Hey Tef, B2B article in RedHerring, making me think of ICGE, and other internut plays we might discuss
B2B, where are ye?
By Peter D. Henig
Redherring.com
September 10, 1999
"Fortune 1000 companies have just finished spending a shitload of money on IT [information technology] and are only now getting around to extending the automation of the enterprise," says Brian Rutberg, director of technology investment banking for Warburg Dillon Read.
[an error occurred while processing this directive] Mr. Rutberg's thesis, that large corporations are basically still slow and pudgy when it comes to implementing cutting-edge technology, helps answer a fundamental question regarding the tardiness of business-to-business e-commerce stocks: if the Web is so hot, why are B2B stocks so late to initial public offering?
You didn't see such lollygagging when it came to business-to-consumer (B2C) companies searching for investment bankers to take their money-losing, market-share grabbing, top-line growing businesses public. Even a dog stock like Theglobe.com (Nasdaq: TGLO) floored it when it came to putting itself in the IPO pipeline, as compared to the few, if any, pure B2B plays that have ventured into public markets. Ariba (Nasdaq: ARBA) and Commerce One (Nasdaq: CMRC) have sallied forth on the B2B infrastructure side, and Chemdex (Nasdaq: CMDX) and VerticalNet (Nasdaq: VERT) have taken a whack at Wall Street sponsorship as first movers in B2B pure plays; but that's about it.
Venture capitalists are split on the B2C vs. B2B issue.
Chemdex was rewarded for braving the IPO market.
VerticalNet was one of the most successful new issues in 1999.
Yet, B2B could finally be poised for a breakout.
As Stephen Sigmund, analyst with Dain Rauscher Wessels, puts it, "The aircraft carrier has just turned and I think you're going to see a whole wave of things happen in the B2B space in the last half of 1999 and first half of 2000."
NEW SCHOOL
"In B2C it's marketing 101, with black-and-white, tried-and-true rules,"says Dana Serman, Internet analyst with Lazard FrŠres. "But in companies like VerticalNet and Chemdex, there are a thousand lessons they need to learn about a thousand different marketplaces."
Such is the distinction between B2B and B2C, sectors that, although cousins by birth, represent "completely different animals," says Mr. Rutberg.
The reasons for the delayed implementation of B2Bs are varied. Besides the traditional argument that big companies are fat and lazy, analysts say that worries over Y2K compliance and potential exposure to security gaps have contributed to B2B procrastination. However, the main reason why B2B e-commerce has yet to really explode has more to do with inexperience and uncertainty with a new way of doing business than with anything concrete.
Says Mr. Sigmund, "Corporate legacy systems and ... inertia have held back mainstream businesses from becoming Internet-enabled, while fragmented industries have barely even figured out how to centralize themselves offline, let alone online."
Put another way, it is easier to sell books on the Web than it is to extend enterprise applications in a seamless way that would include a company's or industry's back-end systems, supply-chain management expertise, and a spiffy new e-commerce model.
TURNING TIDE
For all of the delay, however, the B2B story is finally coming together -- albeit far more slowly than B2Cs did, and likely with far less mania.
"Every sector of the economy should become Internet-enabled; the issue right now is just the complexities of each market," says Mr. Serman. "Can you build an online version of Staples, and, if so, how fast?"
According to a survey conducted by management consultants PRTM, fully one-third of companies surveyed expect e-business channels to account for 20 percent or more of their revenue next year. And core technology holdings like Cisco Systems (Nasdaq: CSCO) or Dell Computer (Nasdaq: DELL) are surpassing that expectation by quickly building their online businesses, making the tech sector's market leaders possibly the best Internet plays out there for B2B e-commerce.
In fact, say analysts, B2B stocks -- if ever more than a handful emerge -- may finally bring a quantifiable measure of sanity to Internet valuations. According to Mr. Rutberg, since B2Bs will be dealing with a select group of customers who will have clear reasons for automating the supply chain, the path towards Internet profitability for this nascent group might be far shorter and clearer than for the still-foundering B2C sector.
OLD STANDBYS
That's not to say that insane valuations won't appear for a few of the more unique and industry-defining B2B plays. For example, Ariba, the new market leader for Internet-enabling purchasing systems for Fortune 1000 corporations, has been a huge hit on Wall Street, turning a 300-percent IPO gainer into even further rewards as its stock soared to a $6 billion market cap. And Mr. Sigmund still rates the stock a Strong Buy with a price target of $200, representing a 110 times multiple of estimated calendar 2000 revenues of $82 million. Why is Ariba the hot hand of B2B e-commerce? Because like any of the B2C superstars, its projected annual revenue rate could grow by 75 percent, its market for signing up more corporate customers is huge, and its business model -- connecting suppliers with buyers in corporate America's food chain -- is eminently understandable.
VerticalNet and Chemdex, on the other hand, although successful enough on their IPOs, now find themselves having to convince investors to stick with them in businesses most retail traders don't see -- like chemicals and wastewater treatment -- and most institutional money managers don't understand.
Which leads investors back to those stellar performers they've kept in their portfolios for years. Investors might suddenly be considering these as B2B Internet plays. Cisco, Dell, Oracle (Nasdaq: ORCL), and SAP (NYSE: SAP) are only a few of the tech leaders who have Internet-enabled their businesses while streamlining their corporations onto the Web and who are actively involved in setting up vertical exchanges -- think eBay (Nasdaq: EBAY) for the plastics market -- to bring the Net into their industries.
"With B2B stocks, there's a little more proving time but a hell of a lot more staying power and a hell of a lot less risk," says Mr. Serman. "As a result, they are perhaps the safest Internet bets of all." |
