2 January 2004 Online auction software supplier FreeMarkets is to acquire the online procurement assets of Covisint, the online automotive exchange set-up by Japan’s Nissan and the big three US car makers in February 2000.
Under the terms of the agreement, concluded on 31 December, FreeMarkets will provide long-term sourcing services to DaimlerChrystler, General Motors and Ford Motor Company, while Covisint will concentrate on portals and data messaging services for the automotive business.
“The sale of our auction services to FreeMarkets is a logical and evolutionary step as we continue to focus our strategy on the Automotive Industry Operating System and delivering supplier management portals and data messaging services,” said Covisint CEO Bob Paul.
Under the terms of the deal, FreeMarkets can expect a guaranteed revenue stream from the big three for at least the next three years.
When it was founded, Covisint was expected to dominate the car parts supply industry, helping car makers to drive down the price of components by using online procurement methods, such as reverse auctions.
Covisint was originally forecast to handle some $240 billion of sales of car parts every year, generating about $5 billion in revenue in the process.
But the co-operative venture encountered a number of unexpected challenges. First, building the software proved to be more difficult than originally envisaged.
When it did get up and running, the company found that many component suppliers were reluctant to work with Covisint, fearing that it would lead to further commoditisation of their business and even tighter margins.
Nevertheless, since it opened up in January 2001, some $120 billion of goods have been traded over the network, although annual revenues are running at only about $60 million.
Paul is one of a string of CEOs that Covisint has had in its short, but turbulent history. He took over in June 2003 after his predecessor had been in the job for just one month.