BUSINESSWEEK ONLINE : JUNE 5, 2000 ISSUE
BUSINESS WEEK E.BIZ -- SPECIAL REPORT E-Marketplace: Covisint Covisint, the e-marketplace of GM, Ford, and DaimlerChrysler, illustrates how tough it will be for big companies, with big executive egos, to put aside their rivalries for the common good. Beset by warring software providers and suppliers wary of getting hammered on price, this buyer-driven marketplace will have to demonstrate benefits for all players involved if it's going to fly. Ever since last November, when archrivals General Motors Corp. and Ford Motor Co. each started their own Internet auto-parts marketplaces within days of each other, the two had been duking it out, trying to get the upper hand. It wasn't long before they realized there might be no winner in this particular battle. Just after the holidays, major suppliers complained about having to deal with multiple marketplaces, threatening to form their own. Shortly after, according to sources, GM insiders convinced Raymond J. Lane, president of Oracle Corp. (ORCL), Ford's software partner, to plant the seed of a combined exchange with GM purchasing czar Harold R. Kutner. Still, it took a real outsider to persuade them to do the unthinkable: holster their guns and join forces in a single exchange. At separate dinners with each company in Detroit in January, advisers at Morgan Stanley Dean Witter (MWD) raised a tantalizing prospect: By combining forces, they could instantly create the world's largest B2B enterprise, worth up to $10 billion on the stock market within five years. Morgan launched its pitch in earnest at a Feb. 1 dinner with GM's top executives, including Kutner and President G. Richard Wagoner Jr. Meeting at the swanky Townsend Hotel in the Detroit suburb of Birmingham, Morgan advisers argued that auto makers and their suppliers could use the Web's power to strip out billions in costs. And by charging transaction fees for both companies' $600 billion in annual purchasing, the exchange could bring in billions in new revenue. The day after the GM dinner, says Morgan analyst Charles Phillips, Ford CEO Jacques A. Nasser phoned Wagoner to talk turkey, and they never looked back. Within three weeks, they pulled in DaimlerChrysler (DCX), and the deal was done. On Feb. 25, they trumpeted their plans to build a huge industrial trade exchange. Crowed Kutner: ''This kind of fast decision-making is historic in the industry.'' If only making an e-marketplace were as quick and easy as signing the deal. Before the ink was dry, the problems began--starting with a lack of clear leadership. The marketplace has four CEOs: Interim CEO Tom Colberg from PricewaterhouseCoopers, plus co-CEOs Peter Weiss from Daimler, Alice Miles from Ford, and GM's A. Alan Turfe. Sources say that execs from the Big Three auto makers are such fierce rivals that basic decisions spawned lengthy debates. Just choosing a name took nearly three months. Officials admit it hasn't been smooth. ''I don't want to paint this as some utopian lovefest,'' says Ford veteran J. Kevin Vasconi, the exchange's chief technology officer. Not surprisingly for a Net project, technology conflicts arose almost immediately. Ford had settled on Oracle for software to run its exchange, while GM had chosen upstart Commerce One's (CMRC) marketplace software. Although they're supposed to work together, ''they haven't gotten down to how they're going to execute all of this,'' says Carl Lenz, research director with Gartner Group Inc. Then DaimlerChrysler began asking why SAP's software, used in its plants, couldn't be employed. FTC worry. The conflict was almost guaranteed even before the two exchanges joined. At the start of negotiations, the auto makers excluded Oracle and Commerce One Inc., and they weren't brought in for at least a week after the deal was done, says Kevin Schick, vice-president of product marketing at Commerce One. To make matters worse, Commerce One Chairman Mark B. Hoffman and Oracle Corp. boss Lawrence J. Ellison have been dire enemies ever since Hoffman ran Sybase Inc., which nearly capsized trying to battle Oracle. And whichever company's technology dominates stands a better chance of getting lucrative business from auto-parts suppliers--forcing them to keep fighting. ''The company that has the dominant exchange will score a huge marketing coup,'' says one insider. Since the deal was signed, says one adviser to the exchange, management of the e-marketplace has decided several times to settle on Commerce One technology. Each time, Oracle has complained, so the debate continues. And it won't get easier anytime soon. Commerce One and Oracle will have to work together to write the software that will link the entire supply chain, from the auto makers to the suppliers to the dealers. ''They can handle basic procurement,'' Phillips says of their software. ''But the supply-chain capabilities are still on the come. That will take a couple years.'' Covisint's challenges didn't end with techno-squabbles. In late March, the Federal Trade Commission began sniffing around. Its concern: The combined purchasing power of the auto makers could be anticompetitive for suppliers. The FTC is expected to take at least three months to review the exchange. Miles says Covisint will be ready for business the day after that, but the probe may have derailed plans to take the exchange public by yearend. Supplier backlash. The biggest pothole could be the auto makers' own suppliers. Although some of them encouraged the single exchange as more efficient for them, they still worry that auto makers might use their combined clout to force parts prices down. Indeed, analysts suspect suppliers asked for the FTC review. Frets Dennis F. Wilke, a Motorola Inc. (MOT) vice-president: ''So much of the talk is about auctions and cutting costs.'' In April, suppliers took action. Dana Corp., which makes axles, had already enlisted Oracle and Commerce One competitor Ariba Inc. in early January to set up its own internal e-commerce network. But on Apr. 3, the company pulled together five other suppliers, later joined by two others, to explore the possibility of setting up their own marketplace. Says Merrill Lynch & Co. analyst Chris Shilakes, whose firm released a survey on May 1 that publicized suppliers' deep concerns: ''It's possible some of these suppliers could take their marbles and leave the playground.'' To calm the waters, Kutner and exchange brass sent a letter to 25 suppliers in late May, imploring them to participate, and Covisint will offer them financial incentives to join. If they don't play along, the exchange won't have the industrywide reach it needs--which could stall it before it even gets started. Meanwhile, other auto makers were getting the willies, too. On Apr. 12, Volkswagen declined to join the exchange, announcing plans to do its own. Kutner personally visited Toyota Motor Corp. in Japan in April. Toyota sent GM a letter dated Apr. 27, saying the company will participate in the exchange--but won't commit to buying an equity stake. Concedes Kutner: ''There's no way we'll satisfy the egos of every player.'' Analysts say the lack of full participation could make the exchange less effective globally. For now, Covisint's troubles aren't crippling. The software companies are feverishly developing the technological underpinnings. Ford is moving ahead on its own exchange. And the tens of thousands of transactions already moving through GM'S existing exchange every week should help jumpstart Covisint when it's time. The key is getting a strong management team in place. It's unlikely anyone will commit until the FTC review is done. ''They have a lot of problems because they're managing this by committee,'' says Deutsche Bank analyst Rod Lache. So it may be awhile longer before the Motown marketplace gets rolling. By David Welch _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Who Will Profit from the Internet Agora? TABLE: Internet Marketplaces CHART: E-Market Pace E-Marketplace: Covisint E-Marketplace: eLance E-Marketplace: MetalSite INTERACT E-Mail to Business Week Online

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