BusinesstoBusiness eCommerce

1
Business-to-Business eCommerce

• Point of View

October 1999
2
Business-to-Business (B2B) Trends
B2B Business Models
B2B Success Characteristics
3
B2B eCommerce is projected grow explosively and
approach 1.3 trillion by 2003.
eCommerce Hard Goods Sales in the U.S.(
Billions)
1.3 Trillion
B2B
CAGR 99
Revenue ( Billions)
B2C
CAGR 68
108 Million
Year
Source Forrester Research
4
U.S. B2B trade in services is also expected to
increase dramatically.
Projected U.S. On-line Business Service Sales
Growth
Services Include

• Travel
• Temp Workers
• Consulting
• Janitorial
• Computer
• Legal
• Accounting
• Catering

Revenue ( billions)
Year
Source Forrester Research
5
The greater growth in B2B eCommerce is fueled by
fundamental differences between B2B and B2C
eCommerce...
How is B2B Different From B2C?

• Immediate PL impact
• Clear value proposition for both parties
• No inherent channel conflict
• Customer base that is
• Technology enabled on a broad scale
• Accustomed to electronic transactions
• More cost conscious

6
B2B eCommerce can impact the fundamental levers
of value creation...
ILLUSTRATIVE
Value Creation Levers
eCommerce can address
RevenueEnhancement

• Reach / access to new markets
• New value propositions

• Creation of new product / service offerings

Sales Volume

• Effective customer segmentation

• Brand image building
• Demand-supply matching

Price

• Sourcing price reduction
• Better price-value matching

• Favorable sourcing contract negotiation

CostReduction
Value Creation (EVA)
COGS

• Cost-to-serve improvement
• Logistics network efficiency
• Transaction cost reduction

• Effective marketing
• Effective policing of company policies

Operating
Expense/SGA

• Forecast accuracy improvement

• Inventory level optimization
• Time-to-market reduction

Asset Intensity Reduction
Working Capital

• Fleet productivity improvement

• Logistics network productivity improvement

Fixed Assets
7
The scale and scope of Business-to-Business
eCommerce will vary by industry.
Key Industry Factors Impacting B2B Uptake

• Degree of fragmentation
• Suppliers
• Customers
• Distributors
• Competitors
• Transaction frequency
• Speed of industry change
• Proliferation of unique products
• Degree of information transparency

8
Business-to-Business (B2B) Trends
B2B Business Models
B2B Success Characteristics
9
eMediaries present both a threat and an
opportunity for established companies.
eEnterprise
Demand Side
Supply Side
After Sales Support
Product Development
Procurement
Production
Marketing
Sales
eMediary
10
eMediaries are addressing market inefficiencies
and adding value for participants.
eCommerce Intermediaries
Aggregate Buyers and Suppliers

• Improved matching of potential buyers and sellers
  in a market
• Greater access and options for both buyers and
  sellers

• Reduced searching and information transfer costs
• Standardized buyer procurement

Reduce Costs
Create New Marketplaces

• Provide efficient venue to buy/sell surplus
  inventory or exchange excess capacity
• Create liquidity for new products and services

Source September 1999 Business 2.0, Lets Get
Vertical
11
Two key models are defining the way eMediaries
are established and structured.
The Business-to Business Web
Vertical eMediaries
Examples
Steel
Plastics
Chemicals
Horizontal eMediaries
Procurement
Ariba.com
Maintenance
CommerceOne.com
Media Buying
Adauction.com
Examples
eSteel.com
PlasticsNet.com
Chemdex.com
Source September 1999 Business 2.0, Lets Get
Vertical
12
eMediaries are supported by three fundamental
models of operations . . .
Operational Models
Examples
Structure
Critical Success Factors
Aggregator

• PlasticsNet.com
• VerticalNet.com

• Allow many buyers to purchase from many sellers
  by consolidating buyer demand and seller supply
  and using fixed prices

• Focus product set on targeted buyer communities
• Develop early partnerships with key suppliers
• Integrate buy-side procurement software and sell
  side order management systems

Auction

• Ultraprise.com
• VerticalNet.com
• PlasticsNet.com

• Provide an electronic market for liquidated
  surplus or excess inventory

• Help sellers realize best-possible winning prices
• Attract more buyers by offering added services
  (e.g. credit lines to smaller buyers)

