EVOLUTION OF B2B AND CRM

Business-to-Business, B2B, electronic marketplaces are an important part of the development of the New Economy. Ariba, at the forefront of B2B, states that "Ultimately, all businesses will buy on a marketplace, sell on a marketplace, host a marketplace, or be marginalized by a marketplace."

Given the incredible growth forecasts for B2B and the potential savings and efficiencies that can be realized by all types of companies, the Ariba statement may be correct. Going forward, estimates of the industry's value are in the trillions. Conservative forecasts estimate the B2B industry to be worth between $1.5 and $2tr by 2004. Many project the value to be closer to $3tr by that time - some researchers estimate the value to be over $7tr by 2004.

The B2B market has been evolving and maturing quickly to meet the demand and realize the potential. Between 1998 and 2000, 1,000 B2B sites were launched. Gartner Group predicts that there will be between 7,500 to 10,000 B2B marketplaces by 2002. With such growth though, comes the law of entropy, and the business realities of market saturation and hyper competition. AMR Research, for instance, predicts that only two or three B2B marketplaces will survive in each industry. Regardless of the number of markets in any given industry, competition - for "first mover" and other advantages - will be fierce.

Industry consortia - traditional "brick and mortar" companies - are also entering the B2B age. Most recently, America's largest utilities lead by Duke Energy, PG&E, Texas Utilities and Reliant Energy, formed a B2B market named Pantellos. The big-three automobile manufacturers, two of the world's four largest petroleum companies and America's top-two aerospace companies, have also formed major industry consortia. ERP vendors have also been making significant strategic and economic moves into the B2B space, led by Oracle and SAP.

Market and business realities have not justified high stock valuations and PE ratios and B2B stocks have been hit hard recently. Before the strong Nasdaq run May 30-June 2, eight leading B2B stocks were down an average 92% from their 52-week highs and an average 81% from their three-month highs in March 2000. These eight companies include Ariba, Commerce One, VerticalNet, Neoforma.com, SciQuest, eMerge Interactive, Ventro Corp, and FreeMarkets. Compounding financial difficulties for these firms, the average 12-month ROE for these eight was -63%. EPS in 1999 was down significantly from 1998 in several cases and EPS estimates do not view these companies breaking even in 2000-2001. Net margins continue to be poor and generally in the red.

Lack of customer loyalty, low barriers to entry into cyberspace, technological integration problems and fierce competition for first mover and other advantages, creates serious financial, operational and marketing challenges. Many B2B companies have been too quick to expand, develop technologies, win new accounts, integrate with other systems, forge strategic alliances, etc. The focus has not been on business fundamentals, or the most important stakeholder: the customer. Enter the Customer Relationship Management, CRM, software vendors.

CRM vendors make software that manages the corporate "front office", including customer relationships and the points of contact between the customer and company, such as fax and telephone. The business objective is higher revenue, higher customer acquisition rates and lower defection rates. The emergence of CRM as a competitive weapon - like the rise of B2B - is of both strategic and economic importance.International Data Corp estimates the global CRM market to grow an annual average of 35% to $90bn by 2003. Forrester Research estimates that 80% of online merchants think the CRM value proposition would be useful for their business, but only 2% had implemented such solutions.. The CRM space is lead by companies such as Siebel, Vignette, BroadVision, Kana, E.Piphany, Onyx, and FirePond, etc. Forrester Research states that poor e-service "will force online business to battle for empowered customers using quality of experience strategies... Retention replaces acquisition as the key..." In F. Reinchheld's book Loyalty Effect, it is estimated that raising the customer retention rate by 5% can increase the value of the average customer by 25%- 100%. A member of Cambridge Technology Partners states that the average company loses half its customers in a fiveyear period and that acquiring a new customer costs about five times more than retaining an existing one. CATP and other firms strongly advocate the use of a new measurement in the corporate world: lifetime value of customer, LTV.

An article written by senior executives of e-commerce software components development firm EC Cubed Inc says of B2B markets: "By blending sales force automation with customer self-service, a new generation of marketing strategy can be implemented for competitive advantage. One of the most important trends in B2B and e-Commerce going forward, will likely be a renewed emphasis on the customer and investment in CRM systems and processes. This will be an important part of e-Convergence: the theory that different economic sectors and/or different types of goods and services, will evolve to become mixed together or integrated with one another. Some of the leaders in this new B2B/CRM front include large, well-known and established companies such as Cisco Systems and Intel Corp and smaller firms such as Answermenow and Question.com."

Cisco is a world leader in Internet/call center integration, winning an award in this regard in January 2000. The Cisco Customer Interaction Suite is a family of products that enables companies to integrate their e-Commerce initiatives with customer service and IP Telephony infrastructures. This helps a firm benefit from the Internet without losing many of the benefits of personal relationships and human contact. The Cisco technology facilitates online product demonstrations, slide shows, multi-media presentations, e-mail management and audio/visual communication. Top-line improvements for a company using this type of system include longer-term customer relationships, increased loyalty and revenue enhancing opportunities such as cross selling and up selling. Clients include MCI Worldcom, Hewlett Packard and Fidelity Investments.

