E-Marketplaces The End of the Beginning Is Near Ken Horner June 5, 2000.
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Transcript of E-Marketplaces The End of the Beginning Is Near Ken Horner June 5, 2000.
e-Marketplaces
The End of the Beginning Is Near
Ken Horner
June 5, 2000
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June 5, 2000
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Today’s Discussion
• B2B Market Overview
• e-Marketplaces Models and Transaction Mechanisms
• The Future of e-Marketplaces
• Tax and Regulatory Connections
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B2B Market Overview
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B2B: What is it and why is it important?
– B2B is about the exchange of information between organizations for the purpose of conducting commerce.
– The information exchange can occur using:
• Internet
• Private data networks
• Voice networks
• etc.
– B2B enables organizations to move toward integration of business processes across extended enterprises (collaboration) leading to substantial operational & financial improvements
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Why B2B Now?
Market leading companies havegrowth problems
Financial Incentives: Operating efficiencies,
cost savings New revenue opportunities Regulatory tax benefits
Web spending is increasing Real-time information improves supply
and demand management Internet wealth creation has been
unprecedented A lot more VC money chasing deals
Source: MSDW Internet Research
Market Factors ERP Infrastructure Investment Web Infrastructure High Bandwidth Capacity Data Storage Capability Advanced Security Technology XML provides for more intelligent
data exchanges betweenweb sites andback-end systems
Technology Factors
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B2B Market Potential
0
200
400
600
800
1,000
1,200
1,400
US$ Billions
1998 1999 2000 2001 2002 2003
B2C
B2B
• Note that B2B will far outpace B2C
• Gartner predicts B2B worldwide in 2004 to reach $7.3 trillion
Source: Deloitte Research and Forrester Research
It’s BIG and it’s growing rapidly
e-Commerce Market SizeUnited States
P P P
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1998 TodayRecentmonths
• Chemdex.com• VerticalNet.com• Plasticsnet.com• SciQuest.com• Partsbase.com• Networkoil.com
• Ariba • CommerceOne• Oracle
• Autoexchange• Sears/Carrefour/Oracle• Boeing/Oracle• Shell/CommerceOne• Chevron/Ariba• Citibank/CommerceOne• Bank Of America/Ariba
Traditional Players Enter the
e-Procurement Space
1999
e-Marketplace Momentum
A Flurry of Deals in Recent Months Demonstrate Traditional Players’ Hurried Pursuit of the e-Marketplace Opportunity
Technology Enablers Arrive
PurePlayVertical MarketsGain Momentum
ee Map of Existing B2B Digital Marketplaces
Note: As of February 2000Source: Broadview
100’
s Now
and
Mor
e To
Com
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e-Marketplaces37%
Other63%
B2B Revenues, in 2004: $7.3 trillion
Source: Gartner Group and Deloitte Research: “Online B2B Exchanges”
Opportunities in this market exist for:• e-Marketplace Hosts/Market Makers• Software Application Developers• e-Marketplace Promoters• Bandwidth and Storage Players
A Significant Portion of the Future B2B Market will be in e-Marketplaces
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e-Marketplace Models and Transaction Mechanisms
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e-Commerce Has Evolved as Technology Has Advanced
Time 1997 19981996 1999 2000
EDI Networks
Suppliers
Buyers
SSSS
B
B
B
BB
B
Information Distribution
S
B
B
BB
B
S
Website Sales
Buyer Solutions
SS
SS
B
B2B e-Marketplaces
SS
SS
B2BB
BB
B
Closed, expensive, non-scalable
Information on-line, sales off-line
Information, configuration, and Order-taking
Catalogs, procurement workflow
Aggregation of many-to-many transactions
Source: Adapted from MSDW Internet Research
Time
S
B
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e-Marketplace Models May Vary Significantly Depending Upon Market Dynamics
• Industry exchanges - vertical exchanges that manage
many-to-many relationships and focus on specific industry
needs
• Product exchanges - horizontal exchanges that manage
many-to-many relationships and focus on general needs
• Exchange Portals - marketplaces dedicated to aggregating
exchanges into a one-stop “super exchange”
• Hub-Based Exchanges - a marketplaces where large
vendors directly link to their suppliers and trading partners
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Additional B2B Trading Exchange Business Models
• Capacity Brokers – rid the industry of excess capacity; solves a problem and helps pricing; anonymous trading
• Gray Market Facilitators – for used and resold equipment away from the original manufacturer
• Collaboration Platforms – long time trading partners use the Internet for improved efficiency; pre-negotiated terms; many business processes beyond buying and selling
• Spot Buying – Emergency supplies and ad hoc needs for research
• Distributor Networks – Distributors can load balance inventory with each other; car dealer model
• Proposal Publishing – Request for proposals to initiate complex transactions in time; start of process but post contract project management continues for months
• Private Exchanges – closed communities; supply chains dominated by one anchor tenant; private sourcing networks
• Industry Community Boards – Industry meeting place; trade journal replacement; discussion forums; Web conferences
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Each of these transaction mechanisms creates a distinct market dynamic
e-Marketplace Mechanisms
Auction - provides a venue for the purchase and sale of products & services that are often one-of-a-kind, non-standard, or perishable; pricing is dynamic and competitive bidding process usually results in upward price movement
Catalog - takes content of multiple vendors, digitize the product information and provide buyers with one-stop shopping over the Internet; allows buyers to search for products more efficiently; creates value by aggregating buyers and suppliers
Reverse Auction – provides a venue for the purchase and sale of products and services; initiated by the buyer; competition among sellers results in downward price movement
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Goldman Sachs believes a typical exchange might produce the following operating results
What Do the Numbers Say?