Exchange

• Provide temporal matching of supply and demand
  via real-time, bid-ask spot markets
• Match two parties that possess reciprocal assets
  within an asset class or across asset classes

• Sign on the large players within an industry
  market
• Design specific rules like acceptable lot sizes,
  pricing increments, and settlement terms

• VerticalNet.com

Source Forrester Research
13
. . . that are targeted to different industries
. . .
Operational Models
Source Forrester Research
14
. . .and lead to different sources of value.
Operational Models
Key Values Added

• Smaller sellers gain access to buyer companies
• Smaller buyers benefit from volume discounts and
  ability to order across suppliers at negotiated
  prices
• More accurate pricing of products and services

Aggregator

• Less dependency on brokers/middlemen
• Faster inventory turns
• Unrestricted buyer access to surplus available at
  lower than list prices

Auction

• Market to unload excess capacity at market prices
  rather than liquidated, below market prices
• More accurate pricing of excess capacity and last
  minute purchases
• Real-time industry pricing and product information

Exchange
Source Forrester Research
15
In the short-term, eMediaries will benefit
companies by streamlining value chains and
providing access to new customers and suppliers.
Benefits of eMediaries

• Larger network of buyers and sellers
• Reduce the search time and cost of finding a
  buyer or seller
• Accelerate trade transactions
• Avoid inefficient sales and distribution channels

16
Business-to-Business (B2B) Trends
B2B Business Models
B2B Success Characteristics
17
Successful eMediaries will be those that are able
to gain critical mass and retain participants.
Success Factors

• Network Effect
• Value created by business-to-consumer
  intermediaries increases linearly
• Value created by business-to-business
  intermediaries increases exponentially
• Domain Expertise
• Deep industry or business process knowledge
  presents a key barrier to entry
• Customer Acquisition and Retention
• Allows for greater network effect, increased
  transaction volume, and higher barrier to entry

Source September 1999 Business 2.0, Lets Get
Vertical
18
Each structural model targets unique markets with
specific value propositions.
Structural Models
Vertical
Horizontal
Target Industries/Market

• Vertical markets with high levels of
  fragmentation among buyers and sellers
• Industries where inefficiencies exist in the
  supply chain

• Industries with fairly standard processes
• Markets with processes which can be automated
  readily

Critical Success Factors

• Critical mass of key suppliers and buyers
• Domain knowledge and industry relationships
• Master catalogs and sophisticated searching tools

• Degree of process standardization
• Process knowledge and customized work-flow
  automation
• Complementing process automation with deep
  industry content

Value Added

• New distribution channel
• Reduced search time and information transfer
  costs for both buyers and sellers
• Improved matching of buyers to sellers

• Process expertise
• Cost savings

Source September 1999 Business 2.0, Lets Get
Vertical
19
In addition, some companies are developing
all-in-one eMediaries.
Structural Models
Consortium
Value Added

• All-in-one marketplace
• Increased cost savings

Target Industries/Market

• Industries with fairly similar business models
  and practices
• Industries with product offerings that complement
  the spectrum of buyer needs/purchases

Critical Success Factors

• Complementing expertise in different industries
  to buyer needs
• Ability to develop and specialize in business
  processes which support business practices and
  tailor to industry-specific differences

20
However, B2B eCommerce has the potential for
tremendous impact on almost all industries...
Potential eCommerce Impact

• Redefine industry value chain
• New players will emerge
• Existing players will go out of business or
  transform their business
• Shift balance of power
• Shift power from companies that own physical
  assets to companies that own information
• Commoditize products
• Create new products and services

21
as evidenced by the rise of eMediaries in
industries as diverse as advertising and paper.
Industry
Objective
Company

• Provide Business-to-Business eCommerce service
  for buying and selling online media, print, and
  broadcasting

Advertising

• Provide an online marketplace for buyers and
  sellers of life science chemicals products

Chemicals

• Serve as an intermediary for electronics
  manufacturers and electronic parts suppliers

Electronics

• Act as electronic go-between for mortgage
  originators and the secondary mortgage market

Financial Services

• Provide a global electronic marketplace for the
  selling and purchasing of steel

Industrial Products

• Connect buyers with suppliers of paper and
  related equipment through electronic trading
  floor and classifieds

Paper

• Connect shippers who have loads they want to move
  cheaply with fleet managers who have space to fill

Transport