Cisco has also forged many strategic alliances to solidify their leadership position in this new area. The company has alliances or joint ventures with CRM vendors such as Onyx and Interact Commerce Corporation to help companies build their front office systems. Cisco also has alliances with ERP vendors JD Edwards and PeopleSoft. Cisco and PeopleSoft help clients manage the complexity of installing and integrating ERP and e-business systems. Cisco also has a deal with supply chain management specialist i2 Technologies to connect business with suppliers, customers and partners to share business planning data via the Internet. The company also has a deal with SPS Commerce with respect to the transmission of purchasing, invoicing, shipping and notification documents and information between a business and its customers, suppliers, partners, financial institutions, etc.

Cisco and Aribe also have a long-standing involvement. In 1997, Cisco - which spends about $1bn per year on operating resources, supplies, and purchases - selected Ariba as their corporate Intranet/Internet e-procurement technology vendor. In 1999, the two companies announced a strategic partnership to work together in helping firms more fully realize the business benefits of Internet integration, with a focus on e-procurement. Cisco provides the networking and communications technology - Ariba provides the B2B environment.

Another large corporation active in the area of e-Convergence is Intel, which in early April 2000 purchased privately held Picazo Communications. Picazo is an IP Telephony company that sells hardware and software, combining voicemail and call center functionality on one server. This functionality will be increasingly used in CRM applications and B2B systems to provide real-time, person-to-person interaction and assistance over the Internet. Intel is focusing on this area as a high-growth sector. The company states that it is "committed to making CT Media the centerpiece for enabling next-generation converged voice and data Internet solutions." CT Media is Intel's software platform for building advanced telecommunications servers that support IP Telephony, network communications, instant messaging, facsimile, etc.

Answermenow is a smaller company created the idea of Weberators. Similar to telephone call center support staff, a Weberator customer support employee can be accessed over the Internet via text chat boxes and streaming audio and video through Apple's QuickTime 4.0 browser plug-in.

Question.com is another smaller company making products to fill the CRM/B2B gap. It is a spin-off of Ventix Systems, which was merged with Motive Communications in January 2000. GE, Intel, Deutsche Banc and U.S. Bancorp are among the initial investors in Question.com. The company works to blend online content, community and e-commerce by connecting buyers' questions with answers. These answers come from a variety of sources: industry experts, thirdparty vendors or content providers, industry communities or discussion groups, B2B market vendors, buyers' peers, etc.

Currently, many vendors have concerns regarding selling via the B2B marketplace. The impersonal nature of B2B and e-commerce, price transparency and competition and the lack of avenues for differentiation, combine to quash the competitive advantage and success that many companies have built around loyalty, long-standing relationships, client service, quality, reputation, goodwill, etc. Question.com works to allay those fears and in the process build larger, better, B2B marketplaces.

Question.com's mission benefits both B2B buyer and seller. The buyers receive online support, content, answers to questions, self-service FAQs, expert commentary and advice, discussion groups and peer advice, information - and even ratings - on vendors. Currently, the only decision-making criterion many B2B buyers can view is the seller's bid price. A director at SAS Institute Inc. - the world's largest private software company with $900MM in sales - states that the buyer "...wants to know 'what is the supplier's performance on shipment? What is the quality of the goods they ship? What's the risk profile of this supplier?'." Question.com aims to answer these questions.

Sellers benefit because the additional information which buyers can consider allows for opportunities to differentiate - a source for developing a sustainable competitive advantage. Question.com helps vendors set up their own virtual storefront called a MicroSite, on the B2B market. Question.com's "merit-based" rating system will allow the highest quality, most serviceoriented vendors to distinguish themselves in an otherwise anonymous - and at times unreliable - marketplace. The company is also building technology to enable vendors more interaction with potential buyers, such as e-mail management and instant messaging.

These features also benefit the B2B market maker. More buyers on a site imply more vendors and vice versa. Building a functional and distinctive B2B market is the key to the critical mass necessary for survival. After all, B2B sites must differentiate themselves and struggle to build competitive advantage as well.

Another key to a B2B market's success is enhancing revenue. B2B markets must do this by expanding into higher margin, more complex, goods and services, which usually require a higher degree of customer service, consulting and advice. In addition, B2B sites can charge fees and commissions for allowing third parties, experts, industry communities, etc., to establish a presence on the site and/or sell complementary goods, services and content.

Furthermore, given the proliferation of B2B sites - the saturation in the B2B space and the race for investor capital - electronic marketplaces must be interesting, dynamic and evolving as well as functional and unique. They must become a strategically and economically important part of a company - not merely "just another" Web site or marketplace. Electronic marketplaces must not just offer simple products and low prices. They must offer information, data, content and advice needed to provide a source of competitive advantage with respect to the corporate purchasing function. Certainly, CRM/B2B technologies and strategies are a part of this strategy for B2B market survival.

CRM integration with B2B will likely be one of the important trends as electronic marketplaces grow and begin to realize the potential conceived by investors and analysts. An Ariba whitepaper states: "The primary beneficiaries of the coming B2B wave will be those who use the Web to extend, deepen and create business relationships. In the future, this may take the shape of virtual shopping malls including all of the personal, aesthetic features, etc. In the B2B space, this will mean integrating the human contact that people need - e.g., industry associations and online communities, discussion and chat groups, third-party content and expert commentary and analysis.

For more information, contact 123Jump.com Inc, 212-968-8700 or info@123jump.com or 123jump.com.