business-to-business e-commerce space. In your opinion, what has changed?

Hoffman: I've always said that this is a very heterogeneous market. SAP has got to plug in to Baan; Baan has got to plug in to PeopleSoft; PeopleSoft's got to plug in to any number of other operating systems. I think its really important for an electronic-commerce provider to be an independent provider in this marketplace because it needs to communicate with everybody in a seamless fashion. The ERP systems are still very, very client/server-oriented and ASP [application service provider]-oriented, and they have a big job to move into the Internet area.

InfoWorld: Do you think that the ERP vendors will attempt to play in this market by building suites that include digital exchanges?

Hoffman: Right now, I can do it with or without their cooperation. Obviously, PeopleSoft, and SAP are now partners of mine. Oracle is Oracle. And we use kind of third-party vendors to plug into them. It could be Neon, it could be Cross World, I don't really care. And so they can either cooperate with me in plugging into the exchange or they can compete against me and I can still get to their purchasing applications, I can still get to their ERP systems, whether they're helping me or not.

InfoWorld: Right now there are procurement applications, sell-side e-commerce applications, and digital exchanges. At what point do you think we'll see some consolidation take place?

Hoffman: We've actually already seen consolidation, as far as the exchange market is concerned. If you look at it right now, I think there are probably three competitors in the marketplace. And that's Oracle, the IBM i2 consortium, and Ariba. And then [there's] us out in the market, and there's nobody else really building exchanges or ever in [these] exchange business.

InfoWorld: There's a school of thought that says that an exchange is really just a portal with a transaction attached. Is it that simple?

Hoffman: It's not that simple. That's the right concept, but there's a lot of software behind that. You have to ensure that there are all the abilities, such as robustness, scalability, and reliability. For example, if you do a transaction over the Internet, the Internet can just drop you in a [business-to-consumer] transaction, but that just can't happen in a [business-to-business] transaction. It's much more like a two-phase commit in the database world. You have to ensure that these transactions get completed, or they get backed up.

InfoWorld: So where is all this work going to end up?

Hoffman: We look at it at the highest level. We talk about automating the intercompany transactions, so all the things that go on between companies.

We've built this transaction engine, this XML communications engine to be able to drive any transaction. So buying and selling is one transaction, and auction, invoice, and payments are other transactions. There are literally hundreds of these services that are going to tie into these exchanges. I see the growth right now is on the base exchanges, but we're also seeing a huge demand for as quickly as possible integrating as many services as we can into these exchanges.

InfoWorld: What's your biggest challenge these days?

Hoffman: The growth of the company is the biggest challenge: the operations, recruiting the people. From the market side,we're still out doing missionary work, particularly on the supplier side of the business. And so we've got to educate the supplier that there's a huge benefit for them coming in and participating in these exchanges, too.

Right now, a lot of them just kind of look at it as, gee, the buyer's going to come in and beat me up and drive my prices down. But in reality, the only way [he can] do that and keep the supplier's business is if the supplier achieves efficiencies and then passes those efficiencies onto the buyer at some point in time. It's easier than it was a year ago, and a year from now, it's probably not going to be a problem at all having to educate people because they'll just know kind of what's going on in these areas.

Mark Hoffman, Commerce One

Age: 53

Title: CEO

Biggest successes: Being the leader and visionary in business-to-business e-commerce; brokering acquisitions that add technology excellence to Commerce One's product lineKey challenges: Growing the company and continually adding new features and services to Commerce One's current product offeringsPersonal note: Enjoys skiing, reading, and great wines.

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