Business-to-Business Ecommerce

Robert Chi

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B2B EC Introduction

• Introduction

• Size of B2B

• B2B Business Processes

• B2B Evolution

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B2B Definition• B2B is referring to business-to-business commerce

conducted over the Internet. • The primary components of the B2B marketplace include

e·frastructure and e·markets. • E·frastructure is essential architecture of B2B consisting

of: – auction solutions software, – content management software, and – Web-based commerce enablers.

• E·markets are Web sites where buyers and sellers come together to: – communicate,– exchange ideas, – advertise, – bid in auctions, – conduct transactions, and – coordinate inventory and fulfillment.

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B2B Size

CAGR: Compound Annual Growth Rate

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B2B E-Commerce Revenues

http://www.tradeum.com/pages/frset-3forum_white.html

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Global B2B Market Opportunity.

B2B On-Line Commerce Gross Revenue (USD B)

$0$500

$1,000$1,500$2,000$2,500

$3,000$3,500$4,000$4,500$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.

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B2B eCommerce Introduces Powerful Benefitsto Both Buyers and Sellers

• Lower transaction costs

• Shorter purchasing cycles

• Improve inventory control

• Lower prices paid or higher price sold

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What Is Behind B2C? B2B

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B2C vs. B2B

B2C B2B

Switching Switching CostsCosts

Low with multiple suppliers

High when integrated with e-frastructure; few qualified suppliers

Relationship Relationship TypeType

Transactional Long term, mission critical

Transaction Transaction TypeType

Smaller average selling price

Larger average selling price

Revenue Revenue ModelModel

Traffic volume is critical; Large customer base is key

Don’t need every customer, only need the right customers

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B2B Markets Are Truly Global

• Multi-lingual, multi-currency

• Cross-border financing, taxation, customs, regulations

• Complex shipping and logistics

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B2B Business Models

• Seller-side: Direct-sell

• Buyer-side: eProcurement

• Vertical vs. Horizontal

• B2B marketplace

• B2B consortia

• Case studies

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Business Models Based on the Value Chain in the Market Place

Raw material producer

Manufacturer

Distributor

Retailer

Consumer

ExchangeExchange

Examples: • B2B: Vericalnet.com• B2C: Amazon.com

• C2B: Priceline.com• C2C: eBay.com

C2B

B2C

B2C C2CNew Middleman

• Independent market operators

• Consortia

Service Providers: • Logistics• Financial

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Business Models: Multiple Dimensions

• Buy-sell direction: Buyer-side, seller side, and marketplace

• Industry covered: single vs. multiple (Vertical vs. Horizontal)

• Ownership: Buyer, seller, independent, software vendor, consortia

• Service: Core vs. extended services

• Products: Core vs. MRO; Direct vs. Indirect;

• Pricing: Fixed price, Auction, Reversed auction, negotiated

• Timing of purchase: Contact vs. spot vs. ad hoc

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Number of Sellers and Buyers

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Features of Various Business Models

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Seller Side B2B

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First Generation Model: Sell-side Solutions

• Benefits– Reduced cost of sale

– Extended customer reach

– Enhanced customer service

• Challenges– Buyers must find individual suppliers

– Supplier’s process does not match buyer’s purchasing procedures

– Buying power lost

Buyer

Buyer

Supplier

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Direct Sales

•Selling Directly to Buyers from Own Website

•Examples: Dell, Cisco

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Dell.com

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Dell

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Dell

• Implementing a B2B integration model offers a number of advantages, many of which were deciding factors in Dell’ s decision to pursue a B2B integration strategy:– Fewer errors.

– Improved customer satisfaction and support.

– Improved inventory management.

– Reduced time to market.

– Improved manufacturer-distributor coordination.

– Better outsourcing coordination.

– Improved order management.

– Tighter links with logistics providers.

– Better delivery of information required for planning and forecasting.

– Value-add for customers.

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Cisco’s Business Web

Source: Digital Capital

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Cisco Systems Case Study:Winning With the Force of Technology

CiscoCiscoCiscoCisco

Gross Margin 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

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Buyer-Side B2B

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Buyer

Supplier

Supplier

Buy-side Solutions

• Benefits– Reduced purchasing costs

– Buying power is captured

• Challenges– Supplier has to conform to buyer

purchasing procedures

– Only affordable by large companies

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General Purchasing Process

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Buy-Side Solution-Enabled Purchasing Process

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Functionality of the Marketplace

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The Cost Savings Created by Buy-Side Solutions

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Division of Corporate Spending (Typical Manufacturer)

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Buying Activities and Suitable E-Procurement Solutions

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Selected eMarketplaces Powered by eProcurement Vendors

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Ariba.com and Ariba Network

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Marketplace

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Overlapping Models Address the Unique Dynamics of Each Market

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Net Markets

• Many Buyers

• Many Sellers

• One Marketplace

• Examples: Chemdex, VerticalNet, Altra

NMM

Buyer

Buyer

Supplier

Supplier

Auction

eBay Approach

One Seller, Multiple Bidders

Prices Move up Only

Surplus Equipment, Inventory

Dovebid Example

www.dovebid.comwww.dovebid.com

DovebidDovebid www.dovebid.comwww.dovebid.com

• Used Capital Equipment

• Click and Mortar Spin-off

• Bidders– Contact Sellers; Warrantees

• Can Touch the Merchandise

Auction ExampleAuction Example

Exchange

• Nasdaq-style Bid/ask

• Prices Move Up and Down

• Best for Commodities, Perishables

• Example: Altra Energy

Exchange ExampleExchange Example

Altra Energy Altra Energy

www.altra.comwww.altra.com

• Natural Gas, Electricity, Crude Oil

• Grand-daddy Site

• Bought Energy Brokerages

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Critical Success Factors for e·markets• Sustainable Business Model• Market Size (Large addressable market size)• Industry Domain Expertise• Structural Inertia: Fragmentation and technology adoption maturity in the

industry• First Mover Advantage - “land grab”• Branding• Community Features• Technology• Blending Revenue Streams• Management Execution Hustle & Expertise• Strong Partnerships for Distribution & Logistics• Neutrality: Neutrality has quickly become the “First Commandment” of B2B

markets. • Liquidity: The “holy grail” for every market maker, they must build a critical

mass (large number) of buyers and suppliers. No much behavior change and adoption “spark”.

• Going Public (if ready): Provides them with highly valued currency to quickly grow their businesses through acquisition.