Commerce One Turns Up Heat In Public-Sector E-Procurement

By Steve LeSueur, Staff Writer

Commerce One Inc.'s aggressive targeting of the public sector for its e-procurement solutions could spur the adoption of commercial-like solutions in the government market, industry officials said.

The Walnut Creek, Calif.-based provider of business-to-business electronic commerce solutions earlier this month established a public-sector group in McLean, Va., just outside the nation's capital. The field is wide open for e-procurement solutions, and many companies are scrambling to establish a presence in this nascent government market, industry analysts said.

"We're looking to be a dominant player in this space," said Bill Goodson, director of the new group. The company's software enables businesses and governments to purchase goods and services over the Internet, thus streamlining the procurement process and significantly reducing the costs.

Because the fast-growing Commerce One already is providing e-procurement services to the Department of Veterans Affairs, Los Angeles County, the University of California at Los Angeles and Cal State Fullerton, the creation of a public-sector office did not come as a complete surprise. Nevertheless, some analysts suggested that it signifies that e-procurement in government is about to enter a new phase.

"Commerce One will bring new capabilities and proven commercial-like solutions to the government market," said Tom Davies, senior vice president for Current Analysis, a Sterling, Va., market research company.

The first wave of e-procurement solutions in government, custom developed for single customers, are already outdated, he said. Commerce One's emphasis on the public sector "will accelerate the adoption of more standardized and commercial-like solutions," he said.

Commerce One is teaming with Andersen Consulting of Chicago to compete for an e-procurement solution in Washington, and the company has its eye on about 15 competitions in federal, state and local arenas along with higher education, said Goodson. One of his main goals during the coming year will be to establish strategic relationships with companies that understand the government market.

The company's private-sector work for large companies, such as General Motors Corp. of Detroit, should demonstrate Commerce One's ability to handle the needs of large government customers, Goodson said. General Motors, for example, spends $90 billion annually buying parts and services from 30,000 suppliers in the auto industry.

Commerce One's move serves as a response to recent public-sector initiatives by competitor Ariba Inc. of Mountain View, Calif. In December, Ariba announced a partnership with American Management Systems Inc. of Fairfax, Va., to create a Web-based marketplace for state and local governments and their suppliers.

"Ariba turned up the heat in the business-to-business competitive landscape with its AMS partnership," said James Macaulay, government analyst with Dataquest Worldwide IT Services Group, a research arm of the GartnerGroup, Stamford, Conn.

Other systems integrators and software companies are scrambling to get in on the ground floor of e-procurement. Science Applications International Corp. of San Diego, and KPMG International of Amsterdam are teaming with Intelisys Electronic Commerce Inc. of New York to provide e-procurement solutions for a number of governments. Also, Oracle Corp., Redwood Shores, Calif., and SAP Public Sector and Education, Washington, are competing in this market.

Because e-procurement is so new, it remains unclear just how much money these companies can make. The lion's share of revenue will come from transaction fees paid to the companies each time purchases are made, and no one yet knows just how quickly government users will begin using the Internet to make purchases.