Revenue Line Items
Auction Commissions 30%
Electronic Commerce 25%
Software Licenses 20%
Content Subscriptions 15%
Advertising 10%
Total Revenues 100%
Gross Margin by Line Item
Auction Commissions 80%
Electronic Commerce 10-15%
Software Licenses 90%
Content Subscriptions 50%
Advertising 90%
Blended Gross Margin 55%
Sales&Marketing 25%
Product Development 10%
G&A 5%
Operating Margin 10-15%Operating Margin 10-15%!
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The Future of e-Marketplaces
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If Things Go As Planned…..
• We will repeat history as it seems many people have failed to learn from it.
• Complexity will be overwhelmed by simpler solutions.
• Taxonomies or the lack thereof will limit the rate of adoption.
• The financial marketplaces and operational practices will provide good guides as to regulator roles.
Deloitte Consulting’s Crystal Ball Says That:
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Successful e-Marketplaces will Address the Following Critical Success Factors
CRITICAL SUCCESS FACTORS
CRITICAL SUCCESS FACTORS
First Mover Advantage
First Mover Advantage
User-Friendly Interface
User-Friendly Interface
Integrate to Back-end Systems
(Seamless integration)
Integrate to Back-end Systems
(Seamless integration)
Create Network Effect
(Volume and Liquidity)
Create Network Effect
(Volume and Liquidity)
Sticky Value Proposition
Sticky Value Proposition
Domain Expertise(Content and execution
capabilities)
Domain Expertise(Content and execution
capabilities)
Recipe for Success
Brand Name(Trust and execution
capabilities)
Brand Name(Trust and execution
capabilities)
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What could go wrong?
• Numerous technology platforms with still limited functionality
• No cross-industry technology and process standards exist
• Implementation time and investment are greater than expected
• Buyer and supplier readiness
• Undeveloped regulatory environment
• Largely undefined business models
Despite the “hype” there are still many obstacles to overcome
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And the “Crystal Ball” Also Says…
• Massive consolidation will follow rapid growth
– From 9000+exchanges in 3 years to several major player per industry
• “Deep” is better than “Broad” – Industry verticals have a higher
chance of success due to their more focused nature
• Regional Vs. Global Players– Initially regional markets will dominate
to avoid additional transaction complexity (currency exchange, tax and duty implications, etc.)
• Regulatory bodies will play key role on moderating the growth
– Antitrust implications of on-line markets (Auto-exchange)
– Tax implications (sales tax, custom duty, etc)
Number of e-Marketplaces
Time
2000 2002 2004 20061998
4000+ e-Markets
4000+ e-Markets
9000+ e-Markets
9000+ e-Markets
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Tax and Regulatory Connections
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e-Marketplaces Could Create Efficiencies….or Monopolies
• Federal Trade Commission and Department of Justice are looking into the Automotive Industry Exchange planned by GM, Ford, and Daimler/Chrysler
• Department of Justice and Senate Commerce Committee plan to investigate an on-line ticketing exchange funded by Delta, Continental, Northwest, United and American Airlines
Regulators are taking a closer look at some of the big e-Marketplaces
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Regulators as Moderators of e-Marketplace Growth
• Anonymity of bidders
• Limited pricing forecast to avoid signaling
• Membership rules
• Confidentiality of transaction information
• Tax and duty responsibilities (members vs. the exchange)
• Steep penalties for “cheating”
Defining the rules and the business model will accelerate the growth of e-Marketplaces
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Tax Worries – How to get ready?
• How should current rules be treated in an on-line environment?
– Intangible property ownership– Sales taxes– VAT and customs duties– Transactions classification– Operational geography
• Tax anti-deferral rules• Where is the “nexus”?
• How to ensure compliance? – Information management and reporting– Responsible parties (exchange vs. customer)– Third party roles
Preparation for the explosion of on-line B2B buying is essential
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In Conclusion…
• That shouldn’t stop you from getting involved and crafting a point of view.
• We are positioning ourselves as both facilitators and conduits for information and issues for all the parties.
• The opportunities are enormous and the impacts will be profound. We encourage you to work with us and our clients.
Chaos, turmoil, uncertainty, fear and doubt will reign for some time to come. But….
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THANKS.