Case studies at the Center
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Subject:
Covisint sets high standards in the way companies do business
Learn why the world's largest B2B exchange is the largest
August 3rd, 2001
By David Berkowitz, eMarketer
Covisint can't avoid media attention. The story of the automotive industry's global e-marketplace is filled with all the hallmarks of an ongoing saga for the trade publications: the backing of three of the world's largest companies (General Motors, Ford and DaimlerChrysler), a lengthy search for a CEO (that ended in April when they welcomed former TheStreet.com CEO Kevin English) and some surprisingly high volumes of early transaction activity. Covisint's market is also one of the most welcoming to online exchanges.
On the heels of news about the company's recent global expansion, eMarketer exchanged words with Shankar Kiru, Covisint's director of business development:
eMarketer: To start off, Covisint has a new presence in Asia.
Shankar Kiru: Yes, As of July 18th, we announced our headquarters in Japan.
eMarketer I was reading a survey from IDC quoted in eMarketer's most recent "eCommerce: B2B Report" that says Japan has the lowest percentage of companies with knowledge of e-marketplaces. It also ranks on the low end of countries participating in these exchanges. How can Covisint help to improve on that?
SK: If you look at the biggest automotive presence in Asia, you're talking about companies like Honda, Toyota, Nissan and Mitsubishi, some of which are really affiliates or subsidiaries or have some relationships with the Big Three here. Japan is a pretty big market. It is also a region from which we can expand to the rest of the Asia/Pacific. So, we felt entry into Asia was most logical by going into Tokyo first, and clearly the companies that I just mentioned, especially Toyota and Honda, they are not equity participants in Covisint, but they are clearly interested in becoming customers. We have a very active dialogue with those companies.
eMarketer: You just covered what would have been my next question. I was wondering who you're talking with and how that's progressing.
SK: We are not opposed to making them equity participants as well. There is dialogue going on at all levels with these companies.
eMarketer: And Covisint has stock reserved if those companies want to be equity participants?
SK: You know, those discussions are ongoing with these companies. Clearly, the decision has to be made on each situation individually.
eMarketer: Of course, your major partners are well documented. Whenever a key partner signs up with Covisint, it makes headline news. How is Covisint doing with targeting companies with fewer than 10,000 employees, companies that don't have such well known name brands?
![SK: Clearly, Covisint is not just for the big guys. We want to spread out across the entire supply chain. Our approach has been twofold to reach companies that are in tier two and below. One approach has been to get applications that the OEMs [original equipment manufacturers] and the tier ones can use to communicate with and bring in the participation of the lower tiers. An example of that is our supply chain management functionality which we call Covisint Fulfillment, where an OEM or a tier one can communicate with a lower tier -- that is, a server sitting in, let's say, a plant location that pulls in data from the legacy systems and publishes it on the web so the lower tiers can participate. If you look at that application, we've got customers that are four levels deep.](cdne-038-b.gif)
SK: Clearly, Covisint is not just for the big guys. We want to spread out across the entire supply chain. Our approach has been twofold to reach companies that are in tier two and below. One approach has been to get applications that the OEMs [original equipment manufacturers] and the tier ones can use to communicate with and bring in the participation of the lower tiers. An example of that is our supply chain management functionality which we call Covisint Fulfillment, where an OEM or a tier one can communicate with a lower tier -- that is, a server sitting in, let's say, a plant location that pulls in data from the legacy systems and publishes it on the web so the lower tiers can participate. If you look at that application, we've got customers that are four levels deep. We have over several hundred companies in the tier two and below that are participating in these supply chains. So that's one approach. The second approach is a bottom-up approach where we are bringing in applications that are on a self-serve model that perhaps have economics attuned to the lower tier companies. So, we are working on both those approaches at this time.
eMarketer: Are participants in Covisint's exchange already realizing lower costs, or will that come in time?
