Microsoft targets online exchanges in software deal

Microsoft Corp. and business-to-business software maker Commerce One Inc. announced Tuesday they will forge ahead in a partnership to build and connect electronic marketplaces based on Microsoft server software and other products that are being co-developed by the companies.

The two companies have begun tuning Commerce One's e-marketplace software to allow its network of online businesses to connect with one another using Microsoft's server software, the companies said.

Microsoft will integrate Commerce One's online exchange software with Microsoft's BizTalk Server and Visual Studio products. The first product, which will allow sellers to publish product catalogues, automate transactions, and process purchase orders and invoices over the Internet, is due out sometime in the third quarter, both companies said.

Microsoft Chief Executive Steve Ballmer and Commerce One Chairman and CEO Mark Hoffman detailed the partnership at Commerce One's eLink users conference in New Orleans on Tuesday. Commerce One first announced the deal during its first-quarter earnings call Friday. "Microsoft and Commerce One have had a strong research and development partnership, as well as technical and marketing partnership for the last several years," said Becky Kaske, director of B-to-B and supply chain strategy for Microsoft.

The two companies formalized their alliance in September and began going after joint customers using Microsoft's server tools and Commerce One's software to build marketplaces. Since then, the companies have served about 140 customers together, Kaske said. Two of the major projects include building online marketplaces for U.K.-based Asite, an online exchange for the construction industry, and Eutilia, a European marketplace for the utilities industry.

"Commerce One is going to do whatever it can to open up to a wider range of customers," said Pawan Malhotra, managing director of research at SG Cowen Securities Inc. "Microsoft is really going to help with that strategy."

One of the upsides to teaming with Microsoft, Malhotra said, is Commerce One's ability to access small and medium-sized businesses that already use Microsoft's Windows operating systems. "The deal will really open (Commerce One) up to the .Net platform," he said.

Mike Micucci, vice president of solutions strategy for Commerce One, said in a conference call Tuesday following the announcement, that Microsoft will assist with sales and marketing of Commerce One products. Through its network of 2,500 sales representatives, Microsoft said it would offer Commerce One's Commerce One Gateway for Microsoft BizTalk and Commerce One MarketSite connectivity kit for BizTalk.

Under terms of the partnership, Microsoft has also agreed to loan Commerce One $25 million to upgrade its marketplace software to run on Microsoft's .Net platform, Hoffman said last week in Commerce One's earnings call. Both companies have employed engineers to integrate the software and hardware for the past several months, Microsoft said.

The software products will make use of XML (extensible markup language), an authoring language that can be used to make it easier for businesses to buy and sell goods online, and which is supported in Microsoft's server software. The two companies said they hope the technology will gain traction among businesses and become a standard for e-commerce.

Commerce One also announced Tuesday a deal with financial giant Citibank e-business, a division of Citigroup Inc., to automate the invoice and payment cycle for Commerce One's Internet marketplace customers.

Citibank will integrate its CitiConnect Internet service into Commerce One's supply-chain software products, providing services such as global access to online financial services and foreign currency exchange. Commerce One said it will publish the architecture framework so other financial services firms can adopt the Web-based transaction service, and supplying connectivity kits so business can participate in the service quickly and easily.

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