An Introduction to Business-To-Business

Internet Trades

Zhangxi LinDecember, 2000

Outline Electronic Commerce and Internet

Technology Business-to-Business (B2B) Models Peer-to-Peer (P2P) E-Commerce B2B Forecasts

Sources for B2B US Federal Trade Commission

Workshop on B2B Electronic Marketplaces (June 29-30, 2000, 600+ participants, organized from 200+ sources, 30 statements submitted)

www.nmm.com Cnet news Technews

Three IT Adoption Waves The first ripple occurred in the 1980s, when

many businesses reluctantly adopted computing to improve productivity.

In the 1990s, change accelerated when the powerful tide of client/server computing brought new capabilities to businesses, allowing them to compress value chains and expand reach.

Today, the third wave, Internet computing, presents a clear set of incentives driving far more rapid adoption than the two previous phases.

Company IT Adoption

B2B Dictionary B2B, B2C and C2C ASP (Application Service Provider) CRM (Customer Relationship Management. An

application system.) EDI (Electronic Data Exchange) Fulfillment (The act of physically getting a

product to a buyer) Hosts (e-market makers) Functional Hubs (A way to describe horizontal

products and services.)

Five B2B Generations EDI (Buyer-centric) Storefronts (seller-side systems) Buyer-driven Procurement (Buyer-

side systems) Net Markets, Independent or

Coalition Hosted Private Market

Net Market (4th Generation) Net Markets are online intermediaries

where many buyers and many sellers can congregate to trade. Net Markets essentially match buyers and sellers using a variety of market mechanisms including auctions, catalogs, and Nasdaq-like exchanges. The first Net Markets were independent entities, often funded by venture capital, which sought to be neutral intermediaries between buyers and sellers.

Net Market Model

Private B2B Marketplaces (5th Generation) The latest model to emerge has been that of

private marketplaces, defined as areas within independent or coalition Net Markets in which specific buyers can interact and trade with designated sellers, or vice versa. Private marketplaces use the technology infrastructure of the Net Market to create essentially direct connections between buyers and sellers. This system saves infrastructure investments for buyers and suppliers and offers additional revenue sources for Net Markets.

Three B2B Ownership Models Third-party exchanges, e.g. Ventro and

FreeMarket Consortia-led exchanges, e.g. Covisint Private/Proprietary exchanges, e.g. Dell

> 745 B2B exchanges have been announced in the first half year of 2000

93% are of the third type

Business Models for B2B Intermediaries Catalog:

CommerceOne and GM’s TradeXchange Exchange:

Tradex Auction

FreeMarkets Negotiations

Vertical vs. Horizontal Hub types:

Vertical (e.g. VerticalNet, PlasticsNet) • Serves a vertical market• Requires industry knowledge and

relationships Horizontal (e.g. MRO.com, Adauction)

• Provides same function across industries

Which one will win?

URL’s www.CommerceOne.com www.Ariba.com www.Tradex.com www.FreeMarkets.com www.VerticalNet.com www.PlasticsNet.com

Case 1 - PlasticsNet Operator of vertical trade communities for

the plastic industry Founders came from plastics instead of

technical background Goes from a BBS to B2B communities High-margin transactions:

5—10% commission

Case 2 - FreeMarkets Online Inc. Pre-select qualified suppliers Assess, evaluate & short list Conduct global online auctions Helping companies with RFQ for custom

components 3000 companies from 45 countries

participate in Operates about 70 different vertical

industries $7 million in 1998 commissions

Case 3 - Aeroexchange A consortium for 13 airline

companies offers airframe, avionics,

maintenance services, and general goods and services

With web-based applications

Case 4 - Covisint Created by Ford, GM and

DiamlerChrysler For trading automobile related

goods and services Attracts 20+ buyers and suppliers,

such as Nissan, Renault and BASF.