SK: They are already realizing lower costs. The ones that are touted in the press, and it's pretty easy to understand, are auctions and how much money people are saving. But clearly, the savings are coming from all across the board, from all across our applications. For example, our collaborative commerce applications, which include the virtual project workspace and the code management applications, they're really designed for reducing the amount of time it takes to complete a project, design a component and launch vehicles. Example in supply chain management: those applications have a four-month return on investment. Believe it or not, you go to one of the big technology companies out there, and you have to put in extensive ERP [enterprise resource planning] systems, you spend millions of dollars and your return on investment takes years. With an ASP model, with an application that is easy to install in terms of four to six weeks time, customers are able to reap these benefits in four months time. Those savings are coming all across the board, not just in catalogs and auctions. Part of Covisint, they see $36 billion worth of auctions have gone through. Really, the draw is also in supply chain management and the collaborative commerce applications we've got going.
eMarketer: And from what I've been reading, companies are even more interested in improving efficiency.
SK: That's right. Saving costs is a one-time gain. You get there, and then what do you do? You see there's no more to squeeze out of saving costs from a fulfillment perspective because as it is, this industry offers very low margins, and you have to really look at the ways to change business. And that's what Covisint's business model is about. We are about transforming the way work gets done. We are bringing in best practices that are captured in our tools, and the people at Covisint really come from the industry where they understand that those who have been looking for a technology solution now can capture that and provide it back to the industry.
eMarketer: Can you disclose anything about the fees Covisint charges for reverse auctions?
SK: We have several different fee structures. For auctions, in particular, since you raised the question, we have a per event fee with a maximum cap so that people are able to at least forecast what their expenses are going to be that are associated with the auctions. We are also able to provide, in addition to per event fees, additional add-on services. A lot of them would look for, on a full-service model, hand holding, setting up the auctions, bringing in the supplier, qualifying them. We are able to do that as well.
eMarketer: Can you at least share a ballpark figure on what the event fees would be?
SK: Actually, the numbers are something that we don't have posted on the website at this time. That information is dependent on making sure that each of the customers and the participants that go through Covisint get the benefit that they look for. There's got to be enough of a value prop. We compete against some of the best auction companies out there as far as reverse auctions are concerned, but we do that for every one of the products we've got going. So I'm not able to give you a number right now because the numbers change based on what kind of a value prop we provide to the customers.
eMarketer: Does Covisint offer a subscription package for specific hosted technologies that it's Now able to offer to its users?
SK: Yes, in fact, the supply chain management application is a hosted application, and we charge a subscription fee for it. The code management, which is an electronic RFQ [request for quote], and the product design collaboration tool, they're all on a subscription basis as well. They really allow people to expand their teams across companies.
eMarketer: Going a bit further with that, does Covisint have plans to earn subscription fees by hosting solutions for software from the tech partners it selected, or are these tech providers just recommended choices that users may opt to standardize on but use separately?
SK: That's a good question. In fact, we are seeking best of breed partners at Covisint. We are creating industry standards by selecting these partners. That's one of the props that Covisint brings because there is so much confusion in the industry, and people want to have one application, one set of training, the same look and feel, while being able to communicate data across all these different platforms people use. Covisint is standardizing on the applications that people use by selecting these key partners, and number two, we do provide hosting of applications that we select for these customers.
Having said that, for example, you may have seen that announcement for Delphi that came recently. We provided a major portal application for Delphi which we are going to use to provide for Covisint hosted applications, but Delphi will also be able to use their portal to act access their own interim applications. So, it is based on an open platform, it will be able to interconnect - clearly, Delphi has intranet and internal needs that may be complementary to Covisint, it may be something that they need in addition to what Covisint is offering, and we give them one portal to be able to access all of those applications.
eMarketer: Do you find, in general, across the world, less reluctance to join these exchanges?
SK: We have been, I would say, quite impressed with the response we've had in the marketplace. We've got favorable response not just from the US but from around the world. Our business model supports the flexibility, be it transaction revenues, subscription revenues, licensing, consulting revenues, we have a model to match their different needs. All these companies are not the same. Even within the US, if you go across the tiers, these types of companies are different, and we're able to support their different needs.
Source: eMarketer.com
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