B2B is Back: The Marketplace Evolution, Oxygen Finance and an Interview with Mark Hoffman (Part 3)

Please click here for Part 1 and Part 2 of this series.

Jason Busch (Spend Matters): What was the difference between Ariba and Commerce One at the time and what ultimately happened to both organizations?

Mark Hoffman (Oxygen Finance): Originally, Ariba had started out with a purchasing application. Then they tried to follow us into the marketplace sector with the acquisition of Tradex. Yet almost right after that, the markets crashed and Ariba killed their new acquisition. They shut it down and focused on the purchasing business whereas we were so marketplace-dependent, we had to keep focus on this area. Marketplaces slowed down and never really got to the revenue levels we needed to sustain our progress.

That is what allowed Ariba to survive (although not in the greatest shape for a number of years) where in our case it made sense to break Commerce One up and sell it. If I could do it again, I would have concentrated on being a pure SaaS model for Commerce One and building out models that gave us more control [over software execution]. We would have implemented quicker than what happened in all the cases had we been a SaaS model.

Jason Busch (Spend Matters): What is different about Oxygen Finance and what are the most important lessons from Commerce One to apply to this new idea?

Mark Hoffman (Oxygen Finance): What David Brown and Oxygen Finance have built is completely different than in the past. It has little to do with the marketplace concept and what Commerce One tried to create, however it does solves a lot of the issues we had around the supplier adoption for invoicing and payment. With Oxygen, the key and twist is having the buyer become the creditor (Editor's note: which also allows you to treat the discount fee, rebated back, as a source of revenue on the books for the buyer).

Once a buying organization accepts ownership of the good or service, they can drive adoption by pushing early payment financing rates down to all suppliers (or as many who want to participate) to a level where it is a no-brainer because the financing is based on the buyer's books (either funded through treasury or a third party). It is a completely closed-loop process unlike other P2P and supply chain finance approaches (think of a proprietary p-card network without banks taking a giant cut at the supplier's expense). This is what we mean by a buyer-driven model for supplier adoption. Suppliers are highly incentivized to join to receive seamless early payment.

Jason Busch (Spend Matters): Can you provide some further context here?

Mark Hoffman (Oxygen Finance): Oxygen can effectively let buying organizations execute on a "Net 10" -- or less/more -- payment strategy 100% of the time. Historically, suppliers were strung out for 30, 60 or 90 days in practice. They were stretched. With Oxygen, you can negotiate and manage a truly fair Net 10 discount program and you have the closed-loop power to enforce it every time in a bank-neutral manner. Buyers make money (they have the option to count the discount as revenue based on the model) and suppliers can get cash within Net 10. This makes Oxygen very attractive to both sides of the buy/sell equation.

This is not where we were in the Commerce One days, mind you! With Oxygen, as a buyer on the system, you can truly capture not only the discount, but also the forward-looking visibility into liabilities because of the way the model works. In short, the idea is that instead of being a discount, it could be a rebate back to the customer (revenue) and that is how we create visibility and account for it. The other really good strategy David and the team have done is create a partner model with great companies/credibility.

We are working with our partners who are among the big four consultancy practices and global financial institutions, who are doing the work upfront free for clients. Our partners are doing the work upfront free for clients based on sharing in the benefits of the long-term capture of the early payment. As a result, the buyer does not need to pay anything upfront. Nor do suppliers. The costs are captured as a fraction of savings over several-year period. The end result is you have a small company, Oxygen Finance, dealing with major players which gives us and the overall operating model immediate credibility.

At Commerce One, especially in the early going, we did not have this ecosystem nor a funding model that aligned upfront and ongoing interests (i.e., consultants made most of their money up front). With Oxygen, it is a win-win model for so many people -- implementers, suppliers, financiers, buyers, procurement, treasury, AP. Everyone gets returns over the course of a multi-year agreement.

Stay tuned as our discussion continues.

- Jason Busch

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