e-marketplace status update

© 2000 Giga Information Group, Inc. All rights reserved. Reproduction or redistribution in any form without the prior written permission of Giga Information Group is expressly prohibited.

YOUR e-BUSINESS ADVISOR

Giga Information Group®

Andy BartelsVice President and Research Director

November 16, 2000

Call in at ??:?? EDT

(1) (973) 321-1020Password: ????

E-Marketplace Status Update


YOUR e-BUSINESS ADVISOR© 2000 Giga Information Group, Inc.

Agenda

Segmenting the e-marketplace space:– extranets and private e-markets vs. EDI and ETN networks

vs. public e-markets

The dynamics driving e-markets

What will win?

Recommendations for navigating an uncertain landscape



The Internet B2B E-Commerce Space

Figure 4

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

1998 1999 2000 2001 2002 2003 2004

InternetE-Markets

Extranets$611

$1020

$1,636

$2,471

$3,158

$3,697

EDI DirectOver Web

EDI viaInternet ETNs

$295

Web EDI

US Business-to-Business (B2B)Internet E-Commerce (Billions)



The EDI B2B E-Commerce Space

Figure 5

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

1998 1999 2000 2001 2002 2003 2004

EDI viaVANs

$2,984 $3,030 $3,137 $3,255$3,352$3,412

$2,908EDI DirectOver Web

EDI viaInternet ETNs

Web EDI

US Business-to-Business (B2B)EDI E-Commerce (Billions)



EDI and Internet Increasingly Overlap

EDIInternet

Extranets*Extranets*($0.5 Tril.)($0.5 Tril.)

EDI withEDI withVANsVANs

($1.4 Tril.)($1.4 Tril.)

EDI EDI ETNsETNs

($1.2 Tril.)($1.2 Tril.)

EDIEDIDirectDirect

($0.3 Tril.)($0.3 Tril.)

InternetInternetPublicPublic

E-MarketplacesE-Marketplaces($1.3 Tril.)($1.3 Tril.)

Figure 3

WebWebEDIEDI

($0.4 Tril.)($0.4 Tril.)

* Includes Private E-Marketplaces

B2B E-Commerce in 2004



What Are Internet E-Markets?

BusinessBuyers

BusinessSellers

E-Market

Internet

Extranet E-Market No. 1

E-Market No. 2

E-Market No. 3

E-Market No. 4

Net asMarket

One/Some-to-Many:

One/Some Buyer (Seller) to Many Sellers (Buyers)

Aggregator Hub

Many Sellers to One Content

Aggregator to Many Buyers

Broker HubMany Buyers to One Broker

to Many Sellers

Collaboration Hub

Many Buyers to One Source of Collab. Tools to

Many Sellers

Translator HubMany Buyers to One Translator to Many Sellers

MarketplaceMany Buyers

to Many Sellers



One-to-Many Extranets Become Some-to-Many Private E-Marketplaces

Companies with successful extranets are adding non-competing complementary suppliers to create a private e-marketplace

– Example: Dell’s order system with customers

However, some-to-many (like one-to-many) solutions are only sustainable when the one buyer or the one supplier is the 800-pound gorilla that can force counterparties to do things its way.

PrimaryBusiness

Seller

PrivateE-Market

SecondaryBusiness

SellerBusinessBuyers

Internet



True Many-to-Many Marketplaces

Lack of standards limits current availability

May emerge if buyers, sellers and vendors can get together to write the common rules for trading in an industry, e.g., RosettaNet

Internet

Standardized Order-and-ResponseFormats

Business Buyers

Business Sellers



Two Dominant Models for Hub E-Markets

Hub e-market ownership is taking two forms in public e-marketplaces.

Option No. 1New Company

Option No. 2Shared Ownership

by Incumbents

Pros

Cons

• No baggage• Nimble• Entrepreneurial

• Potential Monopoly• Profits to New Entrant• Slow to Reach Scale

• Profits to Incumbents• Control to Incumbents• Quick to Scale

• Anti-Trust Issues• Distrust by Other Incumbents• Committee delays



Half of Industry-Incumbent Hub E-Markets Will Fail

Industry-incumbent consortia can bring scale and liquidity, but can fail because of:

– Anti-trust issues– Sub-scale buyer participation – Competitor conflicts

Hub site objectives — profit vs. efficiency? Hub site scope — preserving or leveling competitive

advantages? Hub site assets — who owns IP, physical assets,

management? Hub site technology — whose favorite vendors get chosen?

