B2B: 2B or Not 2B?Jamie FriedmanVice President, Sr. Equity AnalystMenlo Park, California1-650 [email protected]
NetMarketMakersSan Francisco Hilton June 27th, ‘00
Investors Go For Big Bucks
B2B = Big Bucks!
1998 1999 2000E 2001E 2002E 2003E
$294
$522
$782
$1,114
$115
$39
$327
$1,221
$858
$574
$133$47
B2B
Worldwide e-CommerceWorldwide e-Commerce
$107$76$52$33$18$8
B2C
($ in billions)
This Is What Wins Investor’s Attention:B2C Is Huge
…but B2B Is Gigantic!
Total Commerce In the Global Economy (USD B)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1999 2000 2001 2002 2003 2004 2005
Source: Goldman Sachs
Asia Less Japan
East Europe
Mid East/Africa
Latin America
Japan
Europe Union
NA Less USA
USA
B2B Goes At The Crown Jewels of the Economy
Macro View of B2B Market Opportunity.
B2B On-Line Commerce Gross Revenue (USD B)
$0
$1,000
$2,000
$3,000
$4,000
$5,000
1999 2000 2001 2002 2003 2004 2005
Source: Goldman Sachs
Asia Less Japan
East Europe
Mid East/Africa
Latin America
Japan
Europe Union
NA Less USA
USA
That’s Thousands of Billions, Baby!
The tidal wave of Internet venture capitalcontinued thru 1Q ‘00 (20% LTM Is B2B)
$639 $914 $1,026 $1,304 $1,234$1,679 $1,787
$2,260
$3,087
$5,470$6,224
$11,813
$14,972
144 161181 197
175
251 249288
327
498520
827
698
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
1Q97 2Q97 3Q97 4Q97 1Q98 2Q98 3Q98 4Q98 1Q99 2Q99 3Q99 4Q99 1Q000
100
200
300
400
500
600
700
800
900
1000
Valu
e o
f In
tern
et
ventu
re d
eals
Num
ber o
f Inte
rnet v
entu
re d
eals
Up 385%vs. a year
ago
Up 385%vs. a year
ago
Consortium Industry Participants1 Aerospace Consortium Boeing, Lockheed Martin, BAE Systems, Raytheon
2 Airlines Consortium Air France, American Airlines, British Airways, Continental, Delta, United Airlines
3 AutoExchange GM, Ford, DaimlerChrylser
4 CattleinfoNet Eastern Livestock, Jordan Cattle Auction
5 CoNext Ariba, EDS
6 Consumer Products Consortium (GMA) General Mills, Heinz, Kelloggs, Nestle, P&G, Sara Lee
7 Cotton Consortium Dunavant Enterprises, Allenberg Cotton Co, Cargill's Hohenberg division, Plains Cotton Cooperative
8 Energy Consortium Royal/Dutch Shell, BP Amoco, Conoco, Dow Chemical, Equilon, Mitsubishi, Occidental Pete, Phillips Petroleum, Repsol, Statoil, Tosco, TotalFinaElf, Unocal
9 e2open.com IBM, Toshiba, Nortel Networks, Solectron, Matsushita Electric Industrial, Hitachi Electronics, Seagate Technology, LG Electronics
10 Global Transport eXchange Hutchinson Port
11 GlobalNetXchange Sears, Carrefour
12 Health Care Distributors Consortium AmeriSource Health, Cardinal Health, Fisher Scientific International, McKesson, HBOC, Owens Minor
13 Health Care Suppliers Consortium Johnson & Johnson, GE Medical Systems, Baxter International, Abbott Laboratories, Medtronic
14 Health Care Insurance Aetna, Pacific Health Care
15 High-Technology Exchange Compaq, Gateway, AMD, Hewlett Packard, Hitachi, NEC, Infineon, Quantum, Samsung, SEI Systems, Western Digital, and Solectron
16 Hospitality Consortium Hyatt, Marriott
17 Hospitality Exchange Hilton (Hilton, Doubletree, Embassy Suites, and 7 other brands)
The Empire Strikes Back Through Consortias
Consortium Industry Participants18 Hospitality Exchange Starwood Hotels & Resorts
19 iStar Exchange Toyota
20 Intellectual Property Consortium IBM, ICGE
21 MetalSpectrum Alcoa, Allegheny,North American Stainless, Olin, Reynolds, Thyssen, Vincent Metal, Atlas Ideal Metals
22 Meat and Poultry Processors IBM, Cargill, Smithfield Foods, Tyson Foods, Gold Kist, and Farmland Industries23 MyAircraft.com United Technologies, Honeywell
24 Paper Consortium International Paper, Georgia-Pacific, Wayerhauser
25 Pantellos Entergy, American Electric Poswer, Cinergy, Cosolidated Edison, Duke Energy, Edison International, FirstEnergy, FPL Group, PG&E , Public Service Enterprise Group, Reliant Energy, Sempra Energy, Southern Company, TXU, Unicom, Carolina Pwer & Light, DTE Ene
26 Petrocosm Chevron, Texaco
27 Plastics Consortium DuPont, Dow Chemical, BASF, Bayer, Ticona
28 Real Estate/Project Constellation Chase, Equity Office, Hick Muse, Jones Lang Lasalle, Kaufman & Broad, Simon Properties, Spieker, Trammell Crow
29 RetailersMarketExchange Chevron, McLane
30 Rooster.com Cargill, Dupont, Cenex Harvest Cooperative
31 Rubbernetwork.com Goodyear Tire & Rubber, Continental AG, Cooper Tire & Rubber, Groupe Michelin, Pirelli SpA, Sumitomo Rubber Industries
32 Star Alliance Air Canada, Lufthansa, Singapore Airlines, SAS and others
33 TransPlace Carriers, Hunt, Swift, US Xpress, Werner
34 Xfera France Telecom, Vodafone Airtouch (Orange PLC), Mobilcom AG, Vivendi SA
List of Announced Consortia, continued
The GoldmanSachs B2B Windmill in the Age of Consortia
How do we know that B2B will be
adopted?