Case 5 - Exotar Formed by Boeing, Lockheed Martin,

Raytheon and BAE Systems For aerospace and defense industry

Case 6 - DELL Michael Dell started his computer business in 1984 Dell Computer’s growth

1985 – $6 million 1990 - $500 million 1993 - +40%, but faced operating loss 1996 - $7.8 billion

Dell’s direct sell (started in 1997) Order-shipping process 36 hrs vs. regular 75-100 days Reduced suppliers from 204 in 1992 to 47 13-day inventory Cash flow cycle reduced to 24 hrs comparing to Gateway

16.5 days and Compaq 35 days. Direct monitor shipping from suppliers

Efficiencies of B2B Electronic Marketplaces A survey conducted in spring 2000:

Only 1% companies are conducting e-business through their websites.

80% B2B processes are still manual, and 20% considered automated are actually not yet.

B2B Efficiencies Administration costs Search costs New markets Maverick purchasing (buying occurs outside the normal

channel) Joint purchasing System integration (with the legacy system) Supply chain management (from push marketing to pull

marketing) Collaboration (Outsourcing product design), joint channel

of distribution Middlemen (the new service particularly for small

business)

B2B’s Attributes Huge market opportunity Financially light business model Scalable Acquisition cost effect Sticky products Multiple revenue stream

How B2B Companies Make Money? Sales of products Service and maintenance fee Transaction fee and listing fee Advertising

Peer-to-peer E-Commerce P2P history

Napster was set up as a network of PCs with a central server acting as a clearinghouse. It primarily facilitated exchange of MP3 files and grew to be popular in a very short time.

Although Napster has suffered in the lawsuit against its copyright problem, a large number of other P2P networks are flourishing without centralized servers. So, no target to be attacked.

E.g. Gnutella by Nullsoft, shares all type of information. Freenet by Ian Clarke, is a more efficient decentralized P2P platform.

Why P2P So Hot? It provides a technology that allows people

search for and retrieve files from individual computers around the world.

A June article in Fortune magazine dubbed file sharing “the hot idea of the year,” alerting investors to a trend that would “revolutionize infotech and reinvigorate the PC industry.”

P2P will likely seep into B2C and B2B e-commerce and fuel demand for the services.

The Power of P2P The key idea of P2P is decentralization

with two characteristics: Load balancing (like distributed cashing) Effective searching (e.g. InfraSearch)

Users are active in P2P, while in a typical Internet application users are passive and not provide information to the network.

P2P in B2B Using P2P in B2B can avoid

problems rooted in the web-based centralized e-market architecture.

Issue for P2P in B2B Distributed authentication Confidentiality Standards Information asset protection Peer qualification B2B Services charged for P2P

Key Comments on P2P in B2B Standards are critical How P2P drives real value in B2B The borderless economy will be

accelerated by P2P P2P changes the Internet as the Internet

changed computing It is difficult to maintain security It is hard to make profit from P2P

Will P2P Companies Thrive or Die? Optimists: “P2P is going to be the

computing paradigm in the future.” Detractors: “P2P companies will

never make good revenue because the essence of file sharing is contrary to file selling and profits.”

Online B2B Growth Total US B2B non-service trade will rise from

$11.5 trillion in 2000 to $15.1 trillion in 2005. The Internet's share of total US B2B trade will soar

from 3% in 2000 to 42% in 2005. Internet trade will grow more than 20 times in five

years from $336 billion in 2000 to $6.3 trillion in 2005.

In 2004, online trade will represent over 50% of total B2B commerce.

By 2005, Net Markets will account for 35% of B-to-B online commerce as compared to 2% in 2000.

B2B Trade Forecast

Models for Trade Between Buyers and Sellers

Net Market Online Trade Penetration, by Industry

Online Trade Forecast: Top Five Industries

B-to-B Online Trade Forecast

Mapping Online Potential of Industry Segments

Factors Driving Online Trade Adoption

Stock Price (Commerce One)

New Economy Crisis?

NasdaqCrash

Hi-techInvestors lose

confidence

90% Dot COMsgo bankruptcy

VCs Reduceinvestment

Venture capitalcompanies (VC)

are hurt

The Future is Brilliant Information Technology will continue

to exert profound influence in economy growth

The fluctuation will be finally stabilized.