Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: BirdDog who wrote (24643)	5/13/2000 4:21:00 AM
From: Bruce Brown	Read Replies (3) \| Respond to of 54805

RE: Ariba and B2B's point in the technology adoption life cycle Raple, No need to worry about the complexity of the B2B space. Geoff's words were directed at the exchanges themselves as not having crossed the chasm yet. I contend, that as gorilla game investors, we need to view the software application vendors that provide the solutions - or the picks and shovels for the exchanges - as our main area of focus. Perhaps my view has been wrong and I would welcome opinions on this, but I contend that the the actual software solutions are and have been in the bowling alley. This is why I added a company like Ariba to my portfolio. I believe that for me, separating the solutions from the exchanges helped me to understand the space. That's why I contend we should focus on the three traditional revenue streams for the software vendors - software license fees, maintenance fees and service fees. (By the way, Ariba's management has guided analysts recently that they will reach profitability sooner than expected. Outside of that, the cash flow at Ariba is in very healthy shape.) Is it possible that the software solutions and the actual exchanges themselves are in two different stages of the technology adoption life cycle? Or is it possible that the exchanges themselves are actually the value chain that is developing around these application solutions and will need to continue to develop to launch the full tornado? All worthy questions for thought and discussion. I see it as a very classic gorilla game within the application software market. One that is divided into many games. Thus far, I have only studied the top tier game. In terms of the projected cost savings of doing some procurement business on the Internet, it really is a discontinuous innovation. Although there are high switching costs up front to move to that model solution, the actual long term savings will dwarf those up front high switching costs. The chasm crossing process going on right now is being carried out by the pick and tool companies spreading the word about their solutions and the value added service this will provide for the global business environment. It is happening as I type this. I just attended an incredible eye opening three day event for Corporate Europe. What has confused the market place and the analysts about the entire issue of transaction costs and revenues seems to have focused too many people on those actual transaction costs. In other words, the little picture being confused with the big picture. Maybe a comparison would be how the market last year was so focused on wanting to know an actual $$$ amount for each handset royalty fee that Qualcomm was going to be awarded. As if a figure of $3.69 per handset would justify the investment over the next 5 - 10 years and a figure of $1.99 would not. Perhaps a crude analogy, but perhaps not. Wasn't the real issue the CDMA technology adoption life cycle? I realize that a ballpark figure of what is going to fuel the revenues is a must know both for Qualcomm's business as well as a B2B player like Ariba. The average cost to global corporate business now for the 'old way' of doing procurement via telephone, fax, paper work, etc.... is a figure which keeps getting thrown around as an example of $100 per transaction. I don't know if that is an actual number that some data has proven to be correct or not. Regardless, it keeps getting tossed out as an example in discussion and I am guilty of tossing it out as well. If my company wants to buy 1400 widgets from Company XXX in Denmark, then via telephone, fax, paper work, etc... it will cost me about $100 to secure that order and payment. It will also cost about the same for Company XXX on their end to secure the order and billing. The whole idea of the trading exchange and the software solutions to enable that exchange is to get that transaction cost down to the $5 - $20 level for my company as well as Company XXX. Once again, these are simply numbers that are being tossed out as examples. What happens to that $80 - $95 in savings per transaction for my company as well as Company XXX? Well, part of the savings will go to pay a software license fee, maintenance fee and service fee to the pick and shovel application vendors like Ariba, i2, Commerce One, Oracle and many others in the mid and lower tier markets. Once all the fees are paid, you can easily see how that kind of cost savings over years of doing business will be a huge benefit to companies throughout the globe. The pragmatics will still want to send out the staff on the weekly flights to their business contacts, shake hands, drink drinks and - you know the routine. That's fine and dandy, but if the B2B exchanges really take off and the savings start to mount for your competitors while your employees are still flying around in airplanes, shaking hands and running up huge expense bills - something has to give eventually. I find it interesting that some government agencies are already signing up for the exchanges. In terms of cost savings for the taxpayer, this makes me happy to see this happening. Nevertheless, some of the early adopters have not only proven the model works, but are enjoying incredible savings because of it. Dell, Cisco, Intel are the big three with many others falling into line behind them. I'm starting to wander as usual, but I believe we should focus on the application software providers for this space. I continue to spend my personal time studying Ariba, i2 and Oracle in this category because I am a shareholder. On a side note, the presentation by Siebel which I listened to was really directed at CRM and eCRM solutions in specific. Keep in mind that customer service in Europe has been about as foreign to business over here as Cricket as a spectator sport is in the US. Living over here for 5 years and having worked here since the summer of 1992, I can certainly vouch for the lack of customer service. I believe that trend is actually a classic 'discontinuous innovation' that is about to take Europe by storm as it is forced to compete on a global basis. It is already starting to happen and Siebel is focusing on that target market with perfect timing. Will Siebel and their CRM products be a classic case of timing just as Elvis was to Rock 'n Roll? Siebel has everything in place and management has guided us that European revenues are a large target going forward. It was nice to see thousands of representatives from corporate Europe participate in the Siebel and i2 presentations. Off to Saturday AM rehearsal... BB