March 14, 2005

In his make-shift Santa Clara offices, Commerce One CEO Mark Pecoraro keeps a relic from the go-go days of 1997-1999: an oversized artist's rendering of the four-building, 780,000-square-foot campus that Commerce One planned to erect as its world headquarters in Dublin, just a few years ago.

Those were the days when Commerce One Inc. was a 4,000-employee behemoth with more than 80 offices worldwide and a market cap of $21.5 billion.

Then came the high-tech crash and the e-commerce software maker's well-documented decline, which finally culminated in Commerce One's widely expected bankruptcy in October last year.

But rather than spelling the end of Commerce One, the bankruptcy gave the long-ailing company a second chance.

Emerging from bankruptcy court in December as Commerce One LLC, the new, privately held, 30-employee entity is backed by two large investors and, as a result, is "fiscally stable" for the first time in years, says Pecoraro.

Moreover, Commerce One still boasts an active customer list that would be the envy of most companies its size.

After more than a year of gypsy-like shuttling around the Bay Area, the company will move back permanently to the Tri-Valley by next month, into a 9,000-square-foot sublease in San Ramon's Bishop Ranch business park.

And after years of shedding employees, Commerce One is starting to hire again.

"We're back, and we're in the game again," said Pecoraro. Gone is co-founder and longtime CEO Mark Hoffman, who resigned in October and reportedly planned to focus on his philanthropic activities.

Pecoraro, who worked for Hoffman at Sybase Inc. and served as CEO at another software company before joining Commerce One in 2001, said he has not spoken to Hoffman since October.

"I respect Mark Hoffman for pursuing his vision. He chose a high-risk, potentially high-reward strategy," he said.

That strategy started off modestly enough. In 1994, a small father-son software firm, DistriVision in Concord, began creating electronic product catalogs on CD-ROMs.

Hoffman, who had just left Sybase, a firm he founded, saw the potential to put those catalogs on the Web and turn them into virtual marketplaces.

Joining as CEO, Hoffman changed DistriVision's name to Commerce One, which soon began attracting heavy interest as analysts predicted trillions of dollars in business-to-business e-commerce.

The company went public in July 1999 at $21 a share, a price that eventually peaked at $330.

At its high in 2000, Commerce One's flagship Supplier Relationship Management, or SRM, business brought in all of the company's $401 million in revenue that year.

But the e-commerce downturn, along with the aborted merger with erstwhile partner SAP AG, led to mounting losses, including one brutal quarter in 2001 when the company lost $2 billion.

In hindsight, Commerce One might have saved itself if it had chosen to make mass layoffs early.

Its chief rival, Ariba Inc., did. The Sunnyvale company still thrives, and has nearly 1,700 employees today.

Instead, Commerce One's management made a last-ditch effort to save jobs and the company by shifting its resources into a speculative new Web services product called Conductor.

"Two years ago, Commerce One made a conscious decision to focus on the Conductor strategy and let the SRM product atrophy," said Pecoraro.

But Conductor turned out to be an overly ambitious, me-too effort that ran headlong into established offerings from IBM Corp. and BEA Systems Inc.

Hoffman was forced to keep shedding jobs. By the time it became clear in early 2004 that Conductor was going nowhere, Commerce One had nearly run out of its $300 million in cash.

At that time, Hoffman brought on two funds, ComVest Investment Partners of New York and DCC Ventures of Minneapolis.

Rather than taking shares in the firm, the funds became its largest creditors.

That allowed ComVest and DCC to acquire the long-neglected SRM division in September just weeks before Commerce One Inc. finally declared bankruptcy.

That company, which still trades over-the-counter at 16.5 cents a share under the symbol CMRCQ.PK, will soon close, said Pecoraro, who says the entity he runs is "totally independent."

In a December conference call aimed at Commerce One customers, Larry Lenig, a partner with ComVest, said the company's new owners "believe" in the SRM software and plan to support Commerce One for at least five years.

"This is a great team with good technology and a significant group of loyal customers," he said.

"We think that sort of talent and enthusiasm ought to be rewarded."

Despite its protracted decline, Commerce One still has 40 customers. Hundreds more companies use its technology.

Customers are coming back for the first time in years. Novelis Corp., an $8 billion Atlanta maker of aluminum foil, signed up in February.

"They are good tools," said Kit Campbell, global e-business manager for Novelis, who figures the Commerce One software will help save Novelis 64,000 man-hours a month in manual keystroking and paperwork.

"If you look under the covers of many of the industry market Web sites, you'll see Commerce One."

Pecoraro says that is why he kept the Commerce One name, however tarnished it may seem locally.

"Getting your first 10 customers is really tough," he said. "Getting your first $1 million in sales is really tough. Developing a globally known brand name - how many startups ever achieve all three of those milestones?"

Still, a resurrected Commerce One faces many of the same formidable obstacles that dogged its earlier incarnation.

"It's a risk-averse buying climate, so many companies will steer clear from Commerce One in the short-term," said Bob Wright, a principal with a San Francisco software market consultancy, Marketing Arts.

"Because they have lots of baggage, they will need to carefully manage market expectations and under-promise and over-deliver."

At the same time, Commerce One must move quickly to regain momentum, lest it sinks back into obscurity.

"Fast results wash away a lot of past sins," Wright said. "Therefore, they need a concentrated, focused relaunch effort to accelerate traction in the market."

That is priority No. 1 for Pecoraro, who says that since December Commerce One already has released an update to its SRM software.

By June, the company will unveil its product road map.

"We were caught up in the hype," Pecoraro said. "Now we're in a turnaround."

Source: East Bay Business Times