B2B is Back: The Marketplace Evolution, Oxygen Finance and an Interview with Mark Hoffman (Part 2)

Please click here for the first part of this series.

Jason Busch (Spend Matters): It would be helpful to start with a bit of context and history around the role of Commerce One and the evolution of the marketplace model -- and how this would ultimately attract you to Oxygen Finance.

Mark Hoffman (Oxygen Finance): Let me begin way back in the day. Commerce One started out initially focusing on the purchasing area. Then, as we began to look at how this would really work in a live environment, we decided that we had to put a dedicated box in the purchasing department to send orders directly to purchasing and to suppliers. However, this did not really work because purchasing (and AP) did not really collaborate well, things were not as networked as today, and purchasing could not maintain the box.

Next, at Commerce One, we decided to centralize the exchange of process and information. At that point, the whole concept of marketplaces and building marketplace consortia came about. Then we came out with one of the first marketplaces. Our first customer for this was British Telecom. Once we had BT, we then got Singapore Telecom, then GM and other automotive OEMs. Then we began to sell marketplaces to A&D, oil and gas, etc. These companies had come together quite quickly and formed multiple consortiums around the world. Then the world was hit with a severe downturn in the marketplace.

Jason Busch (Spend Matters): What happened?

Mark Hoffman (Oxygen Finance): As business began to slow down and 9/11 happened, the willingness of companies to be adventurous waned. The economy was very difficult and people were pulling back. Companies began to run operations in the old-fashioned way, and marketplaces stopped or slowed developing Marketplace product (based on our code) and pushing it out. Because Commerce One had a revenue share model, this hurt us. However, there were lessons in all of this.

At this time, we saw the challenge of getting suppliers to adopt solutions in a mass way (what is known as "supplier enablement" or "supplier onboarding" today). While Commerce One had developed a system that enabled a supplier to connect their PCs through the web to our marketplaces -- if you were a bigger supplier, you could integrate your systems directly with marketplaces -- back into the systems, to do this in reality was a difficult thing. We found supplier adoption was slow. It was very hard.

Jason Busch (Spend Matters): What was the most important lesson you learned in all of this?

Mark Hoffman (Oxygen Finance): Perhaps the most important lesson I learned at Commerce One was that we really did not understand the SaaS model. In reality this is what we were creating but no one called it that at the time and we were not quite there. There was no model we could point to [to follow] either on a revenue/financing or software basis. In our case, first off, we were recognizing huge chunks of revenue up front and counting on the commerce/transaction flow of marketplaces to keep financing the company and one of the big issues we ran into in our case was that we were creating marketplaces with consortiums of companies and each one had its own model. In retrospect, I would have recognized all the revenue over time. It would have been nice to have an ongoing model that had initial payments and flow-through on the marketplaces.

Second, to pursue a true SaaS model from the point of Commerce One would have required a different delivery/architecture. We sold the marketplace infrastructure to the customers and they managed the hardware and software at their location of choice. They also customized it for their vertical. It also would have required different types of individuals running the marketplace as well. Companies (within the consortia) promoted people into management positions that were "car people" or "steel people" or "airplane people" as opposed to software people. Yet building the marketplace and extending it into verticals was a software job -- you'd want someone around for business purposes, yes, but enterprise application expertise was missed and needed. A SaaS model could have solved this for the consortia.

Stay tuned as our conversation continues.

- Jason Busch

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