– Resistance from suppliers – Premature commitment to wrong technologies



Tensions in Internet Hub E-Markets

BusinessBuyers

BusinessSellers

InternetE-Market

Internet

Buyer Objectives

1. Lower prices

2. Standardize order flow

3. Find new suppliers

4. Collaborative planning & forecasting

Market Feature

• Reverse auctions

• Aggregated catalogs

• PO and response conversion

• Aggregated catalogs

• RFP facilities

• SCM-based collaboration

Seller Objectives

1. Standardize order flow, avoid commoditization

2. Collaborative planning & forecasting

3. Find new customers

4. Move excess inventory

Market Feature

• Aggregated catalogs with punch-out to seller Web site

• CRM-based collaboration

• Supplier search w/ marketing info

• Auctions



Evolution of E-Marketplaces

E-marketplaces will move from supporting purchase transactions to more complex collaborative interactions

PurchaseTransactions

CollaborativePlanningTransactions

2000 2001 2002 2003 2004

IndustryConsortiaE-Markets

PrivateExtranet

E-Markets

NewEntrant

E-Markets



E-Marketplace Revenues

E-marketplaces today are experimenting with a variety of revenue models

Increasingly, they will coalesce around a subscription model

Today Monthly Subscription Fee

(e.g., PurchasePro)

AND/OR

Sales Commission Paid by Seller (e.g., 1%-5% for MetalSite, ChemDex)

AND/OR

Transaction and Listing Fees by Seller (e.g., PurchasePro)

AND/OR

Percent of Savings Fee by Buyer (e.g., FreeMarket)

2001 Monthly Subscription Fee

Tiered by SizeOf ParticipantAnd Service

OR

Percent of Savings Fee by Buyer

(for Reverse Auctions)



Growth in B2B Internet Commerce via Hub E-Markets

Percentage of B2BInternet commerce transactions

flowing through hub sites

1999 2000

5%

10%

15%

30%

25%

20%

40%

35%

0%

Number of transactionalhub sites

1999 2000

1,000

5,000

10,000

2001 2002

2,500

7,500

0



Large Companies Will Use Different B2B Electronic Channels

EDI/ETNs/Extranets/DirectTightly coupled, secure, often proprietary network channels for large and medium company bilateral long-term partner relations

Internet E-MarketsLoosely coupled, moderately secure Internet-based extranets, hub sites and marketplaces for more transitory partner relations for large, medium and small organizations

DistributorsOr Suppliers

Sales Or Purchases

20%

80%

DistributorsOr Suppliers

Sales Or Purchases

20%

80%



Caveat to the 80/20 Rule: Asymmetry of Strategic Relationships

Not all “strategic” relationships are strategic to both parties.

Manufacturer

> 1% of Purchases=

Non-Strategic Supplier

10% of Sales=

Strategic Customer

Retailer

In these cases, retailer will try to push manufacturer onto an e-market;manufacturer needs to find ways to keep relationship of the e-market.



B2B Commerce Will Continue to Go Through Multiple Channels

0.3% Catalog

15.5% EDI with VAN s

23% Salesforce &in store

5.8% Internet E-Markets

43% Sales force &in store influenced by Internet

1.4% Direct Marketing3.2% Internet E-Markets

5.6% EDI with Internet ETNs1.6% EDI Direct Via Web

Source: Giga Information Group Figure 2

3.1% Web EDI

US B2B Sales By Channel, 2002(Total = $12.6 Trillion)



Key Business Challenge: Managing Multiple E-Channels

Figure 1

Store

Sales Person

Telephone

Mail

EDI-VAN

Leased Line

Traditional

ProprietaryElectronic

Dial-Up

InternetElectronic

EDI-ETN

Direct EDI

Extranets

E-Markets

OrdersOrders20002000

OrdersOrders20042004

Web EDI



Conclusions and Recommendations

E-marketplaces will play an increasing role in B2B e-commerce.

Industry-consortia-owned e-marketplaces will tend to prevail over new-entrant e-markets or private extranet-based e-markets – but not always.– Will move from payment transactions to collaboration– Will be run as non-profit co-ops with subscription revenues

But e-marketplaces will be one of many channels used in B2B e-commerce.

Companies will need to have explicit e-channel management strategies — use right channel for right customer or supplier relationship.

Companies will have multiple e-channels to integrate.

e-marketplace status update

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