B2B Is Born in the Lineage ofSoftware and Networks
Pur
chas
ing
Rec
eivi
ng
Man
ufac
turin
gE
xecu
tion
War
ehou
seM
anag
eme
nt Customer Support
Sales
Order Fulfillment
Supply Chain Mgmt
Product Life-cycle
Mgmt
Field Services
Human Resources, Legal, Administration
Budgeting, Planning, General Ledger
Accounts PayableInvoicing & Accts
Receivable
Marketing
Organization
Commerce- eProcurement (ARBA, CMRC, FMKT, PPRO, PSDI)- eSelling (BVSN, VIGN, CLIC, OMKT, ALLR, ARTG)- eFinance (CKFR, HRBC, SE, SONE)- eMarketing/Advertising (DCLK, EPNY, BBSW, MSTR)
Community- Collaboration (AGIL,PMTC)- Communication (KANA)- Support (SILK,PKSI, ASKJ)
Content (ASDV, DNB, EPNY, MSTR, BBSW)
- Marketing Information- Customer Information- Supplier Information- Product Information- Industry Information
Enterprise Connectivity- ERP (SAP, ORCL, BAANF)- Supply Chain Planning (ITWO,PCOR)- Customer Management (SEBL,SLGX, PVTL)- Financial/Human Relations (PSFT, GPSI, HYSL)- Administrative (CNQR,PSDI)- Intelligence (ACTU, BOBJ, BRYO, INFA)
e-Market
ContentCommunityCommerce
B2B Enables Small bs to Play With Big Bs
SmallBusinesses
SmallBusinesses
SmallBusinesses
SmallBusinesses
LargeBusinesses
LargeBusinesses
LargeBusinesses
LargeBusinesses
Direct 1-to-1
Technology Is The Force…It Creates Competitive Advantage By...
• Viewing the Supply Chain Clearly- Optimizing Assets
- Especially true for manufacturing intensive industries- Reducing Cycle Times and Inventory
- Build to Order --> better demand forecasting- “Information Is a Substitute for Inventory”
- Streamlining Process Costs - No more phone, fax, mail; reduced search time; process
costs can exceed product costs in some industries- Lowering Input Costs
- Dynamic pricing forces competition (auctions, reverse auctions, bid/quote, etc...)
- Better sourcing decisions (increased information)
Internetworks Are DynamicPropellers for Sale:
Sample Results of a FreeMarkets Downward Price Auction
Industry Gross Margins
24%26%
29% 29%
34%34%
43%
47%51%
55%
0%
10%
20%
30%
40%
50%
60%
Gross Margin
Paper & Forest Products
Retail
Autos
Machinery
Chemicals
High Tech Manufacturing
Financial Services
Consumer Products
Telecom
Energy
Cisco Systems Case Study:Winning With the Force of Technology
CiscoCiscoCiscoCisco
Gross Margin - 1999
Why?
64.8%• 90% of orders booked over Web
• Enhanced supply forecasting - better component pricing and availability
• Enhanced demand forecasting - rapid shift to regional demand changes
• Outsourced manufacturing (build to order)
• “Virtual Close” - updates accounting on a daily basis
Industry PeersIndustry PeersIndustry PeersIndustry Peers
47.6%• Just starting to adopt Web sales
• Longer lead times due to component shortages
• Slow to react to demand shifts
• In-house manufacturing (beginning to sell off manufacturing operations)
• Accounting updated weekly or bi-weekly
Note: Industry peers comprised of COMS, JNPR, LU and NT
Spending Categories moving on-line
Types of SpendTypes of Spend DescriptionDescription CommentsComments Current EfficiencyCurrent
Efficiency
Raw materials
Direct inputs to production processes
– Pulp for paper
– Coke for steel
Direct
Maintenance, Repair, Operations
Indirect (MRO)
Tend to be recurring purchases
Often under long term contract
Typically, vertically focused
Direct sales force involvement
– requires “hand holding”
Horizontal in nature
“Everyone needs notepads and pencils”
Permiscuous Credit
Logistics
Quality assurance
Fulfillment Services
Horizontal in nature
Often higher margin
Leisure Reading at Your Bedside!