ARBA and other B2B's..from Stockhouse.....".Why have Ariba, Commerce One, Vertical Net, Internet Capital Group, Chemdex and
the recent IPO Free Markets, completely vaulted through the roof? In a word (or an
acronym) - B2B baby. And what a time to be B2B.
Maimi, FL, December 18 /SHfn/ -- How big can this B2B (business-to-business) thing really be? The
magical $1.3 trillion number that is often bandied about is the predicted size of B2B e-commerce by the
year 2003. Eric B. Upin, senior eBusiness analyst and the managing director of a research team devoted
entirely to this segment, says,"B2B is a huge investment opportunity - perhaps it is 10 times the size of the business-to-consumer
economy."
B2B dwarfs its cousin B2C (business-to-consumer market), and it has been relatively slow to gain traction. Steve Jurvetson, of
venture-capital firm Draper Fisher Jurvetson believes that the B2C market is more broadly understood, because people are
consumers themselves. Says Jurvetson, "unless you are entrenched in that industry and really understand that market segment,
you are not going to appreciate how it's revolutionizing that business" This B2B segment is "the iceberg waiting to emerge", he
believes.
B2B is a far more sophisticated and diverse animal with many more channels and far less
standardization. The complexities and multiple stages of corporate buying are so vast that Upin
estimates an $80 to $100 cost saving per order when businesses utilize automated supply chain
procurement. The more streamlined process affords both buyers and sellers substantial time and
cost savings, broader options and easy access to new markets - all of which can bring better
products and services to their end-users.
The timing couldn't be better, say the pundits who are incessantly upbeat on 2000. With an established Internet infrastructure
supporting global communication, and competitive forces driving innovation and adoption of technology such as Enterprise Resource
Planning and Operational Resource Management Software, the stage is set for total integration of business processes across
compatible platforms on a truly massive scale.
Several firms are rushing to make their mark and the stock market is rewarding those who race for first mover advantage.
Commerce One [CMRC] has grown eight-fold since September. Ariba [ARBA] has ascended steadily to $167 after its IPO was
priced at $23 in June and IPO FreeMarkets [FMKT], on its sixth day of trading, sits about 546% above its $43 offering price. A bit
lofty to be sure, but an abundance of daily news demonstrates that these companies are gaining the necessary financial backing
and partner resources required for a rapid build out their businesses, and the signing of new organizations.
Ariba and Commerce One, arch-rivals in this space, have given a show that could send WWF rogues Triple H and the Rock reeling
for cover. The battle has been nothing short of spectacular, with Ariba boasting about wrestling a coveted contract with MCI
WorldCcom [WCOM] from Commerce One. Ariba slammed Commerce One's software initiative, while Commerce One loudly
proclaimed it had signed more buying organizations than Ariba in the third quarter and that it had scooped PeopleSoft [PSFT] as a
partner, right out from under Ariba's nose. Would we really expect anything less than scathing from the two largest Exchange
(portal) based e-commerce players? Things could get uglier still as both race to add value to their e-marketplaces by building up
their stable of buyers and suppliers. In the simplest perspective: it's a race to build critical mass, and it should be a great fight.
There is no pausing for breath between forearm smashes and dropkicks for these two. On Wednesday past, Commerce One added
Canada's fifth largest bank to its impressive client list. Charles Baillie, TD Bank's [T.TD] top man expects to trim C$60 - $100
million per year from C$1 billion (US$674 million) of annual procurements. Today's announcement of a partnership with apparel firm
GUESS?, adds clothing to the diverse industries that CMRC is building its expertise in. Other important developments, including the
winning of a contract to build the GM Market place are discussed in the December 9th StockHouse Interview with Commerce One
CEO Mark Hoffman.
On Thursday, Ariba made headlines with the acquisition of TRADEX Technologies, a privately held provider of software and solutions
for net markets. Deutsche Banc Alex Brown and SG Cowen reacted by lifting their respective ratings on the stock to a strong buy.
Ariba CEO Keith Krach commented in an online interview with ON24, "We have clearly been the undisputed leader in the whole area
of e-procurement" adding that that the additional buying power of TRADEX now grants Ariba clear leadership in Net Markets as well
as Corporate Exchanges. Can we expect any reciprocating blows from Commerce One, Mr. Hoffman?
Several other companies shoot the same beast from a different angle. Free Markets, which specializes in online auctions for the
purchase of commodities and industrial components collects transaction fees and also picks up a percentage of what the buying
organizations save. Of course, Free Markets bumps elbows with competitors such as Ritchie Bros. Auctioneers [RBA], and other
non-pure auction players such as Vertical Net [VERT] and Ariba and Commerce One; both acquired auction services technology
firms in the last month.
Growth in the auction niche is expected to be explosive, particularly because there is an abundance of distressed and used
inventory that is difficult to dispose of says Eric Upin. Forrestor Research expects B2B auction sales will grow from $8.7 billion in
1998 to $52 billion in 2002. Another Internet research expert, Keenan Vision projects actions to hit $88 billion in 2002, increasing
from 13% of total sales in 1999 to 26% in 2002.
Auctions are just one part of Vertical Net's game plan, its focus on a vertical markets approach to B2B has also earned this
company a healthy stock appreciation. The company operates more than 50 Web sites in industries such as health care, water
treatment, food service, manufacturing, metal and many more. The strategy heavily emphasizes industry specific content, building
its model for e-commerce around trading communities. On Friday VerticalNet completed the previously announced acquisition of
NECX ® Exchange, a leading B2B marketplace for electronics in high tech markets.
Internet Capital Group [ICGE] is another formidable opponent. The recently public company has been compared to CMGI because
of its nature as an Internet incubator, or holding company, but has come into the limelight recently for its B2B strategy. ICG
acquires, develops and operates B2B e-commerce companies. A $20 million stock investment by General Electric [GE], and a $50
million investment by each of AT&T [T] and Ford [F] complement a $1.2 billion common stock offering completed December 9th.
Lehman Brothers initiated coverage of the company as a buy on Friday, urging investors that this is a must-own stock for risk
tolerant investors seeking a B2B play.
Risk is an important factor to bear in mind. Investment in B2B is not for the faint of heart, nor is it for those working on the old-style
mathematics. If you're still struggling with the valuations of the .coms portals, then please leave your calculators beside your rocking
chairs. We are in the early stages of an Internet revolution, and it is anyone's guess who will gain market leadership.
Yet market leadership does not equate to market dominance - that's another quirk of B2B. Thousands of unique markets comprise
the B2B space. "It won't just be one winner…there will be rise of many, many multi-billion dollar winners," says Eric Ulpin, noting the
contrast with B2C where names such as AOL [AOL] and Amazon [AMZN] pop up in discussions on the topic of leadership. He
notes the winners will be identified by certain criteria including expertise within their industry domain(s), first mover advantage,
partnerships, content, ease of use, management, and financial backing.
More competitors are gearing up to enter the fray, and there will be is much more heavy hitting action on horizon. And with
momentum bubbling over in this segment, the explosion of integrated corporate buying networks and highly customized vertical
markets will certainly reshape global business as we know it -- or so the sky-high valuations say. "
*compliments of Steve Karasick of SI |
