Covisint Technology Partners Sign Equity Agreements

It took two months of wrangling and seven teams of lawyers to sort out the complex equity structure at Covisint LLC, according to company officials. The bickering among the exchange's backers underscores the challenge of getting such a massive operation under way, analysts said.

"The verdict is not out yet on online marketplaces. Which ones will succeed and when is still up in the air," said Dan Garretson, an analyst at Forrester Research Inc. in Cambridge, Mass.

The procurement exchange, launched last year by the Big Three automakers, recently signed an equity agreement in which Covisint's two lead technology partners, Commerce One Inc. and Oracle Corp., will hold equal minority shares in the Southfield, Mich.-based start-up but different stakes in its revenue model.

Competing Claims

On Dec. 12, Commerce One announced that it was the lead player in Covisint. The exchange will use the Pleasanton, Calif.-based vendor's MarketSite software to process transactions, conduct online auctions and manage catalog content.

Oracle disputed that claim the next day, contending that its technology forms the hub that applications like Commerce One's software plug into. Covisint will use Oracle's enterprise resource planning applications to run its internal operations and Oracle's Exchange Marketplace to provide security, single sign-on and registration capabilities.

Covisint officials said neither Commerce One nor Oracle holds a lead position over the other as a supplier.

General Motors Corp. brought Commerce One into Covisint, while Ford Motor Co. steered Oracle into the exchange. The two automakers originally sought to build competing procurement marketplaces but decided to scrap those plans last February. Instead, they combined their efforts along with German automaker DaimlerChrysler AG.

The exchange has channeled about $1.5 billion in procurements since October. The U.S. Federal Trade Commission and a German antitrust agency delayed Covisint from operating sooner pending antitrust probes.

Covisint's five backers, which include Japan-based Nissan Motor Co. and France-based Renault SA, said they hope to channel more than $300 billion in annual transactions through the exchange.

But Oracle and Commerce One differ in how they'll partake in the exchange's revenue stream. Oracle will receive a lump sum payment from Covisint for the licensing of more than 55 of its products. Mark Salser, senior vice president of advance technology at Oracle, said the firm would record the "large" licensing revenue in its third quarter, but he refused to reveal the size of the payment.

In contrast, Commerce One will take a share of Covisint's transaction-fee-based revenue. It's the only technology partner to receive such a deal.

Dearborn, Mich.-based Ford and Detroit-based GM also bought 14.4 million shares each in Commerce One, worth a combined total of $1.26 billion.

Kevin Prouty, an analyst at AMR Research Inc. in Boston, said it will take two to four years before Covisint begins generating profits relative to its capital and technology investments.

"Oracle is taking the short-term view of generating revenue right away," said Prouty. "Commerce One is taking a high-risk, high-gain approach and the longer-term investment."

Copyright © 2001 IDG Communications, Inc.

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