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Compuware Drives Away With Covisint

It's buying the industry portal; the big automakers who owned it will no longer have a financial interest.
Compuware Corp. said Thursday it has entered into an agreement to acquire Covisint LLC, a data-messaging service and industry portal that serves the automotive industry.

The deal, subject to customary contingencies, is expected to close within 30 days. Covisint will become a wholly owned subsidiary of Compuware. Financial terms weren't released, but Covisint officials said during a conference call with analysts and media that the big automakers that founded Covisint won't retain a financial position.

Covisint, which claims it became profitable in May 2003, was created in February 2000 as a virtual marketplace for automotive suppliers by automakers DaimlerChrysler, General Motors, and Ford. The Big Three were later joined by Nissan and Renault as well as software companies Oracle and Commerce One.

Covisint's separation from its founding members could be positive news for its future, according to Kevin Mixer, automotive research director at AMR Research, which estimates that its members have invested a total of $500 million in the company.

"The sale was an eloquent way for the owning members to distance themselves and divest their interest in Covisint," Mixer said. "This gives Covisint a chance to see if it really can survive and achieve its objective."

Some analysts suggest the acquisition was a survival tactic. Covisint came under scrutiny from industry experts in late 2000 as the dot-com boom withered and died. Some questioned its association with the big automakers and wondered if it could survive without their support. In December, Covisint sold off its auction-services business to FreeMarkets Inc., which has since been acquired by business application software provider Ariba Inc.

Bob Paul, Covisint president and CEO, who will remain with the new company as president, told InformationWeek, "Suppliers were reluctant to adopt the service because we were owned by their customers. They were nervous about what data we might share with customers, like any cost reductions we might save their operations. The auto manufacturers sometimes ask to share in those cost reduction."

Some believe the jury is still out on widespread industry adoption, but Compuware CEO Peter Karmanos sees a positive future for the combined organizations. He expects Covisint to bring in $25 million in revenue in the first year.

"Covisint could grow to be more than $100 million business," Karmanos said. "I've said this for years: Detroit and the automotive industry are the leaders in technology in this country. Not Silicon Valley. Not somewhere in Texas or at some New York software company. It's right here in Detroit."

Compuware will provide the services to run and support enterprise data centers behind the firewall. Covisint works outside the firewall to connect the data environment to let companies exchange information. Its two services include Covisint Connect, a data-messaging service, and Covisint Communicate, a portal service.

Covisint Connect, a machine-to-machine data-messaging service based on XML and business-object document standards introduced in December, was co-developed by the automotive manufacturers and the Automotive Industry Action Group, an automotive standards organization. The messaging platform acts as middleware, providing the ability for multiple partners using different transaction software to connect through a Covisint hub.

Covisint Communicate enables a company's suppliers to access applications that provide information on processing stands, accounts payable, or data on a specific project that's in the works. Prior to the sale, suppliers paid $2 to $20 per month to access the portal. There are more than 135,000 active users. It's not clear if pricing will remain the same.

Compuware executives said they plan to combine Covisint's messaging and portal Web services with their company's products to create software for automotive manufacturers and parts suppliers. There also are plans for Covisint to make a play for the aerospace, banking and finance, electronics, and health-care industries.

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