New cutbacks add to user concerns about Commerce One

Commerce One Inc.’s plan to reduce its head count by another 36 per cent is weighing on the minds of some customers as the e-commerce software vendor prepares for its annual user group meeting, which is scheduled to take place this month.

Several Commerce One users this week said the 400-worker layoff, announced last Friday by the Pleasanton, Calif.-based company, is a grim reflection of the disastrous market for IT in general and e-commerce software in particular.

CEO Mark Hoffman said in a brief statement that the layoffs “will help us preserve our cash position and focus on our dedicated customers” as well as on Commerce One 6.0, a suite of online procurement and sourcing applications that’s due early next year. Commerce One officials declined further comment until the company reports its third-quarter financial results Oct. 23.

Crystal Smith, president of the Chicago-based International Commerce One Network (ICON) user group, expressed guarded optimism about Commerce One’s long-term viability. ICON’s annual conference will start Oct. 21 in Burlingame, Calif.

“Of all the different software companies that sell e-procurement systems, I really have a lot of faith in Commerce One,” said Smith, who is the e-procurement manager at Idaho Power Co. in Boise. “We’re hoping they pull through these ugly times.”

Commerce One said the new job cuts will reduce its workforce to 700 people by Jan. 1. That’s 3,000 fewer workers than the company employed at its peak in late 2000.

“We’re hoping they can pull this off with their continual downsizing because we truly believe in their product still,” said a utility-industry procurement manager. But the user, who asked not to be named, added that he’s worried Commerce One won’t rebound and said he hopes another vendor will buy the company.

Commerce One’s revenue plummeted 78 per cent in the first half of this year, dropping from US$271.5 million in the same period of 2001 to US$59.6 million. The decline in new sales of software licenses was even more severe: that fell 84 per cent to US$15.6 million, down from the year-earlier total of US$99.2 million.

David Hope-Ross, an analyst at Gartner Inc. in Stamford, Conn., predicted that the drop-off in revenue will hurt Commerce One’s software development efforts. Hope-Ross said he doesn’t expect Commerce One’s technology to disappear. But he added that users should be making contingency plans, such as switching to rival vendors or negotiating to take over maintenance of Commerce One’s software themselves.

Ian Hollingworth, chief technology officer at Quadrem U.S. Inc. in Dallas, said his company has already started down that road. Quadrem, which runs a Web-based transaction platform for companies in the mining industry, is “a lot less reliant on Commerce One” than it used to be, Hollingworth said.

That’s because the company has gradually supplanted some of Commerce One’s software with products from SAP AG, Fairfax, Va.-based webMethods Inc. and Westminster, Colo.-based Requisite Technology Inc. Now, Hollingworth said, “when you have a revolving door like they have at Commerce One, it’s problematic, but it’s not life or death.”

Alain-Michel Diamant-Berger, manager of procurement systems at Schlumberger Oilfield Services in Houston, said the business unit of Schlumberger Ltd. has 5,000 registered end users on Commerce One’s software, making the technology a “critical system for our operation.”

So far, the Commerce One employees working with Schlumberger haven’t been laid off, Diamant-Berger said. He added that he hopes the planned cutbacks at Commerce One “will bring costs in line with revenue and help them survive longer.”

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