II. MARKET INSIGHT - A B2B Revival: Is B2B Back?
Inspired by Ariba's strong June quarter results, the recently maligned world of B2B has regained some bounce in its step as the results begin to speak for themselves. With Commerce One (#@), Ariba, FreeMarkets (#), and PurchasePro gaining an average of more than 40% in the past few days, this revival is looking more like the days of old-before the emergence of CoBAMs (Consortia of Brick-And-Mortars) and the recent correction in the market when B2B bombed 60%-80%.
Many will surely ask whether B2B is back to stay? We reiterate our belief in the strong value being created by B2B models and maintain that patient investors will be rewarded in the form of impressive fundamental results and resulting stock price appreciation. Our thesis has always been that the fundamental and revolutionary benefits of B2B are real, in which supply chain inefficiencies are particularly ripe for the Internet to streamline, automate, and integrate processes to reduce process costs and open up markets. While we believe that the market's conviction in this thesis was never really in question, it was surely tested as the leading pure-plays suffered heart-wrenching stock price declines. What did change was the market's perception of the competitive environment, not only the impact of the CoBAMs on pure-plays but how the former pure-play high fliers differed.
With the passing of time has come improved clarity on the competitive landscape. Despite all the fanfare, most of the CoBAMs remain little more than a concept. In the meantime, we are starting to see consortia members hedge their bets by joining the CoBAMs while maintaining relationships with the pure-plays. Companies such as BP Amoco, a founding member of the Petrochemical Exchange, along with 13 other leading energy and petrochemical companies, recently announced a long-term deal with FreeMarkets to set pricing for catalog-based buying of indirect goods. Honeywell and Delphi Automotive are similarly in consortia-backed exchanges while continuing their long term relationships with FreeMarkets. We believe this will be a dominant trend going forward as different marketplaces and services generate distinct value propositions. Another result of the CoBAMs has been the increasing reliance on technology providers, as players such as Commerce One have made hay being the technology partn er to multiple consort We believe time has also brought clarity in the market positions of some leading providers. As business models become more seasoned and companies have had time to absorb the business from large customers, variations in market focus, approach, and delivered value propositions are becoming evident. Ariba is now the leader in MRO-based e-procurement applications. Complementing its core strength in indirect procurement applications, Ariba has expanded into direct procurement with Trading Dynamics and SupplierMarket.com, and exchange platforms with Tradex. Commerce One is focusing more on building a broad market platform to build marketplaces and connect buyers and sellers, in addition to providing procurement applications. Through expansion of its Global Trading Web, Commerce One wants to own the highways connecting buyers, suppliers, and marketplaces. While both Commerce One and Ariba initially began serving the indirect procurement market, FreeMarkets was the first pure-play to targe t direct goods. Its a Competition should only intensify across all areas of B2B as new vendors test new approaches and current leaders attempt to extend their leadership. However, as the market continues to evolve and grow, companies will also continue to differentiate themselves and thereby provide investors with a much better sense of who the winners will be and how they will get there. We believe that these differences will become more evident over the next two to three quarters as this rising tide will lift many ships in many different ways.
III. B2K - Turning Vision Into Reality
The big question perplexing investors, entrepreneurs, and Fortune 1000 companies is "How long is it going to take to make B2B e-commerce a reality?" The promises of B2B e-commerce are big, the opportunities are abundant, and the vision is impressive. However, realizing these changes will take a lot of hard work and time. It is not as easy as flipping a switch. It will take time. The question is how much time?
Here is a quick answer-it is not going to happen overnight. To simplify things, below we have outlined four main stages of B2B e-commerce adoption and deployment. They do not necessarily need to be deployed in this order, but they do feed off each other, integrating to make e-commerce seamless and frictionless.
Integrated Internal Workflow - you need to walk before you can run. With the proliferation of proprietary best-of-breed applications, this is an issue that has been challenging companies for the last decade. Systems need to communicate with each other and information needs to be shared inside the organization. Integrators have made hundreds of millions of dollars building custom APIs to do this. Enterprise application integration (EAI) companies such as Vitria, Neon, and STC are building tools and packaged applications to accomplish this major issue. Additionally, companies such as Ariba, Commerce One, and Clarus (#@) addressed as their first step the internal procurement workflow. Their applications address such issues as developing a purchase requisition, routing the requisition for approval, developing a purchase order, and reconciling payments. This is a critical step, as an organization must be organized internally before effectively collaborating externally. Estimat ed time to completion: Aggregation: Creating A Network Of Buyers And Sellers - the Internet has the opportunity to essentially localize global commerce though its ability to reach virtually everyone worldwide. The challenge is in getting companies online and in a central site so that they can be easily accessible. We believe that start-up marketplaces did a great job in raising awareness, and many CoBAMs are now making significant progress in bringing large companies online within fairly consolidated industries. Aggregating enough players is critical in creating a meaningful marketplace. It is one of the first steps and perhaps the one that will be completed the quickest. Estimated time to completion: now to three years.
Integrated Buying/Selling Solution - once companies are connected online, the daunting challenge of providing a buying and selling solution begins. This is the first step in extending beyond the four walls of an organization and it must be a successful one if we are to hope for bigger things. Various transaction options (auction, complex RFQ, etc.) must be available and designed to fit the industry's specific needs, providing trading partners with the benefits of added transparency and reach, yet also the comfort and security of knowing that their relationships, brand value, and way of doing business are being protected. Estimated time to completion: two to eight years.
Supply-Chain Collaboration - while the buying and selling process is critical, its enablement still only scratches the surface of B2B e-commerce's potential. In order to retool our economy and deliver upon the big promises of e-commerce, it will be necessary to facilitate communication and collaboration throughout the entire demand and supply chains. Only then will our economy see the benefits of demand-driven production, near-zero inventory, and meaningful information sharing and cooperation between trading partners. Estimated time to completion: four to 12 years.
The Phases Of B2B e-Commerce Development And Deployment
Process Benefits Estimated Buildout Time:
- Aggregation Broader reach, greater selection Now-3 years
- Internal Workflow Reduced processing costs, fewer errors, robust data intelligence 2-6 years
- Integrated Buying/Selling One-click commerce, efficient price discovery, lower SG&A 2-8 years
- Supply Chain Collaboration Lower inventory, shortened cycle times, improved cooperation 4-12 years
While the era of B2B e-commerce is quickly engulfing us, it will be a long and arduous road involving multiple steps that need to be achieved before the "vision" is realized. Strap yourselves in-we foresee this process continuing into the next decade. |
