Covisint, Commerce One Make a Billion Dollar Deal
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Covisint -- an e-business developed by DaimlerChrysler, Ford, General Motors, Nissan and Renault -- Tuesday firmed up a $1.26 billion deal with ecommerce solutions provider Commerce One.
The agreement calls for Commerce One to provide the emarketplace procurement infrastructures for Covisint's online automotive parts exchange. To date, Commerce One has powered more than $1.5 billion in transactions for Covisint and its trading partners General Motors and DaimlerChrysler.
By inking the agreement, Commerce One becomes a key technology partner in the online exchange, while founders GM and Ford each receive 14.4 million Commerce One shares, which are valued at $630 million apiece. Half the shares for each company will be held in escrow until 2002, releasable to Ford and GM upon satisfaction of certain conditions. Otherwise, the shares will not be released until 2004.
Further, Commerce One will provide many of the technologies to run the Covisint exchange in return for undisclosed cash for consulting services and a share of the exchange's recurring revenue, according to Dan Jankowski, a spokesperson for Covisint.
"The arrangement with Commerce One is good for Covisint and for Covisint's customers," Jankowski said. "The importance of this relationship is it ensures that our customers get the best solutions in the marketplace."
The deal comes on the heels of Monday's announcement that Covisint has become a multi-member joint venture known officially as Covisint, LLC, with DaimlerChrysler AG, Ford Motor Company, General Motors, Nissan, Renault, Commerce One and Oracle as members. As a corporate entity, the company can now begin charging for participation in online auctions.
Both Commerce One and Oracle are getting 2 percent equity stakes in Covisint, according to Jankowski. Oracle Corp., which comes to the venture as part of its alliance with Ford, provides such functions such as database management and security.
While it is an outstanding day for Commerce One, it may not be the best for Oracle, noted Thilo Koslowski, senior analyst, ebusiness, automotive, at the Gartner Group. "It does not surprise me that Commerce One is the leader in this deal," he said. "The two companies have two different approaches. You really need to have one infrastructure in place and make sure that infrastructure can work with the legacy systems of the suppliers."
"B-to-b tech vendors like CommerceOne commonly take equity in marketplaces they power, so the structure of the deal is no surprise. The dollar amount is huge, however," observed Tim Clark, senior analyst, Jupiter Research. "The deal clearly signals that CommerceOne, not Oracle, is Covisint's as its key technology partner. But don't be surprised if Oracle checks in soon with its own cross-investment deal."
The establisment of an online auto parts exchange is significant because it represents a new and different way of linking technology companies with bricks and mortar companies, noted Lisa Williams, an analyst with The Yankee Group. "For 30 years the software industry had one business model: sell lincenses and install software at the customer site," she said.
"Now, we are deploying software meant to be used over the Internet by multiple companies with new and exotic ownership provisions, even extending to customers owning a bit of the software company itself, and the software company, in turn, owning a bit of the marketplace.
"Covisint is not just an experiment to see how automotive companies can better manager their supply chain," she said. "It is an experiment to let us see what the future of the software industry might look like."
Covisint also levels the playing field within the auto exchange arena, noted Rico Digirolamo, Covisint interm CEO."We are moving forward and we are poised to address smaller suppliers and get them signed up with us," he said. "We are prepared to get the suppliers on t