Business 2 Business

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Business 2 Business
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Why all the excitement about B2B?
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B2B Attractiveness

• Market Size Potential - US - 17 Tril, yet only
  70-80 Bil US on-line, Global - 60T
• Industry pressures - global competition, speed,
  price, quality
• Industry maturity -hungry for new profitability
  avenues
• Inefficiencies in existing processes, chains
• Technology enablers
• User conditioning with ERP, etc
• Pervasive - all can play, not just the big
• Industry momentum- play or be marginalized

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How Does E-Business Fit?
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What is B2B E-Business Anyway?
Complex Trade and Collaboration Among Business
Communities Over the Internet
B2B Market
Content
Sellers
Buyers
Community
Commerce
Result New Markets, New Models, New Players,
Major Structural Industry Changes
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E-B2B Benefits Both Buyers and Sellers
Lower Cost of Doing Business
Network Scale
Improved Service Levels

• Compete globally
• Target lucrative markets
• More buyers create larger market for suppliers
• More suppliers mean more choices for buyers

• Provide better information faster
• Offer more products and services
• Shorten delivery time
• Improve ability to compare options
• Improve supplier management

• Lower product and procurement costs
• Speed time-to-market
• Streamline transactions
• Lower inventory carry
• Shorten sales cycle
• Increase pricing flexibility

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Enabling Businesses to Do What Wasnt Possible
Before

• Reach Virtually Unlimited Audience at Low
  Incremental Cost
• Create Exponential Value Per Additional
  Participant (Network Effect)
• Ensure Full Market Participation
• Enable Real-Time Supply and Demand Data
• Eliminate Inefficiencies
• Establish Market Clearing Prices
• Increase Product Liquidity
• Improve Production and Inventory Planning
• Provide Analysis and Foresight Into the Future

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E-B2B Value Proposition

• Revenue Expansion
• Cost Efficiencies
• Service
• Speed
• Knowledge
• Profits

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E-B2B Platforms

• Scale - supply/spend aggregation
• Liquidity - products/services buyers/sellers
• Transparency
• Velocity
• Reach
• Efficiency - entire business process

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The Emerging Landscape of E-B2B
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A New Breed of Companies with New Solutions Will
Address This Opportunity
Deep Customization
3 TRILLION GLOBAL MARKET
Management
Global
Architecture
Back-Office Integration
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Simple View of Market Approaches Vertical and
Horizontal
Medical Supplies
Electronics
Chemicals
VERTICAL
Office Supplies, MRO
HORIZONTAL
Used Capital Equipment
Logistics, Delivery
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E-Hub B2B Matrix
What Businesses Buy
Operating Inputs
Manufacturing Inputs
How Businesses Buy
MRO Hubs Ariba MRO.com
Catalog Hubs Chemdex PlasticsNet.com
Systematic Sourcing
Yield Managers Adauction.com
Exchanges e-Steel PaperExchange.com
Spot Sourcing
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Market Mechanisms For E-Hubs

• Aggregation - one-stop storefront for buyers
  sellers, static as prices and positions are fixed
• Matching - brings buyers and sellers together to
  negotiate prices on a dynamic, real time basis

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Which works best when?
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Aggregation works best when -

• Cost of processing a purchase order is high
  relative to cost of item procured
• Specialized products
• of SKUs is large
• Highly fragmented supplier universe
• Buyers not comfortable with dynamic pricing
• Purchasing done through pre-negotiated contracts
• Metacatalog of products can be created

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Reverse vs Forward Aggregation

• Forward - aggregate selling power - e.g., Ingam
  Micro for small resellers
• Reverse - forms groups of buyers (spend
  aggregation) within specific vertical or
  horizontal markets
• Offer - scale buying procurement expertise to
  small players
• Most likely situations - fragmented small buyers,
  large suppliers, small lot sizes, fewer SKUs
• Examples - FOB.com, BizBuyer.com

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Matching Mechanism works best

• Products are commodities
• Trading volumes are massive relative to
  transaction costs
• Sophisticated buyers sellers
• Companies use spot purchasing to fill peaks
  valleys
• Logistics and fulfillment are conducive to 3rd
  party handling
• Demand and prices are volatile

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Another View of Structuring Landscape

• Buy-Side Procurement - Empower the Buyer with
  systems- e.g., Ariba,Commerce One, SAP
• Vertical Distributors - Multiple Buyers to
  Multiple Suppliers - e.g., Chemdex,ChipCenter,
  E-Chemicals, FreightQuote
• Functional Communities - Manage complex business
  online e.g., BidCom - construction/building,
  ChannelPoint - insurance, Employease - Benefits
• Market Makers - Competitive Biding to Buy or Sell
  - e.g., MetalSite, Altra Energy

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B2B Trading Exchange Models

• Capacity Brokers -
• Gray Market Facilitators -
• Collaboration Platforms -
• Spot Buying -
• Distributor Networks -
• Proposal Publishing -
• Private Exchanges -
• Industry Community Boards -
• Application Hosting -

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Emerging Overlapping Models
Aggregators
Auctions
Exchanges/ Hubs
Content Community
Software
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Evolution?

