More B2B
1. Washington Post article, be sure to review the Deloitte Consulting link to:
Online B2B Exchanges
The new economics of markets
At the end of the Post article
2. Check the Fri/Sat WSJ...good gestalt articles
3. 3 Jan 2000 Barron's Where's the Next Tech Sweet Spot
The Business Of Business Is Net's Future
By Fred Barbash
Sunday, January 2, 2000; Page H01
By the end of this decade, the way the Internet changed how consumers buy things will be a footnote to the transformation in how businesses make things.
Terms like "e-tailing" and "online shopping" will seem quaint, and those who confined their Internet investing to the Amazons and the eBays and failed to expand into the "business-to-business" sector will seem not crazy, as skeptics say, but conservative.
"Hey, Dad," your daughter might say when you bequeath to her your moldy shares of Yahoo. "How come you didn't get it?"
That's my prediction. I'm only a little bit out on the limb with it. Every student of new technology I've heard or read believes the market for "business-to-business" (B2B) applications of the Internet will easily dwarf the market for retailing, which will be perceived as the valuable laboratory for the much greater enterprise.
Think about online shopping. You don't ever have to do it. To buy a book, you can still go to a shop, where you may bump into Amazon.com.Inc. founder Jeff Bezos, who says he still shops at bookstores.
Businesses, however, will have no choice but to deploy Internet-predicated methods.
If you accept current scenarios, which I do, we are headed for a future in which businesses buy and sell to one another in vastly expanded marketplaces--formed by electronic exchanges and networks--where they get a better deal with less exertion and greater efficiency than anything imaginable even five years ago. They also will sell things they don't use, or things they've already used, so that little or nothing is wasted.
It will be an "exchange market," which "matches buyers and sellers via bid and asked prices using the same approach as the typical financial stock exchange where brokers trade stocks, bonds, futures and options," writes David Roddy, chief economist at Deloitte Research in a monograph published last month.
It will not be possible for a company to compete on the outside. "Once you get big players involved," Roddy said in an interview, "everyone else who buys from them or sells to them will also go in." It is the classic "network effect."
And for the B2B companies that excel, the opportunities are unparalleled. Sure, they'll have to compete with one another--but unlike Amazon they won't have to worry about Wal-Mart.
B2B investing will require the same strong nerve as 1990s-style Internet stock investing. Prices of already-identified up-and-coming B2B companies with no earnings are already sky-high.
I believe, however, that you'll have more information to go on with B2B stocks. There may not be profits. But many have contracts, big ones, with real live companies that pay their bills. Counting contracts is easier than counting eyeballs. You can find out about contracts simply by going to a company's Web site, where they are trumpeted proudly.
"There's tangible value," said Raymond Carpenter, an analyst of B2B with Needham & Co. "And the transactions are much larger."
The best way to understand the future is to look at some of the companies that are deploying it.
Consider the simplest of examples, as described in a case study published in Kentucky Business Viewpoint, a regional business publication, of an electrical engineering company based in Lexington.
In the old world, field superintendents working for a company called Am-Teck made lists of their needs by hand. They faxed them to an Am-Teck purchasing agent. He typed them up and faxed them to about 20 suppliers. The suppliers faxed back prices to the purchasing agent, who would then fax back to negotiate, select a supplier, create a purchase order, fax that out and let all the other bidders know they were losers.
Enter PurchasePro.com, which does all this electronically, using a much larger, potentially unlimited, list of suppliers, spreadsheets that analyze the bids and identify the best ones, and e-mail to place orders.
At Am-Teck, PurchasePro reduced the workload of procurement by 75 percent.
I'm not pushing Purchase Pro. But this sort of savings may help explain why it has since signed up Sprint, Office Depot, Caesars Palace (which claims a 12 percent reduction in buying costs in the first two months of the contract) and Richfield Hospitality Services, among others.
It also helps explain why PurchasePro's (PPRO) stock price has soared to $155 from about $17 since it went public last fall on annual revenue of $2 million and a loss of $7 million. It jumped 7 percent last week after it signed an agreement with Advanstar Inc., to develop 30 business-to-business "communities" for the pharmaceuticals, telecommunications, clothing and hospitality industries.
This is not the end of the efficiencies, however; it is merely the beginning.
Another company, FreeMarkets Inc. (FMKT), conducts purchasing auctions among buyers and sellers in many industries to come up with the best price. Then, if there's a surplus of whatever was bought, or if a company wants to use it and then resell it, FreeMarkets takes it off the company's hands and conducts a asset-sale auction. Shares of FreeMarkets, a company with annual revenue of $8 million and no earnings, were going for about $314 last week. It went public last month at $48 per share.
A privately held company called Altranet takes it all a step further. It not only takes bids and offers in a self-created marketplace for the energy business, it schedules delivery and payment. Then it offers a form of insurance to protect both buyer and seller from unpredictabilities of the transaction--such as weather.
Ariba (ARBA), meanwhile, operates what it describes as the largest global platform for bringing together buyers, suppliers and service providers, allowing them to make deals in the same electronic language, engage in electronic payment, and conduct auctions and reverse auctions.
Motorola recently engaged Ariba to streamline the purchase of all non-production goods and services, globally, from office furniture to information technology equipment.
Its client list is stunning--Bristol-Myers Squibb, Chevron, AMD, Hewlett-Packard, Visa, Staples and MCI WorldCom among them.
Dozens of firms are available for investing. Among them: Commerce One (CMRC), Elcom International (ECLO), Concur Technologies (CNQR), UBID (UBID) and VerticalNet (VERT).
Why will B2B outdistance the now conventional world of "e-tailing"? Because companies spend more--thousands of times more--than do individuals. Because companies will have no choice but to change. Because in e-tailing, you log on, buy the CD, pay and log off. The buck stops.
In B2B the buck keeps moving.
In the corporate realm, Roddy writes, "every buyer is a seller."
(Note: Roddy's monograph is available at dc.com.
Fred Barbash (barbashf@washpost.com) is The Post's business editor.
washingtonpost.com |
