More from my favorite B2B guru...(present company excluded, natch!)
B2B V: Vertical Techs
[BRIEFING.COM - Gregory A. Jones] Now that we've done horizontal, it's time to get vertical. In the B2B world, expertise and contacts within a vertical industry are critical; much moreso than in B2C, where Amazon.com (AMZN) can sell everything to everyone. As a result, many companies have focussed on a specific vertical to improve their chances of success. We begin today with the technology vertical.
Note that you can get up to speed by reading the first four parts of this B2B series.
B2B I: The Players
B2B II: The CRM Fringe
B2B III: CRM Marketing/Email
B2B IV: Let's Get Horizontal
[I'm pretty sure all these have been posted above somewhere...]
In the technology vertical, we will offer one repeat -- Calico Commerce (CLIC), which we also included in the CRM brief, because they overlap into that sector. We will also introduce pcOrder.com (PCOR). Both of these companies are primarily software developers, though PCOR also offers content. We will also discuss a few companies that could be considered vertical techs, but for now are not in this grouping.
Verticals/Technology
Calico Commerce (CLIC)
In Brief: The core product in CLIC's eSales Suite is the Configurator, which guides customers through the purchase of complex products, primarily used in B2B transactions.
Competitors: BVSN, PCOR, SEBL, ORCL, SAP, BAANF.
Customers: Generally limited to the technology vertical: CS, CSCO, DELL, GTW, NT; exceptions: MER, USW.
Financials:
Market cap: $2.1 bln
Q3 revenues: $8.2 mln
Sequential revenue growth: 10.0%
Year/year revenue growth: 54.7%
Price/Annualized Q3 sales: 65
Opinion: As we noted in CRM brief, CLIC is a hybrid CRM/Vertical with competitors in both sectors. CLIC does not match up favorably with other CRMs -- its revenue growth is the slowest, its customer base has largely been limited to the technology vertical, and its price/sales valuation is second only to BVSN despite its slower growth rate. And it fares even worse against PCOR, its only Vertical comparable. Once again -- slower growth yet a higher valuation.
pcOrder.com (PCOR)
In Brief: pcOrder's eStation links the entire computer industry supply chain; allowing suppliers, manufacturers, resellers, and retailers to customize online applications such as Extranets, Web storefronts, kiosks, telesales and service, e-tail sites and portals. The company generates about half of its revenues from software, which is usually sold on a subscription basis, and the other half from services and content subscriptions. PCOR is a spin-off of privately held Trilogy Software.
Competitors: BVSN, CLIC, CNET (content), ITWO, OMKT.
Customers: All major tech players: CPQ, DELL, HWP, IBM, NT, BYND, IM, ONSL, TECD, EDS.
Financials:
Market cap: $853 mln
Q3 revenues: $13.1 mln
Sequential revenue growth: 46.6%
Year/year revenue growth: 134.2%
Price/Annualized Q3 sales: 16
Opinion: There is much to be said for PCOR. By focussing on the computer industry and offering both content (a database of 100,000 computer products) and software, the company has been quite successful in dominating its vertical. Even more encouraging is its move into the office products industry via its partnership with privately held Ecommerce Industries. PCOR may yet show that the best horizontal is an expanding vertical. PCOR also scores points with its recurring revenue model, as it sells software primarily on a subscription basis rather than as a license, and it offers content subscriptions as well. On a valuation basis, there is no better opportunity -- at just 16 times its annual revenue run-rate, PCOR is cheap for a vertical, and very cheap if it becomes a horizontal.
Graphic Depiction
And now, of course -- graphs. These graphs are not as exciting as others in our B2B series, as we only have two companies to compare. But they are nevertheless worth a look. PCOR is clearly the more compelling company in every regard. Revenue growth is faster.
[well, I couldn't really copy the graphs now, could I?]
The level of revenues is higher.
And the valuation is much more reasonable. On both a relative and absolute basis, Calico is valued much more highly than pcOrder.com -- its P/S ratio is four times that of PCOR, and its market cap is $2.1 bln vs $853 mln for PCOR.
Summing It Up
Perhaps CLIC is enjoying such a relatively rich valuation because many investors think of it as a horizontal with much larger market potential than PCOR. But at this point, its customer list indicates that it is pretty much a technology vertical, even if it doesn't present itself that way. What's more, PCOR is making a credible effort to expand horizontally with its move into the office supplies industry, while Calico appears confident that its current offerings will expand horizontally despite the relative lack of non-tech customer wins thus far.
Perhaps the question we should be asking is why PCOR is so cheap? We like its initial focus on the computer industry, we like the mix of software and content, we like the subscription pricing model for software and content which generates a recurring revenue stream, we like the strong management team, and we like its horizontal move into office supplies. In short, we like PCOR. A lot.
Honorable Mention
Aside from CLIC and PCOR, there are a few other companies that warrant a quick mention in our discussion of vertical technology plays. Intraware (ITRA) and Beyond.com (BYND) are both software resellers, the former with more of a B2B focus than the latter. Both companies are expanding their service offerings in an attempt to move beyond the low margin software sales business, and in the process they could shift into the vertical tech sector.
But for now, the majority of their revenues are generating by reselling third party software, which in our view places them in the Sales/Technology sector (see B2B I: The Players for more on that distinction).
Also considered was Elcom (ELCO). Historically, Elcom has been a computer reseller, with some of its business transacted over the Net. The company is now making the shift to its elcom.com division, which sell procurement software intended to compete against Ariba (ARBA) and Commerce One (CMRC); thus placing it in the B2B horizontal category. So ELCO is probably a Sales/Technology company that, if successful, will shift into the Horizontals, and completely bypass the Vertical Technology group.
Up next, the Life Sciences Vertical...
Parting Shots
As this B2B series continues, we learn more and some opinions solidify. For example, we feel more strongly that Vignette (VIGN) will be a winner and that PurchasePro.com (PPRO), despite its recent flurry of deals, is overvalued. We might have to revisit the series upon completion to offer, yes, our final answer.
Something that has become clear from the feedback to this series is that everyone wants to find the undiscovered B2B play. In addition to writing about the traditional tech players (ORCL, SEBL, ITWO, etc) move into B2B, we might also profile some these up-and-comers once we finally get through all of the B2B pure plays.
Greg Jones - gjones@briefing.com. |
