A Tale Of Two E-Commerce Software Companies

One company had a leading share of the e-commerce software market before
many of its current competitors even existed.

The other went public just last year, going virtually unnoticed by most
investors in the flood of IPOs from business-to-business e-commerce firms.

Now, however, it is the latter company, Art
Technology Group
, that is emerging from the pack of
B2B e-commerce contenders, while former sector power Open Market finds
itself in turmoil and sinking fast.

Both Boston-area e-commerce software vendors released Q2 reports on Tuesday.
For ATG, it was a day of triumph as the company posted its first-ever net
profit (ATG Hits For Extra Bases), beating CEO Jeet Singh’s recent forecast of
profitability by two quarters. The company’s Q2 earnings of 4 cents per
share also made a mockery of street estimates, which called for a net loss
of 3 cents per share.

In stark contrast, Open Market’s Q2 report (see storycouldn’t have been more disastrous. Not only did the company post a
quarterly net loss (16 cents per share) that was nearly double the net loss
from Q2 ’99, its poor showing led to the resignation of CEO and President
Ron Matros after less than six months at the helm.

What went wrong for Open Market? The question should be, what didn’t go
wrong for Open Market? The immediate problem this year is
lower-than-expected sales of the company’s Transact software, which enables
companies to manage orders via the Internet. Q2 sales for OMKT overall were
$26.5 million, only 29% above the $20.6 million in the year-ago quarter.
That kind of revenue growth doesn’t cut it in a wide-open market like
e-commerce software.

ATG, on the other hand, saw revenue soar to $32.6 million, a stunning 426%
increase over the $6.2 million in sales for last year’s second quarter. Even
ATG’s sequential quarterly revenue growth (51%) easily beat OMKT’s
year-over-year figures.

But Open Market’s problems pre-dated Matros’ tenure. The company has been
steadily losing market share in the past two years to emerging players such
as ATG, Commerce One , Ariba
and others that offer competing transaction systems with greater
functionality.

Last year OMKT began repositioning itself as a provider of software and
services for e-commerce stores. It purchased content management software
maker FutureTense and in December spun out a product combining content
management features with Open Market’s own e-commerce management software.
So far, the new offering, called Golden Gate, has failed to inspire enough
customers to reverse OMKT’s decline.

That decline is reflected in Open Market’s stock price, which hit a new low
of 6 7/8 Wednesday, nearly 90% below its 52-week high of 65 1/2 set on March
9.

Not surprisingly, Art Technology Group’s ascendancy is reflected in its
stock price. Shares have been trading above $100 for the better part of
July. And though Wednesday afternoon’s price of 102 3/8 was 19% below the
all-time high of 126 7/8 set on July 13, ARTG remains one of the
top-performing ‘Net tickers this year, with shares up 60% from the Dec. 31
close. Only 12 of about 300 other Internet stocks trading since the year
began have provided a better return.

In the wake of two years that have seen loss of market share, slower sales
growth, widening losses, layoffs, aborted changes in strategy and the abrupt
departure of its chief executive, can Open Market turn things around? That’s
a long list of obstacles to overcome, but anything’s possible. Still, I
wouldn’t bet on it.

And I

wouldn’t bet against Art Technology Group, which has exceeded even my
lofty expectations when I wrote about the company last September (An Undiscovered Gem).

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