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MANAGEMENT PERSPECTIVE Subject: Feb2001 ECMgt.com:
The More Things Change, the More They Stay the Same |
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| Management Perspective by Mitchell Levy, Author, E-Volve-or-Die.com The More Things Change, the More They Stay the Same The tried and true basics of business will be back &emdash; to remind us of the old-fashioned principles that still seem to work, even in this new Internet-enabled world. Profitability, revenues and proven processes will be key. The stock market tumble of 2000 continues into 2001, driven by the sharp wake-up call for Internet firms to show business models that have legs, rather than consuming round after round of venture funding, with no revenues - much less profitability - in sight. This should be no real surprise, as the Internet accelerates everything - at light speed - both failures and success. A number of these "corrections" made sense since many business plans couldn't float on water; however, there are a number of great companies that are currently being dragged down in the wake as the VC community turns off their spigots (i.e. money valves). In our first Top Ten Trend of 2001, we'll focus on firms that have planned, executed, and redeployed holistic Internet strategies that drive profitability and revenue, using proven processes that are extended onto the Internet, and woven on value webs. Looking at both "physical" enterprises and Internet-based firms, we will look at how "best practices" in strategy have extended proven processes to first gain market share and traction, then to generate transactions that have real value. By examining these firms (representing both B2B and B2C spaces), we will make a careful and reasoned attempt at estimating real valuation by introducing the concept of "process share", measuring success in the new digital economy. Profitability - Profitability is as much a reward as it is a strategy. No Internet firm, or e-business, chooses profitability as the first motivator. Achieving greater customer satisfaction, which leads to upsells, cross sells, and more frequent purchases, builds a more profitable relationship. Survival, as outlined in E-Volve-or-Die.com, drives e-business initiatives, but never at the risk of profitability. The careful strategy now is to extend business process that can be automated and enhanced onto the Web, and create networked relationships that lower the cost of doing business. Some of the earliest B2B exchanges have started with supply chain, automating replenishment, and creating custom views through extranets to enable more personalized service to best customers. Large manufacturers including Taiwan Semiconductor Manufacturing Corporation have extended their business processes with firms like Intel, lowering costs, inventory, and delivering product faster, all leading to higher profitability in a highly competitive field. Revenue - Here's where the big surprises are. While most small to medium B2C firms, (especially Web-only ones), were doomed from the start, the largest and most well funded have gained traction, and have seen quarter-to-quarter revenue increases. While Amazon.com and Drugstore.com are not yet profitable, they have shown that well-armed pioneers can establish brand equity. Adjustments in customer acquisition strategy, and new alliances (stay tuned), will prove that the B2C Internet is here to stay. Early market share, and a late focus towards direct marketing, will intersect the growing population of shopping-wise buyers who look to the Internet first for reliable purchases. But the B2B space is even more exciting. Two bellwether firms to watch are Ariba and CommerceOne, who went out early in the B2B exchange and e-marketplace arena. Over the past two years, both firms have doubled their revenues every quarter, and as elaborated below, they are in wide open space with a potential market a hundred times larger than today. Also gaining traction are supply chain efforts that have migrated to the Web, and fueling the rapid conversion of tried and true EDI into XML based process. Cisco and Dell are two noteworthy Fortune 5000 firms with significant Web revenues, and a commitment to sell, service, and even deliver solutions over the Web. Proven processes - eMarkets rule, because they combine with dynamic pricing, aggregation of buyers and sellers, and solid infrastructure for secure RFP/RFQ orders and transactions. Sophisticated tools for monitoring mission- critical process and logistics have enticed analyst firms IDC and Gartner to predict that 40% of the B2B economy, (almost 3 trillion dollars in transactions) will be hosted by these bastions of tried-and-true business process by 2004. E-marketplaces that represent both public and private consortiums for procurement and or sell-side include Aerospan, Boeing, General Electric, Becton, Dickinson and Company, and in logistics, nPassage and Fedex. The financial markets will not reward market share at any cost. Mark Hoffman of CommerceOne boldly stated that transactions are still the measure of success in any business valuation, and he should know. With 47 of 107 e-marketplaces online, they are a leader in what analyst firm Gartner Associates estimated would be over 1,000 total exchanges in production by 2001. We agree that market share and transactions are critical to success, but how do you reasonably measure valuation in the new e-conomy? We suggest that a new term, process share, is the best measure of success in the new B2B ecosystem. Value webs, which represent the dimensions of digital commerce, create a matrix in which a rapidly inflating community is expanding. As in any ecosystem, the measure of success is a product of total "population", and the "process share" that is garnered. The new economy can be measured by this simple rule: Processes will migrate, (for example, EDI moves to the Web), or new processes will be created, (consider mobile commerce). In either case, market leaders will be participants that stake out market share, and rapidly gain traction through more efficient transactions and strong customer affinity. It's about gaining the largest share of business process. Phone.com gained 20% process share in mobile commerce through its WAP browser, and exploded to $10 billion in market capitalization (it has since merged with software.com to form Openwave.com). Yet this only represents 1% of mobile commerce "transaction volume" expected in just four short years. CommerceOne and Ariba, doubling in revenue each quarter, have yet to crack 1% of the expected e-marketplace transaction volume. Covisint, the auto exchange built by the big three auto makers (and CommerceOne) had conducted only 100 transactions by December 2000, accounting for $350 million in traded goods, but when in full gear is estimated to move $750 billion in annual transactions; roughly 10% of the total US GDP. This should give you a sampling of "process share". We predict that the negative tone of the e-commerce commentary will shift in 2001, as the cynicism of latter 2000 changes into tempered optimism - based on proven business metrics. In the coming months, those same pessimistic analysts will begin to chronicle the real successes of emerging business-to-business (B2B) leaders. And while B2B e-commerce activity may seem the domain of early technology adopters, mainstream business soon will be rapidly deploying their e-commerce strategies, based on proven business process and demonstrated Internet technology. The healthy skepticism of the last six months served its purpose, bringing over-reaching promises of the speed and potential of Internet commerce back to reality. Internet-based e-commerce technologies do represent a significant evolution in how all business will be conducted. But just as fast cars require racing skills, the winners in the race to achieve market share, process share, and revenues with profitability, will find that sound business judgement, planning, and execution bring victory. The land grab of 1999 will resemble the gold rush of 1849, those who didn't pack for the long haul littered the path, but not the promise. We're just one month into the digital millenium - so stay tuned!
Let me leave you with a few of my favorite quotes this month: *** The
general perception of the role of the Internet in business is absurd. Like the
telephone, the Internet is a tool for business. Nothing more! As with any other
business tool, its use must contribute to the bottom line. The reason for all
the current madness is that "the tail has been allowed to wag the dog" (The basic
principles of business are being bent to fit the tool!). *** With the arrival of a new year beyond Y2K plus
the completion of another cycle of holiday eTailing, I believe some of the amorphous
fears surrounding eBusiness are begining to quiet. Emphasis in our training seminars
and in those of our many working partners is on the quality of thought, planning
and sound strategic reasoning that eBusiness--like all business-- requires. *** Now that hype is out and reality is back in fashion, technology companies, particularly in e-commerce, will find themselves under more intense scrutiny by industry analysts and the press. The analysts, in turn, will feel pressure from business customers to steer them in the right direction -- and not create or follow the fad of the moment. "So it's more important than ever
that companies have sound, differentiated strategy and positioning, and that they
know how to work effectively with industry analysts." *** I hope you enjoy this eZine. Mitchell Levy Author,
E-Volve-or-Die.com <http://e-volve-or-die.com>
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