Business-to-Business Ecommerce Robert Chi
B 2 B EC Introduction • Introduction • Size of B 2 B • B 2 B Business Processes • B 2 B Evolution B 2 B EC - 2
B 2 B Definition • B 2 B is referring to business-to-business commerce conducted over the Internet. • The primary components of the B 2 B marketplace include e·frastructureand e·markets. • E·frastructureis essential architecture of B 2 B 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. B 2 B EC - 3
B 2 B Size CAGR: Compound Annual Growth Rate B 2 B EC - 4
B 2 B E-Commerce Revenues http: //www. radeum. com/pages/frset-3 forum_white. html t B 2 B EC - 5
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Global B 2 B Market Opportunity. That’s Thousands of Billions. B 2 B EC - 7
B 2 B e. Commerce Introduces Powerful Benefits to Both Buyers and Sellers • • Lower transaction costs Shorter purchasing cycles Improve inventory control Lower prices paid or higher price sold B 2 B EC - 8
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What Is Behind B 2 C? B 2 B EC - 10
B 2 C vs. B 2 B B 2 C B 2 B Switching Costs Low with multiple suppliers High when integrated with efrastructure few qualified ; suppliers Relationship Type Transactional Long term, mission critical Revenue Model Traffic volume is Don’t need every customer, only critical; Large customer need the right customers base is key Smaller average selling Larger average selling price B 2 B EC - 11
B 2 B Markets Are Truly Global • Multi-lingual, multi-currency • Cross-border financing, taxation, customs, regulations • Complex shipping and logistics B 2 B EC - 12
B 2 B Business Models • • • Seller-side: Direct-sell Buyer-side: e. Procurement Vertical vs. Horizontal B 2 B marketplace B 2 B consortia Case studies B 2 B EC - 13
Business Models Based on the Value Chain in the Market Place Raw material producer Exchange • Independent market operators • Consortia Manufacturer C 2 B Examples: • B 2 B: Vericalnet. com • B 2 C: Amazon. com • C 2 B: Priceline. com • C 2 C: e. Bay. com Distributor New Middleman Retailer B 2 C Consumer Service Providers: • Logistics • Financial B 2 C B 2 B EC - 14 C 2 C
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 B 2 B EC - 15
Number of Sellers and Buyers B 2 B EC - 16
Features of Various Business Models B 2 B EC - 17
Seller Side B 2 B EC - 18
First Generation Model: Sell-side Solutions • Benefits – Reduced cost of sale – Extended customer reach – Enhanced customer service Buyer Supplier Buyer • Challenges – Buyers must find individual suppliers – Supplier’s process does not match buyer’s purchasing procedures – Buying power lost B 2 B EC - 19
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Direct Sales • Selling Directly to Buyers from Own Website • Examples: Dell, Cisco B 2 B EC - 21
Dell. com B 2 B EC - 22
Dell B 2 B EC - 23
Dell • Implementing a B 2 B integration model offers a number of advantages, many of which were deciding factors in Dell’ s decision to pursue a B 2 B 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. B 2 B EC - 24
Cisco’s Business Web Source: Digital Capital B 2 B EC - 25
Cisco Systems Case Study: Winning With the Force of Technology Cisco Gross Margin Industry Peers 64. 8% 47. 6% • 90% of orders booked over Web • Just starting to adopt Web sales • Enhanced supply forecasting - better component pricing and availability • Longer lead times due to component shortages • Enhanced demand forecasting - rapid shift to regional demand changes • Outsourced manufacturing (build to order) • “Virtual Close” - updates accounting on a daily basis Note: Industry peers comprised of COMS, • Slow to react to demand shifts • In-house manufacturing (beginning to sell off manufacturing operations) • Accounting updated weekly or bi-weekly B 2 B EC - 26
Buyer-Side B 2 B EC - 27
Buy-side Solutions • Benefits – Reduced purchasing costs – Buying power is captured Supplier Buyer Supplier • Challenges – Supplier has to conform to buyer purchasing procedures – Only affordable by large companies B 2 B EC - 28
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General Purchasing Process B 2 B EC - 30
Buy-Side Solution-Enabled Purchasing Process B 2 B EC - 31
Functionality of the Marketplace B 2 B EC - 32
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The Cost Savings Created by Buy-Side Solutions B 2 B EC - 34
Division of Corporate Spending (Typical Manufacturer) B 2 B EC - 35
Buying Activities and Suitable E-Procurement Solutions B 2 B EC - 36
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Selected e. Marketplaces Powered by e. Procurement Vendors B 2 B EC - 38
Ariba. com and Ariba Network B 2 B EC - 39
Marketplace B 2 B EC - 40
Overlapping Models Address the Unique Dynamics of Each Market B 2 B EC - 41
Net Markets • • Many Buyers Many Sellers One Marketplace Examples: Chemdex, Vertical. Net, Altra Supplier Buyer NMM Supplier Buyer B 2 B EC - 42
Auction l e. Bay Approach l One Seller, Multiple Bidders l Prices Move up Only l Surplus Equipment, Inventory l Dovebid. Example www. ovebid dovebid. com d
Auction Example Dovebid • • www. ovebid dovebid. com d Used Capital Equipment Click and Mortar Spin-off Bidders– Contact Sellers; Warrantees Can Touch the Merchandise
Exchange • Nasdaq-style Bid/ask • Prices Move Up and Down • Best for Commodities, Perishables • Example: Altra Energy
Exchange Example Altra Energy www. ltra altra. com a • Natural Gas, Electricity, Crude Oil • Grand-daddy Site • Bought Energy Brokerages
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 B 2 B markets. Liquidity: The “holy grail” for every market maker, they must build a critical ma (large number) of buyers and suppliers. No much behavior change and adoptio “spark”. Going Public (if ready): Provides them with highly valued currency to quickly grow their businesses through acquisition. B 2 B EC - 49
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