• Beyond Exchange to Integration Collaboration
  Hosting Platforms
• Project management, Replenishment, Knowledge
  Management, Forecasting, Planning, Analysis
• Full service and systems support for complete
  Supply Chain Management

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E-B2B Company Attributes - Some or All
Recurring Revenues
Visibility into multi-period revenue streams
(tolls)
Sticky Solutions
Tight systems integration, deep customization
and domain expertise result in high switching
costs
Exponential increase in value with each
additional participant
Network Growth
High Margins
Particularly those that recognize net revenues
High ROI Proposition
Drastically reduced customer costs and expanded
market size fuel rapid adoption
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Some Examples
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Exchange Example Altra Energy

• Real-time electronic trading system listing bids
  and offers for the 340B energy market
• Summarizes and tracks energy positions, manages
  contracts and optimizes risk
• Facilitated 6 billion in transactions in 1998
• Saves significant amounts of time and money in
  procuring energy and reaching buyers

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Virtual Distributor Example Chemdex

• E-business solutions for life sciences - online
  marketplace, purchasing tools, service support
• Secure marketplace for the 15 billion life
  sciences product and 35 billion specialty
  medical supplies markets
• Central buying location with real-time product
  listings and prices for highly fragmented market
  (2,000 buyers and 5,000 supplier organizations)
• Improves efficiency and reduces ordering costs by
  up to 40
• Enable buyers to implement their own purchasing
  rules and obtain volume discounts
• Acquisitions - Promedix (exchange)
  Relationships (IBM)

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Content Community Example VerticalNet

• Creator and operator of 51 communities covering
  10 business sectors- industry specific/vertical
  portals
• Provides content, community and commerce
  opportunities
• Key services include editorial content, career
  center and an online marketplace
• Content and community evolving into commerce
• Examples of communities - AutoCentral.com, EC
  Online, E-Hospitality.com, Long Term Care
  Provider.com

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Auction Example AdAuction

• Real-time auctions for the 190 billion
  advertising industry
• Supplier visibility into the current market price
  for advertising properties
• Media buyers can bid on space and Web publishers
  can generate revenue by complementing existing
  sales force with AdAuctions service
• Assists buyers by qualifying suppliers and their
  respective advertising properties

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Software Example Ariba

• Provides a B2B eCommerce platform and network for
  buying operating resource supplies
• Manages the buying process over a network of
  suppliers- 85K, 15 of F100 use Ariba
• Provides catalog and content management, order
  transaction routing, and transaction information
  sharing
• Lowers the cost of procurement by dramatically
  reducing processing and product costs

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Internet Capital Group -Conglomerate B2B
eChemicals
PaperExchange
BidCom
Collabria
ElectricNet
Food
RapidAutoNet

Pharmaceuticals
iParts
Aerospace
Fiber Optics
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Emerging B2B Landscape

• Mega Exchanges - vertical or horizontal, keys -
  scope and liquidity, standard setting, low profit
  margins
• Specialist Originator - complex, expensive
  products, keys - domain expertise, customer
  relationships, supplier network
• E-Speculator - standard products with volatile
  prices, keys - financial engineering, market
  knowledge
• Solution Provider - keys - technical skills,
  problem solving, customer relationships
• Sell-side Asset Exchange - fragmented markets,
  high fixed costs, keys - supplier relationships,
  liquidity

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B2B Trends - Business 2.0

• Anticipating shakeout of independents - from 1000
  to 100 - Chemdex, VerticalNet
• Displaced by Industry-based Exchanges - Covisint
  (Auto), Transora (Pckg Goods), Myaircraft.com
  (Aerospace), GlobalNet Exchange (Retail)
• Covisint - GM, Ford, Daimler-Chrysler, Nissan,
  Renault
• Intended Benefits - Procurement (price,
  transactions processing), Product Development
  (collaboration, forecasting), Supply Chain
  Management (demand mgt, made to order)

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Summary Comments

• Huge Potential
• Lots of Benefits to Drive Participation
• B2B Fundamentals are NB - relationships
• Verticals - domain expertise
• System Integration - customer retention
• Room for New - Early Attain Liquidity
• Models still evolving