More Briefing.com on B2B
Unable to get the original Briefing.com B2B report from Schwab (which doesn't seem to keep Briefing.com archives), I ended up emailing the author directly, telling him how much I had liked the second and asking if he would send the first. He sent it the next day via return email. I'm thinking of telling him to check out our thread; would you guys have a problem with that? --tb
B2B Teaser
[BRIEFING.COM - Gregory A. Jones] We first wrote about the coming business-to-business (B2B) ecommerce boom back in June. At the time, however, there weren't many ways to play this boom given the lack of publicly traded B2B companies. That is already changing and will change even more dramatically in early 2000. It is therefore time to revisit B2B.
The Numbers
Before getting into the types of B2B companies, let's talk about the size of the market. We have three estimates to offer. Starting at the bottom, IDC estimates B2B ecommerce revenues of $633 bln in 2003. Forrester Research sees 2003 revenues of $1.3 tln. And finally, Goldman Sachs estimates 2003 revenues of $1.1 tln, but grabs the top spot by going out an additional year to 2004 with a $1.5 tln estimate.
Two points are important regarding these estimates. First, they represent total B2B ecommerce revenues, not the revenues which accrue to B2B companies. Those revenues will be a fraction of this total, but a fraction of $1.5 tln can still produce a very profitable business.
Second, estimate is probably too strong a word. In a market this young, you can only guess at the future. Just as early business-to-consumer ecommerce estimates proved to be far too low, these B2B guesses might also be well wide of the mark. Though the miss could be in either direction, we believe that the economics of the Net are so compelling that more businesses will be driven to ecommerce than current studies suggest.
The Players
There are four types of B2B players, only three of which are pure. There are the infrastructure companies that make commerce possible. There are horizontal portals that will attempt to create B2B marketplaces across a wide range of industries. There are vertical portals which focus exclusively on creating a marketplace within one industry. And there are procurement sites, which offer specific goods or services to all businesses.
Infrastructure
Infrastructure companies are typically not pure plays in the B2B sector. Their business models are very diverse, and they deserve mention here only because they benefit from B2B ecommerce growth.
They include software providers such as Broadvision (BVSN), Vignette (VIGN), Bluestone Software (BLSW), Open Market (OMKT), Sterling Commerce (SE), Vitria Technology (VITR), Allaire (ALLR), and Interwoven (IWOV). Though all of these companies produce software that facilitates ecommerce, they are not exclusively B2B companies, and we therefore list them in our Internet/Software industry classification.
You can also make a case for many colocation/ASPs to be in the B2B group, including Exodus (EXDS), Level 3 (LVLT), Digital Island (ISLD), and USinternetworking (USIX). And there is even a case for Internet services companies such as Viant (VIAN), Scient (SCNT), and Proxicom (PXCM). But here again, none of these companies is a B2B pure play. They nevertheless will benefit from the B2B boom.
Horizontals
This is potentially the most lucrative B2B segment, but also the most difficult in which to succeed. In the B2C market, Amazon.com (AMZN) has no difficulty being everything to everyone. Amazon can easily convince a consumer that buying books and MP3 players from the same retailer is not only acceptable, but downright convenient. But a B2B provider has a much greater challenge in developing a marketplace that is suitable to both an electric utility and a PC manufacturer.
While the task at hand for horizontals is monumental, so too are the potential rewards. It doesn't take a big slice of that $1.5 tln in revenue to justify market caps even larger than some of the more gaudy valuations already in the market.
The players in this market are few when it comes to publicly traded options. Ariba (ARBA) and Commerce One (CMRC) both qualify even though the bulk of their revenues are currently generated by software licenses. Both companies are trying to develop B2B marketplaces for their diverse customer base, making them horizontal plays.
Also in this group are VerticalNet (VERT) and PurchasePro.com (PPRO). VERT has been more successful in drawing traffic to its many industry-specific offerings, but it is largely producing revenues by selling "storefronts" rather than by creating an online marketplace. PPRO, meanwhile, is trying to create a marketplace, but lacks the software "hook" and the high-powered partnerships that Ariba and Commerce One enjoy.
Verticals
Where there is an industry, there is a vertical B2B company to fill its need. Only a few are now public, but a year from now there will be many. The vertical B2B companies are a less risky proposition than the hyper-valued horizontals, as they are focussed on one industry in which they have excellent knowledge and contacts. But along with less risk comes less upside -- the market potential for a vertical is more easily defined than is the case with a horizontal, which is the true lottery play.
Among the leading public verticals are pcOrder.com (PCOR), Chemdex (CMDX), and Healtheon (HLTH). Among those in the private ranks are Altra Energy, Arbinet, E-steel, Farmbid.com, Floraplex, MetalSite, PetroChem.net, PlasticsNet.com, and SciQuest. And trust us -- the complete list is much longer.
It should be noted that many verticals will attempt to make the transition to horizontals, by first building their brand and expertise in one industry and then taking it to a new industry. pcOrder.com is the first example, as it has now expanded from the PC industry to office supplies. Other verticals will follow, and will ultimately offer a challenge to the horizontals.
Procurement
Finally, there are what can be called B2B procurement sites. These are sites where businesses can go to purchase a specific product or service. They are not creating marketplaces, they are simply selling stuff to businesses on the Net. These include Intraware (ITRA), Stamps.com (STMP), E-stamp (ESTM), HotJobs.com (HOTJ), and HeadHunter.net (HHNT). As with the verticals, these companies have less risk and less reward. Those with inventory-based business models have even less to gain, as their margins will be closer to those of a bricks and mortar B2B company.
Just The Beginning
Look at this piece as the teaser -- an introduction to B2B. There is much more to the overall sector and the individual companies than we could discuss here. But we have defined the framework of the industry. Next we need to talk about how you make money in B2B: software licensing, transaction fees, content subscriptions, etc. Once we have the framework and the business models, we can get to the individual company stories. Stay tuned...
Greg Jones |
