When tough times demand tough decisions

As chairman and chief executive of business-to-business software maker Commerce One, Hoffman is at the helm of a company feeling the weight of an economic downturn and sluggishness within its own market.

As one of the co-founders and former chief executives of Sybase, Hoffman managed the company's dramatic growth from a software start-up to the No. 2 relational database management-system maker and sixth-largest independent software company in the world.

Tapping that experience, Hoffman has led Commerce One to become a major player in the business-to-business software sector and a strategic partner of one of the largest software companies in the world, SAP. He also has had to make tough business decisions to trim his company as it navigates through the current economic turmoil.

In a recent interview with CNET News.com, Hoffman described his company's growing relationship with SAP and explained why he believes Commerce One can survive the market slump.

Q: How would you assess the current high-tech downturn, and how long do you think it will last?
A: I think you are already seeing some early signs of better conditions with some of the statements last week from Intel and others regarding the PC business. But even as the market recovers, companies are still focusing squarely on investing only in technology that delivers clear, almost immediate return. This is the reason there's been what we'd consider short-term pressure on the development of public e-marketplaces.

Companies are much more comfortable implementing Commerce One's auction capability or an e-procurement application right now because the results are so immediate. Six months ago, customers had a much longer-term view and were willing to make investments in a public exchange that might take six or eight months to construct, but ultimately provides a far greater long-term benefit and return.

You have trimmed your staff and received more backing from SAP. What else can your company do to weather the economic turmoil?
The most important thing to do in any economic environment, but especially in a downturn, is to focus on making customers successful--helping them save money and become more competitive. That has always been our focus, and in spite of all the media negativity, our customers continue to see amazing results.

We've seen reports indicating that a founding member of Exostar recouped its initial investment in less than a year. At the same time, big companies such as Deutsche Telekom and Siemens are already seeing significant ROI (return on investment). Deutsche Telekom has seen a 67 percent reduction in purchasing costs, and Siemens recently ran its largest bidding event to date through its enterprise e-marketplace and generated a 20 percent savings on a $12.6 million reverse auction.

How have your belt-tightening measures been received on Wall Street?
To impress Wall Street, you have to do two things: Grow and get to profitability. To grow, we have to focus on delivering the products our customers and prospects need and on demonstrating the tremendous value they bring. At the same time, we're focused on running a very efficient organization. As we demonstrate that over the coming quarters, I expect we'll see an appropriate response on the Street.

How important is your relationship with SAP?
Our partnership with SAP is a perfect match for our enterprise strategy. What our customers are focused on is dramatically improving their ability to do deep supply-chain collaboration over the Internet directly with their partners and customers. The combination of our platform, which fundamentally enables collaborative e-commerce, with SAP's supply-chain applications delivers those key capabilities.

For us as a company, SAP provides a tremendous channel, which will be increasingly important as the economy turns around and competition gets even fiercer. That's why our joint solutions are gaining traction even in tough economic times with leading companies including Nihon Unysis, Cable & Wireless, Akzo Nobel and Reliant Energy.

Where do you see your relationship with SAP in two or three years?
We'll continue to deliver innovative joint products to address the needs of both enterprises and industries. Our R&D efforts together are, as far as we can tell, unprecedented in the history of this industry, and we feel pretty good about the products and technology we have in the pipeline together. At the same time, we're continuing to accelerate our channel strategy with SAP to leverage the thousands of SAP employees selling joint product to SAP's installed base of 13,000-plus enterprises worldwide.

Analysts say SAP has plans to purchase your company and make your product into middleware for its ERP product line. How do you respond to this?
SAP invested in Commerce One because they understand the tremendous, fundamental value of our platform for enabling collaborative commerce. They appreciate our contribution as an independent company with an open platform. While the analysts speculate, we're focused on working with SAP to expand our joint product offerings.

In what areas do you see your product footprint expanding?
We will continue to advance our marketplace operating environment, MarketSite, as the as the de facto standard for e-commerce and collaboration inside and outside the enterprise. We continue to extend the development of our XML library, which has the support of industry leaders such as Sun, Microsoft and SAP. And we'll also continue to build upon our success with marketplace applications such as auctions and collaborative procurement.

During your latest quarterly earnings report you said that despite the wider-than-expected losses, you still believe your company's vision is on target. Could you briefly explain your vision and why you think the company can survive through these tough times?
Our e-marketplace vision has always been about enabling collaboration, process automation, and e-commerce both within and between enterprises. There's huge potential for new savings and new business opportunities by moving these activities onto the Internet.

Think of it this way: ERP focused on streamlining internal business processes, which is important. We're focused on enabling and streamlining the activities between companies--where product is bought and sold and ultimately the money is made. Every company everywhere is going to need to move their business onto the Web, not just to be competitive, but to be viable. We're going to be a big part of that movement.

Where do you see your company beating out Ariba in the business-to-business software battle?
Customers want to be able to invest in e-commerce solutions today that deliver immediate ROI, with a path to richer capabilities for collaboration with trading partners long term. Our e-marketplace platform, our e-procurement platform, our applications, and our relationships with SAP and Microsoft provide that kind of immediate benefit coupled with long-term opportunities for competitive advantage. You can't get that from a one-dimensional e-procurement application company.

Where do you see your company losing to Ariba or others?
We don't. The bottom line is customer experience. We have the most amazing base of customers in the business: Boeing, GM, Lockheed, Siemens, the Navy. They're our most important resource in terms of giving us the direction to continue delivering the best e-commerce platform on the planet, and I don't think our competitors come close.

How has the push by ERP software makers into the e-procurement space affected your market?
As you know, we work closely with SAP on joint e-procurement offerings, and as the largest ERP vendor, that gives us a tremendous leg up in working with their 13,000-plus installed base. In general, though, most of the ERP approaches to e-procurement have focused on internal administration, which is fine, but it doesn't really address doing business beyond the firewall.

Our ability to connect companies together via e-procurement or an e-marketplace, on the Internet, actually enables a company to expand its capabilities to buy and sell products and services--far beyond just automating a few processes behind the firewall.

Do you believe, like most analysts, that the private exchange market will outgrow the public exchange market? And how will that affect your vision?
I think there is a lot of speculation right now about public vs. private e-marketplaces, but it all comes down to the fact that companies want to have the ability to collaborate and do business with their partners, suppliers and customers via the Web.

What we're seeing is three things. First, the industry and regional e-marketplaces are really gaining significant traction. Some of them, like Covisint, are operating with billions of dollars in transactions. And companies like Siemens are building out enterprise exchanges to do similar activities and already seeing major savings.

But probably the most interesting activity is the new class of private exchanges, like the Navy's, for example, which is connecting to the Exostar public exchange for the aerospace and defense industry. So long term, we see growth in both areas as companies build their own hubs and connect to industry or regional marketplaces to take advantages of their unique services.

Where do you see Commerce One in two years?
I think as the economy recovers and companies really start to see the ROI from e-marketplaces take off, we'll see a big push to invest in these types of strategic e-commerce systems--private exchanges, public e-marketplaces, auction applications, e-procurement, collaborative supply chain, and so forth. As for Commerce One, we'll do what we always do: focus on making our customers successful and focus on building and delivering the best e-commerce technology and solutions in the industry.

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